Quantitative Signals (not informational noises) for 2010: What 2009 has left for us?‘Narrowing of’ or ‘emergence of sharp’ divergence in performance of Best and Worst performing global market will signal that party that started in 2009 is getting over. 2009 has also left us with key global indexes levels; till markets remain above those levels the party will still be on.
Globally, all the countries have been partying through the year 2009, however the date and duration of the party varied from country to country. Indonesia has given the highest year to date returns of 76.32% followed by China 74.25% while US rose only by 16.76% followed by Japan which rose by 16.62%. Large part of this party is attributed to re-emergence of risk capital and resulting liquidity infusion in financial assets across globe. But the larger question for all us analyst and fund advisors is that how 2010 will pan out. Leadership in terms of Stock market performance has kept changing from country to country as depicted in table below. During different quarters, different countries’ stock markets rose by different percentages. While one country rose, the other fell. No same country has kept performing better than others through out the year. In Q1 CY 09, Shanghai (China) rose by 26% while Madrid (Spain) & DAX (Germany) fell by 17 to 18%, In Q2 CY 09, Nifty rose by 40% while FTSE-100 grew only by 7%. Similarly, In Q3 CY 09, Australia rose by 22% while China fell by 7.6% and in Q4 CY 09, Brazil rose by 13.45% while Indonesia went up only by 2.28%. This depicts that there has been a leadership rotation country wise in terms of Stock market performance. Since the rally in 2009 has not been constant through out all the countries in the same period and since the global money continuously changed its destinations, there are more to the rally of in 2009 . There still appears some cushion for the stock market as no country has overly out-performed on quarter basis. Another signal in terms of quarterly performance has been that the difference between the best and the worst performing market has regularly narrowed over last quarters. Whereas for Q1CY09 the difference was 44.7%, it has come down to 11.17% in Q4CY09. If this difference gets further narrowed over next quarters, it will mean that the rally of 2009 has reached its peak (Can there be further narrowing from this small value of 11.17% itself is debatable and suggests that period between end of Q1CY10 and early Q2CY10 will be an important data point to be watched out). Conversely, if this difference suddenly widens over next few quarters that too will indicate that the larger upward trend that global markets has since early 2009 has ended. Quarterly Performance of Indexes: 2009
Another important signal point that 2009 has left for us is events taken place during last week of November, 09. With announcement of impending default by sovereign linked entity in Dubai and rating downgrades of various countries such as Spain, Greece, Latvia and Lithuania by various rating agencies had caused a temporary dip in most of the global markets. Lows made during that period will act as strong signal levels for continuation of the current global market bull-run. For example Dow Jones has made low of 10231 after these above mentioned events. Post November, there were two corrective fall in markets and during both these times Dow was unable to breach this level on downside and will now act as strong signal point for global markets in 2010. Till global markets trades above these data points, the rally that started in 2009 will still be on. And as the history suggests market will inform us of the impending change in trend well before informational onslaught if any is going to happen again. For now we should just enjoy the fruits of this 2009 rally and not worry about the valuation that looks bit stretched or that we have moved very sharply up in a short span of time. Indian along with other global market is also riding high on the back of this global party. But the rally in India has been attributed more to the growing fundamentals of the economy than the re-emergence of risk –capital and ensuing liquidity in financial assets across globe. This has resulted in higher weightage for India in emerging countries basket. India had also been major beneficiary of dollar carry trade. Also Indian corporate are expected to report stellar earning growths during coming 3rd quarter results and will possible justify the lofty valuation that some of Indian companies are enjoying at the moment.
Just like rally in various countries has been of different extent in different quarters of the year, Indian Stock market has witnessed rally in various sectors differently at different time intervals. Broadly in year 2009, EW Material index grew by 149.16% followed by EW IT Index that went up by 147.59% while Telecom Index fell by 9.98% Also as the table below depicts the sectoral leadership for rally in 2009 has been divided among different sectors at different times and that no sector has outperformed through out the rally. In 2009, while one sector was performing well some other was falling or merely resting. This signals, that there is still some cushion left for the rally. Quarterly Performance of Indian Sectoral Indexes: 2009
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