Up 26.5% in 3 months as Markets Crash

by | Jan 17, 2012 | Archives

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The data below shows how and why a good value major market was up 26.5% in a year when most stock markets crashed.

See the Global Major Market Values Update as of January 1, 2012 below.


First see the major market in the euro that has skyrocketed up because it had dropped so far below reason that it offered incredible value.

The euro. Can it survive?

Excerpts from a recent article in the Financial Times question the ability of the euro to survive.  The article entitled “S&P downgrades France and Austria” by Gerrit Wiesmann in Berlin, Peter Spiegel in Brussels and Robin Wigglesworth in London says:  The eurozone debt crisis returned with a vengeance on Friday as Standard & Poor’s, the credit rating agency, downgraded France and Austria – two of the currency zone’s six triple A rated countries – as well as seven nations not in that top tier, among them Italy and Spain.

This is bad news for the euro and global economy but this is not the worst of it.  The article went on to point out:  S&P, also gave 14 of 16 countries – including France, Italy and Spain – a negative outlook, which means there is a one-in-three chance for each country of a further downgrade this year or next.

The agency downgraded France and Austria by one notch to double A plus, while it cut Italy Spain and Portugal by two notches. Portugal has now been relegated to “junk” status by the three main rating agencies following similar actions by Moody’s in July and Fitch in November. Ireland held its rating.

The downgrades reignited fears about the fiscal sustainability of the eurozone and the knock-on effect on its rescue fund, which could now lose its own triple A rating, reducing its firepower or forcing eurozone nations to increase contributions yet again.

The really bad news is that a day later S&P downgraded the eurozone bail-out fund.   This means that the eurozone’s bail-out fund without a AAA credit rating, will have a harder time containing the euro debt crisis.   The cost of holding the euro together will rise.

Deeply profound problems like this will keep economic markets in turmoil for some time.   This turmoil however makes finding value more important than ever before.

The way value can surprise us with a 26.5% jump is shown below.

Here is an update on the values of major stock markets by Keppler Asset Management.

Fwd: keppler

Michael Keppler

The global economy is in tension.  US and Western European economies are both being forced to face up to debt, aging populations and huge unfunded future obligations in pensions, medical care and who knows what, amid a disintegrating, global social cohesion evidenced by terrorism… revolution and internal strife such as the bombing and killing in Norway.   

Huge losses will occur as the dollar and euro, or whatever currency format emerges in Europe,  lose purchasing power.

The best way to protect against these losses is by always seeking value.

Understanding value is the tricky part because in these difficult times investors ALWAYS overestimate the risk and create extra value.

This is why the bad boy of European markets last quarter made investors a cool 26.5% n just three months.

This is also why once a quarter we look at a major equity market valuation analysis by Michael Keppler.

If you are a new multi currency subscriber learn about Keppler Asset Management here.

Here are Keppler’s Comments on Major Market Value for the last quarter to January 1, 2012.

Recent Developments & Outlook

Global Equities had reached their 2011 high in April and after that declined for five consecutive months before recovering again in the last three months. The Morgan Stanley Capital International (MSCI) World Total Return Index (with net dividends reinvested, December 1969 = 100) finished the year up 7.8 % in the fourth quarter),  (+7.6 % in US dollars and up +11.2 % in euro).

In 2011, the MSCI World Index declined 5.5 % both in local currencies and in US dollars and 2.4 % in Euros.

The Euro lost 3.2 % versus the US dollar both in the last quarter and in 2011. It finished the year at 1.2982 (USD/EUR) — 3.2 % below its year-end 2010 level of 1.3416.

Eighteen markets advanced in the final quarter 2011, six markets declined.

Ireland had the highest return (+26.5 %), followed by Denmark (+11.8 %) and the US (+11.5 %).

Greece (-25.1 %), Portugal (-6.5 %) and New Zealand (-4.2 %) performed worst last quarter.

The best performing markets in 2011 were Ireland (+17.5 %), New Zealand (+5.7 %) and the US (+1.4 %).

Greece (-61.5 %), Austria (-34.3 %) and Finland (-29.6 %) were last year’s worst performing markets. Performance is shown in local currencies, unless mentioned otherwise.

Fundamentals have improved remarkably in 2011 moving in the opposite direction of stock prices: Compared with their end of 2010 levels, book values, 12-month trailing earnings and dividends of the Equally Weighted World Index grew by 9.1 %, 9.3 % and 19.1 %, respectively, last year. In addition, opportunity costs — i.e. the low interest rate environment — continue to make stocks look attractive.

There were no changes in our performance ratings last quarter.

The Top Value Model Portfolio holds the six “Buy”-rated markets Austria, France, Germany, Italy, Japan and Norway at equal weights.

According to our analyses, a combination of these markets offers the highest expectation of long-term risk-adjusted performance.

The table below shows how the Major Markets Top Value Model Portfolio compares to the MSCI World Index, the MSCI Europe Index and the MSCI US Index at the beginning of 2012 based on selected variables. To demonstrate the current attractiveness of global equities in general, we also show the key variables of the MSCI World Index as of December 31, 1999, when the MSCI World Index reached its all time-high both in price and in terms of valuation. Compared with those levels, the MSCI World Index is now 59.2 percent cheaper. This explains to a large extent why the developed markets had been a loser in the first decade of the new millennium.


Based on their current valuation levels, I believe that the second decade should turn out just fine for global equities in general and better yet for the Major Markets

Which portfolio would you rather have? While nobody in a MSCI World Index at the valuation levels experienced at the end of the last millennium, global equity investors should ask themselves what makes more sense today:

* invest in US equities at a premium of 64 % compared to the MSCI Europe Index,

* invest in the MSCI World Index at a premium of 31 % compared to the MSCI Europe Index, or

* invest in the Top Value Markets at a discount of 10 % compared to the MSCI Europe Index.

Our implicit three-to-five-year projection for the compound annual total return of the Equally-Weighted World Index now stands at 17.6 %, down from 19.2 % last quarter — see chart below.


A look at the Irish Stock Exchange ISEQ General Index shows how the shares recovered after investors paniced mid 2011 and fled this market.


Irish ETF

iShares ETF managers offers the MSCI Ireland Capped Investable Market Index Fund (Symbol EIRL NYSE) U.S.-listed ETF which provides exposure to the Irish economy.

EIRL is linked to the MSCI Ireland Investable Market 25/50 Index, a benchmark that is designed to measure the performance of stocks in the top 99% by market capitalization of equity securities listed on stock exchanges in Ireland.  The index consisted of appx. 20 securities, with large allocations to the materials (25%), consumer staples (23%), and industrials (18%) sectors.  Large holdings include  CRH PLC, an Irish building materials group, the food company Kerry Group (11%) and drug development firm Elan Corporation (9%).

Since Ireland is a neutrally ranked market (by Keppler) and has enjoyed this last quarter spurt… others markets make better value sense now.

See which markets and why the Danish market is now in sell territory at our upcoming Super Thinking + Investing and Business Seminar.

Multi Currency portfolio subscribers can see Keppler’s full analysis of major markets at the password protected site here.

Learn how to obtain a Multi Currency portfolio password here.