Zico's 2015 Equities Outlook
It’s that time of the year when it is always fashionable to review and look forward at the start of a calendar year. It is as if there is a “reset” button.While it is never wise to make specific predictions about the future, looking back may provide some pointers at what the trends that are likely to continue.
Looking back the best hindsight strategy was to be in US stocks, Chinese stocks and the Indian stock market. The EM investment story literally faded away. Despite the strong gains for China and India, the emerging markets as a group was down 2% and underperformed the developed markets by 7% and the US by 15%. Geopolitical events and the collapse in the price of crude oil just made it worse for many the oil & commodity dependent economies in the emerging markets. Dispersion and stock selection was a big determinant of investment performance.
US stocks did well and continued its uptrend because of the strength of the US economy and this was accompanied by the strengthening US dollar. US bonds or more specifically Treasuries weaken on theback of expectations that the strength in the economy will lead to a reversal in interest rates which have languishing at record lows. M&A especially in the tech and biotech sectors boosted stock valuations The record valuations of the listing of Chinese e-commerce company Alibaba “threaten” to mark the market’s high. But that was not to be and the Dow and the S&P continued to power on.
While US stocks did well because of the strong economic growth, the Chinese stocks listed in Shanghai and those list in HK did well in spite of the lower economic growth forecasts embedded in investors’ expectations. The Shanghai – HK Stock Connect was the “excuse” or catalyst. More importantly the strength of the Chinese stocks reflect the strength of the demand for stocks from the domestic investors. Unlike the US the expectation among investors is for lower interest rates in the months ahead.
The Indian stock market was also another on the tear in 2014. The rally was fueled by the expectations of much needed structual reforms that the new government under PM Modi will bring. Investors still appear positive, and the companies will be expected to deliver on the earnings. Going forward there is a risk of the government not delivering on its promises of reform. For now investors still look the government to deliver. In any case, the best route for individual investors is through funds and ETFs.
Essentially I expect the trends in the US and Chinese markets to continue into 2015, i.e. the broad indexes going higher. Dispersion of returns in these markets could remain high. So selecting the right stocks will be key. And taking profits must be the DNA of the strategy in 2015.
A Bit About Zico
Zico is our in house equity consultant who is currently a private fund manager with more than a fair share awards in the course of his illustrious career.
Having managed both global and also regional themed equity portfolios, he specialises in stock picking that maximises returns for his various absolute return portfolios.