From The Zico Files : Year Of The Trojan Horse
It is always a breath of fresh air to speak to a macro equity person like Zico and glean a little of the spectrum of his global perspectives.
He was unusually subdued this time. For Zico, like all the other equity fund managers out there, is 99% optimist and just 1% not but never the pessimist. This time he was talking about the slew of pretty poor earnings we are seeing, fault lines and fall outs. A far cry from the triumphant cheer leader for Tencent (700 HK) just 3 months back and his superb acumen for spotting that stock from 50 bucks (to its HKD 524 today) just as my banker sent me a Buy report for the stock at its current highs to target 604.
I sensed something amiss for I have been programmed to expect nothing but healthy optimism when I talk to equity fund managers, especially those of Zico’s stature, in the global macro space that he comes from and a little less from the Asian chaps who tend to be secretive about their trades given the small size of the markets here unless, of course, when it was time to sell.
Zico’s big question is this, why would anybody want to buy Asian equities right now ? The chance of a Chinese fall out is growing by the day especially now with the fate of shadow banking investment products hanging in the air. http://www.bloomberg.com/news/2014-01-20/china-should-allow-wealth-product-defaults-deutsche-bank-says.html
Asia does not make sense to him as he pointed out that the markets are too quick to forgive India, Thailand, Philippines and Indonesia.
Nonetheless he still sees a 15-20% upside for global stocks this year led by Europe and the US. There is a high risk of a fall out in the first half which he sees as buying opportunity and even Tencent shall not be be spared if China succumbs. If things so as planned, the rally will return in the second half for his targets to be hit.
He values a stock based on price to book, expected earnings and sustainability and dividends. His view is the stock price of Tencent is there for a reason and it is how we view it, whether we want to compare it to its HKD 237 low last year, or we want to look at its capabilities for its future.
Yet the current state of equity earnings in general are proving to be headwinds to a further rally.
And thus, we have a Trojan horse coming at us, keeping the market in temporary lull before an exodus to come, which is highly likely in the months ahead with global investors most bullish since 2009 and animals spirits continue to enthrall.
Bloomberg : Global Investors Most Bullish Since 2009
Bloomberg : Investor Animal Spirits Spread to Companies Worldwide
Because what triggers a correction ?
But it starts somewhere here and like this.
Straits Times : Singapore Investors Less Gung Ho On Stock Market
Bloomberg : China IPOs No Lure as Investors Empty Trading Accounts
And Zico will be waiting at the sides for this one.