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Just about all equity funds are up year to date. To be precise, when I go into the fund selector and look at all equity funds, there are only a grand total of 3 funds which are down year-to-date (updated on 17 Feb 2012). Thus, safe to say, unless you happened to have these 3 funds and nothing else, and as long as you held an equity fund from 1 January until now, those funds would have risen. The increases ranged to as high as 34.17% for the HGIF Indian Equity Fund. The average year-to-date return of all the funds, based on the fund selector is 9.65%. This is a very good start to the year.
At this point though, I would have to first caution that the market does not go up in one straight line, and we will not see our funds go up 10% every one and a half months. There will be some corrections along the way. I am confident though that from here on, even if we run into corrections, they will be brief and relatively minor. I expect a much more general uptrend for most markets from here onwards.
Does this mean that Europe has solved its problems, and there will be no other concerns from now on? Far from it, but it is precisely that we are not quite totally out of the woods yet which makes me confident that there is more upside on the way. Markets have not quite gone into a total “bull run” mood yet. This is also reflected by valuations which remain quite cheap. If we are truly in a bull run, valuations should be much higher. The fact is that many people remain cautious. But that is perfectly fine. It’s those who dare to go in now who will be rewarded if the market trends upwards later. You can’t wait until everyone is shouting buy, and when there seems to be no more problems to worry about.
Rather than looking at it that many markets have gone up 10% (some even more), I would prefer to look at it as that markets have gone up only 10% at this stage. If we are in for a bull run, then 10% is really nothing at all. Since when has a 10% rise in market ever been called a bull run? At this point, the STI is at around the 3000 point mark. It seems just yesterday that it was around 2700. However, only just last year, it reached 3300 points. A true bull run can easily see markets move up 30 to 50% or even more.
We are overdue for a bull run now. Markets have been worrying about Europe for close to 2 years by now (The start of Greece’s problems was back in 2010). Along the way, throw in worries about US double-dip recessions and inflation in Asia, China’s hard landing, all of which were also things investors worried about in 2010 as well. 2 years is a long time to harp over some of these concerns. Especially when it looks quite clear that the US economy is now back on track for growth. US companies have in fact taken the opportunity when their currency was falling to become much more competitive. Just look at General Motors for example. It went into bankruptcy in 2009, but now two years later, it just reported record profits last year, and has taken back the title of the world’s biggest automaker from Toyota.
US companies are now lean and mean and when I look at overall earnings growth expectations, they have a higher 2012 earnings growth than even Asia. Our research estimates that earnings growth for Asia ex Japan in 2012 will be 6.7%, but for the US, its 12.3%, which is almost double! And many US companies have been beating earnings estimates, which these average numbers are broadly based on.
In the short term though, currently it appears that the markets, and hence funds which were down the most last year are now seeing some of the strongest gains. Last year, India was one of the worst performing markets, with the India Sensex down a huge 35.9%. This year so far, India equity funds are leading the charge to the top gainers charts. Similarly, emerging market equities were hit particularly badly last year, worse than Europe markets. This year though, they are the strongest gainers so far.
Again, as I mentioned before, some concerns are not going to go away. Greece and Europe’s debt problems for example, are far from solved. However, markets, companies, and central banks all over the world have had 2 years now to adjust to what is happening in Europe and in Greece. Even if Greece is kicked out of the EU now and defaults on its debt obligations, I believe the contagion effect that people are so afraid of will be contained. In the meantime, life goes on and we can’t ignore that the rest of the world is picking themselves off their feet and shouldering on.
I am going into markets with both eyes open. I don’t expect the current run to last forever. There will be some corrections at some stage. However, I do believe that a much more sustained uptrend over the next 2 years is going to be there. So, I am in no hurry to sell. Perhaps at some stage in future, if markets have moved up even further, I might take some profit from the equity funds I am holding and shift some back into bond funds. But now is not yet the time. This bull run has legs and will continue, if there are some corrections, I will add more if able at this point.
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