Readings: MS on Indian equities, Raymond James’ Investment Strategy, GaveKal on China
- Morgan Stanley Global Strategy Bulletin: India Equity Strategy - What’s Priced In?
Our residual income model assumes that the BSE Sensex constituents will grow earnings at an annual rate of 15% over the next 12 years, and implies that the market needs to fall 12% over the coming 12 months to deliver an annual return of 13.9% (risk-free rate + 6% ERP) over the long term. If the current market level (BSE Sensex) is indeed fair value, we believe annual earnings growth needs to be higher, at about 19%, or market participants need to be prepared to accept lower annual returns of 12.6% (i.e., lower equity risk premium of 4.7%) from equities.
- Raymond James: Investment Strategy by Jeffrey Saut
. . . some of the commodities look to us like they are experiencing short-term upside blow-offs (read: price peaks) with crude oil up 5.4% last week while coffee (+9.8%), corn (+8.9%), and a number of other commodities made that 5.4% rally look tame. And the “commodity cacophony” caused the Goldman Sachs Commodity Index to tag new all-time highs, which broke the PowerShares DB Agriculture Fund (DBA/$28.77) and the Market Vectors Agribusiness (MOO/$44.55) shares out to the upside in the charts.
- GaveKal, via Mauldin’s Outside The Box: Do Not Forget About Changes in Velocity
Following the recent central bank actions in the US, Europe and the UK, most commentators seem to expect a sharp acceleration of either inflation, economic activity, or asset prices (or all three). As a result, gold is making new highs, the US$ is plunging to new depths, etc…. But aren’t the recent buyers of gold focusing solely on likely changes in the money supply (M), while forgetting why central banks are set to dump money into the system in the first place? Isn’t the reason behind the loosening of monetary policies the fact that the velocity of money (V) has been plummeting?
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