STOCKTAKEDESPITE RECENT gains, European stocks are trading at a four-decade low relative to US valuations. That's according to Mark Luschini of Janney Montgomery Scott who said investors should not ignore a "generational opportunity" to buy dirt-cheap European stocks.
Value investing titan Jeremy Grantham agreed that euro zone equities were “particularly” attractive, but he was less urgent. “We anticipate taking advantage of these low valuations in the coming months but slowly, as the ride will be uneven and we believe will likely present multiple entry points,” Grantham said.
“Uneven” and “multiple entry points” suggest 2012 lows may yet be revisited. With European firms deriving more than 60 per cent of their sales internationally, though, it’s easy to see why value investors expect such companies to reward them in the long-term.
Earnings analysis of ‘lower quality’
WE NOTED last week that US companies have beaten consensus earnings estimates for 56 consecutive quarters.
Far from improving their accuracy, this quarter’s analyst estimates “may be lower quality than normal”, notes Bank of America’s Savita Subramanian. The dispersion of earnings estimates is “near all-time lows” and this “herding” is likely a consequence of analysts opting to play it safe.
Irked investors might prefer Estimize.com, a young website that allows market participants to provide earnings estimates. So far in 2012, the Estimize community has beaten Wall Street estimates two-thirds of the time when at least four estimates are given. When more than 20 estimates are given, Estimize's average wins out on more than three-quarters of occasions.
Bank on further industry scandal
“CAN THE banking industry make it 24 hours without a new scandal?” asked market blogger Barry Ritholtz last week.
In 10 days, said Ritholtz, there had been the Libor scandal; the arrest of Peregrine Financial’s chief executive after $215 million (€177 million) of customer money went missing; the mispricing of credit default swaps at JP Morgan, leading to an earnings restatement and a criminal probe; the discovery that top regulators were aware in 2008 that banks were rigging Libor, and accusations that HSBC ignored warnings it was being used by money-launderers and potential terrorist financiers.
Don’t expect the scandals to wane. Sweden, Japan, Singapore and South Korea have announced investigations into domestic rate-rigging. Last week, analysts at KBW estimated Libor manipulation would cost banks $35 billion in civil damages.
Profit warnings rise in Hong Kong
WHILE MOST indices have enjoyed decent gains since early June, the Shanghai Composite Index last week hit another 2012 low, and is now 38 per cent below its 2009 high. In Hong Kong, the Hang Seng has had a less torrid time, enjoying moderate gains in 2012 and spending most of the last three years in a trading range. But Credit Suisse research shows profit warnings issued by Hong Kong firms are closing in on levels reached at the peak of the 2008-2009 financial crisis.
There have been 225 profit warnings since April, more than double the number recorded 12 months previously. The last two weeks have seen 49 warnings.
Bulls in minority so it’s time to invest
THURSDAY’S American Association of Individual Investors (AAII) poll showed bullish sentiment has plunged to just 22 per cent, its lowest level since August 2010. It augurs well for returns over the next month, according to Bespoke Investment Group, which found just 11 weekly readings below 25 per cent over the last three years. In the month following such readings, the SP 500 has averaged gains of 4.96 per cent, rising on every occasion.
