Sunday, October 06, 2024

Dozens of world share markets are hitting new highs - the myth of the Magnificent-7

3 Apr 2024 6 month(s) ago

Probably the most wide-spread and misleading myth in the chattering financial media these days is that the ‘Magnificent Seven’ US tech stocks are doing all of the work in lifting the overall global share market.

If you are not in the Magnificent-7, you are missing out!

This is not the case at all.

The fact is that it’s not just the Mag-7, and it’s not just the US share market hitting new highs. There are dozens of share markets hitting new highs all around the world.

Want proof? Here they are:

Out of the 60+ share markets that I track, 33 of them are hitting new highs. There are probably more that I don’t cover.

Is it all ‘A.I.’ frenzy?

Certainly, for chip-makers like Nvidia and big A.I. users riding the A.I. wave, but that is not what is driving up stock markets around the world that have nothing to do with A.I.

In fact, if the US ‘A.I.’ giants are supposedly going to take over the world and destroy companies everywhere to feed their explosive growth that might justify their astronomical pricing, then why are investors everywhere jumping in to buy shares in thousands of companies across all industry sectors in dozens of far-flung countries around the world?

Dreams of imminent rate cuts

What is driving the current world-wide share market boom is collective confidence that inflation, in the US in particular, has been solved without any economic pain, allowing interest rates to be cut back soon and significantly.

For an update on inflation and the prospects for rate cuts – see:

·      March 2024 Snapshot - Fed + RBA warn inflation not yet contained, but shares keep surging

In a nutshell, the Fed is still having a bet each way – concerned about inflation remaining above target due to entrenched wage inflation and strong economic growth (and now rising oil prices), but it is still talking about cutting rates this year.

Probably, investors globally have over-estimated the speed and quantum of the reductions in inflation and interest rates.

New highs

Meanwhile, while the collective confidence lasts, share markets were hitting new highs all around the world.

For some countries – like the US, UK, Sweden, Denmark, Brazil, Taiwan, Latvia, and others - their new highs are beating previous highs set at the start of 2022 at the top of the Covid stimulus boom before the savage sell-offs during 2022 that were triggered by aggressive interest rate hikes.

Australia is one of these countries. Our broad index, the ‘All Ordinaries’, finally broke through 8,000 for the first time ever in March, beating its January 2022 high. 

Other countries are only now recovering their pre-GFC highs set some seventeen years ago – like France, Ireland, Portugal, Peru. Seventeen years is a long time to recover for people who bought in the pre-GFC boom.  (Who buys in a boom? We get to that in a moment.)

Japan’s record for longest recovery

Japan (top right corner) holds the record for the longest time between drinks (share market highs) – 34 years. Japan’s Nikkei index hit 40,000 in late March, finally beating the previous peak set on the last day of December 1989, before Japan’s asset price bubble burst through the 1990s.

Hyperinflation

Our list of national share markets hitting new highs includes some countries experiencing hyperinflation. On the bottom row we have Venezuela, Argentina, and Turkey.

(Yes, the vertical axis for the price index for Venezuela does run up to 40,000 trillion (or 40 quadrillion I think) – adjusted for several index reconstructions over the years.)

In hyper-inflating countries, share prices are soaring in their local currencies as their currencies rapidly lose purchasing power.

I include them here because they illustrate the fact that businesses, whether owned wholly or partially via ‘shares’, are ‘real assets’ that have varying degrees of protection against inflation, whereas holding cash, bank deposits, or bonds do not.

Even in ‘low inflation’ countries like Australia and the US, shares have historically been the most effective hedges against inflation, superior to cash, bonds, real estate, and even precious metals. Inflation protection through diversified shares is especially important in hyperinflating countries. The risks in hyperinflation countries are usually more fundamental – including civil unrest and capricious confiscation of assets.

(Note that for this exercise I use share market pricing in the ‘local currency’ of each country, to reflect the experience of local investors in each country, looking at what happens to the price of their shares on their portfolio statements and in their local news media. Calculating ‘real’ (inflation-adjusted) returns, or ‘total; returns (including re-invested dividends), or returns for foreign investors, including adjustments for foreign exchange and hedging – these are all valid issues, but that's another story for another day.)

The others?

These are the 33 countries hitting new share market highs. That leaves around 30 other countries around the world that are not. 

Some of those share markets are soaring but still behind previous highs – like Italy, Spain, Greece, Slovenia, Croatia, Czech Repulic, South Africa, Saudia Arabia.

Other markets are still nursing headaches from the Covid stimulus party – including New Zealand, Switzerland, South Korea, Belgium, Slovakia, and Estonia. 

Other markets are having real shockers – like China, Hong Kong, Malaysia, Philippines, Colombia, and Kenya – each for their own particular reasons.

One lesson is that it is dangerous to just accept the academic textbook approach of just buying a diversified basket of shares in your own country and simply waiting for ‘time-in-the-market’ to do its work. In the real world, it depends entirely on what particular market you happen to be in, and what boom-bust stage it is in.

How does your country rate? Look out for my upcoming story on the ‘other markets’.

Are share markets over-priced?

Share market booms are great – while they last. The problem is - the longer and higher the boom, the more likely, and deeper the crash when it arrives.

Unfortunately, the longer and higher the boom, the more they lure in cautious investors who have been holding back but finally take the plunge (because everyone else is doing it), usually at or near the top before the boom turns to bust. Timing is everything!

For a run-down of how expensive or cheap the major share markets are – see:

 

The largest share market of all, the US, is also the most over-priced, and most vulnerable to a fall (when, not if). For a deeper dive into the US share market and whether it is over-priced, see: 

 

Meanwhile, the band plays on. . .

‘Till next time – happy investing!

Thank you for your time – please send me feedback and/or ideas for future editions!

 

Ashley Owen

 

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Director/Principal, Owen Analytics Pty Ltd (current)

Investment Markets Research & Analytics, Portfolio Construction & Management, Corporate Finance, Venture Capital, M&A, and IPOs. Investment Committee membership, consulting to advice firms and financial institutions.

Co-founder & Regular Contributor, Firstlinks (current)

Co-founder of Australia's leading investment and superannuation newsletter and website for industry professionals and investors.

Non-exec Director, Third Link Investment Managers (current)

Leading Australian equities fund-of-funds that donates all management fees to Australian charities. The fund has donated in excess of $21m to a range of Australian chartities since inception in 2008. 

Chief Investment Officer, Stanford Brown (past)

Responsible for managing over $2 billion AUM in multi-asset class portfolios and discretionary accounts at a privately-owned advice practice.

Director & Joint CEO at Philo Capital Advisers Pty Ltd (past)

Specialises in investment portfolio construction & management, multi-asset class asset allocation, and global macro strategies.

Check out my full bio here

 

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