20130926-富瑞金融香港公司-Global_Equity_Strategy_Global__Inflatable_PEs,_Jesse_Livermore_and_Reading_the_Tape_17页_617kb

Global Equity Strategy Summary

Core Content

This document outlines the state of global equity markets as of late September 2013, emphasizing the influx of capital into equities, the role of M&A activity, and the valuation dynamics across global listed exchanges. It also touches on the broader context of market sentiment, liquidity, and the impact of central bank policies.

Main Points

• Market Inflows: Global equities recorded a significant net inflow of US $26 billion during the week of 12 to 18th September 2013, the largest weekly inflow since 2000. This was almost double the previous week’s inflow of US $14 billion.

• Market Dynamics:

  • Despite strong inflows, equity markets have struggled to advance due to increased capital raising and reduced market velocity.
  • The equity market breadth has expanded over the past quarter, but the number of new highs has not advanced, indicating a lack of broad-based momentum.
  • Share buybacks, which had previously supported the US equity market, have been overtaken by capital raisings, which now dominate the market's capital flow.

• M&A Activity: The US equity market has seen a rise in M&A activity, contributing to the increased demand for equities. However, the M&A premium has not yet reached excessive levels, indicating room for further growth.

• Liquidity and Central Banks:

  • Central banks are still providing excess liquidity relative to economic growth, leading to an inflationary pressure on the 'P' (price) relative to 'E' (earnings).
  • Markets will only start to choke when bond yields reflect US real interest rates well above 1%.

• Global Market Cap and Velocity:

  • Global market capitalization has almost returned to pre-GFC levels.
  • Market turnover to market cap (velocity) remains near a five-year low, suggesting weak trading activity despite strong inflows.

• ETF vs. Mutual Fund Flows:

  • ETF inflows have consistently outperformed mutual fund inflows into global equities.
  • A large portion of the equity inflows has come at the expense of mutual funds.

• Valuation Trends:

  • Over the past year, 75% of the global markets have seen an increase in the PE multiple.
  • In two out of three cases, forward earnings have fallen while the forward PE multiple has risen, indicating potential overvaluation in some markets.

• Key Exchanges:

  • The document highlights the performance of several global listed exchanges, including ASX, Bursa Malaysia, CBOE, CME, and others, showing varying levels of performance and valuation indicators.

Key Information

• Global Equity Inflows: The week of 12–18 September 2013 saw the largest weekly inflow since 2000, with US $26 billion flowing into global equities.

• M&A and Capital Raising: Increased M&A and capital restructuring pressures from activist shareholders have contributed to the equity market's demand, but the market has not yet seen excessive premiums in M&A activity.

• Market Breadth and Turnover: Market breadth has expanded, but trading volumes have remained weak. This suggests that while more stocks are participating, the overall market activity is still low.

• Valuation Metrics:

  • Forward earnings have fallen in many markets, but the PE multiple has increased.
  • The document uses various valuation indicators such as FCFY, PB, ROE, and Dupont analysis to assess the financial health of exchanges.

• Exchange Performance:

  • ASX AU: YTD return of 6,325, with a forward PE increase of 16.7%.
  • BURSA MK: YTD return of 1,242, with a forward PE increase of 10.54%.
  • CBOE US: YTD return of 3,960, with a forward PE increase of 11.09%.
  • CME US: YTD return of 24,413, with a forward PE increase of 4.8%.
  • DB1 GR: YTD return of 14,484, with a forward PE increase of 19.9%.
  • 388 HK: YTD return of 19,035, with a forward PE increase of 21.5%.
  • ICE US: YTD return of 13,162, with a forward PE increase of 10.0%.
  • 8697 JP: YTD return of 6,277, with a forward PE increase of 13.7%.
  • LSE LN: YTD return of 6,830, with a forward PE increase of 11.5%.
  • MCX IN: YTD return of 355, with a forward PE increase of 46.4%.
  • NDAQ US: YTD return of 5,385, with a forward PE increase of 10.0%.
  • NYX US: YTD return of 10,176, with a forward PE increase of 11.5%.
  • NZX NZ: YTD return of 271, with a forward PE increase of 21.8%.
  • PSE PM: YTD return of 523, with a forward PE increase of 54.5%.
  • SGX SP: YTD return of 6,443, with a forward PE increase of 47.0%.

• Valuation Metrics:

  • FCFY (Free Cash Flow Yield): Ranges from 1.9% to 17.4% across exchanges.
  • PB (Price-to-Book Ratio): Ranges from 1.0 to 14.6.
  • ROE (Return on Equity): Ranges from 2.0% to 43.3%.

• Rating System:

  • Buy: Expected total return of 15% or more.
  • Hold: Expected total return of plus or minus 15%.
  • Underperform: Expected total return of minus 10% or more.
  • NR: Rating and price target suspended.
  • CS: Coverage suspended.
  • NC: Not covered.
  • Restricted: Certain communication restrictions apply.
  • Monitor: No financial projections or opinions are provided.

Conclusion

The global equity market has seen significant inflows, driven by increased M&A activity and capital restructuring, but has struggled to advance due to weak trading volumes and the dominance of capital raisings over buybacks. The document recommends monitoring the performance of global listed exchanges as a hedge against market sentiment shifts. Valuation metrics show that many markets are overvalued, with PE multiples rising despite falling forward earnings. The impact of central bank liquidity remains a key factor, and the market may choke when real interest rates surpass 1%.