Since I cover stocks in these markets, I decided to take a closer look at their fundamentals and stock markets. I picked these countries because they have large, liquid markets, and offer exposures to different regions with different growth prospects. I believe that developed markets have entered a stage of deleveraging and their growth will be slow in the coming decade. On the other hand, developing markets (BRICs, Southeast Asia) have low debt levels, young populations and rapidly developing infrastructure. That's why I think they will capture a larger share of world's wealth in the coming years.
Let's have a look at their growth, inflation and debt levels:
Let's have a look at their growth, inflation and debt levels:
Source: tradingeconomics.com
India wins the race with highest real GDP growth at 4.6%. Although it has slowed down significantly from the past couple of years, economists are forecasting a rise of 5.4% for 2014. Second in line is UK, which registered the highest growth rate since the financial crisis in 2008. Looks like the government's mix of austerity and pro-growth policies is finally starting to work. Hong Kong and United States are both growing slower than 2010-2011. However, Hong Kong is the only country from the list that maintains a budget surplus of 0.6% of GDP.
Source: tradingeconomics.com
Again, India stands out as the only country where government debt levels have decreased after the financial meltdown of 2008. The largest increase was recorded in UK, where the ratio rose by 132%, helped by a decreasing GDP and skyrocketing debt levels. Both UK and US had to spent significant amounts of money to save the failing banking sector. Hong Kong survived the crisis in relatively good condition, with real estate prices and foreign exchange reserves far exceeding pre-crisis levels. The debt problems in UK, US and other developed countries are not yet solved and will take several years to unwind.
How about the stock markets in these countries, are they a good investments at this point?
How about the stock markets in these countries, are they a good investments at this point?
Source: world-exchanges.org
Market Cap to GDP has become a popular value measurement in recent years, thanks to Warren Buffett. Back in 2001 he remarked in a Fortune Magazine interview that "it is probably the best single measure of where valuations stand at any given moment."The market cap to GDP ratios are as follows: USA 147%, UK 165%, Hong Kong 1100%, India 82%. Hong Kong numbers are distorted, because a large number of businesses actually operate in Mainland China, so it doesn't give an accurate picture. India is the only country that still looks relatively undervalued. It's stock markets (NSE and BSE) also have the largest number of listed companies among the major exchanges.
To summarize, UK and US stock markets might be a bit overvalued at this point, given their debt levels, growth prospects and general market valuations. That's why I'm actively looking for short candidates in these regions. Hong Kong will do fine and still offers plenty of opportunities for the astute investor. India has it's problems, but there are hopes that the new government Narendra Modi might turn it around and restore it's growth to previous levels. Also, based on macroeconomic fundamentls, the country still looks healthier than the UK and US.
To summarize, UK and US stock markets might be a bit overvalued at this point, given their debt levels, growth prospects and general market valuations. That's why I'm actively looking for short candidates in these regions. Hong Kong will do fine and still offers plenty of opportunities for the astute investor. India has it's problems, but there are hopes that the new government Narendra Modi might turn it around and restore it's growth to previous levels. Also, based on macroeconomic fundamentls, the country still looks healthier than the UK and US.
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