Equity: Country Ranking.

Transcription

1 Equity: PK Assets AG Egglirain 22, Postfach 251, 8832 Wilen +41 (0)

2 General Remarks Focus: Ranking The focus is set on finding a country ranking and not on finding an answer whether or not markets are generally expensive or cheap (for this topic please refer to: « > Leitmarkt USA: Blase oder nicht?») 6 Countries: USA GER FR CH UK JAP 6 Indices S&P500 (SPX) Deutsche Börse (DAX) CAC40 (CAC) Swiss Market Index (SMI FTSE 100 (UKX) Nikkei 225 (NKY) Longest available joint data basis 1/ present 2

3 Performance In local currency terms: Massive differences: Since Lehman 9/2008 markets remained correlated but exhibited massive performance differences nonetheless 10/2007 was the cyclical high before the great financial crisis Undisputed winner: GER Only three markets are above their 2007 cyclical peak level: GER, USA and JAP CH is exactly at the level of 10/2007 UK is slightly below that level, and beating by a small margin the ultimate loser FR GER vs FR: same currency, completely different outcome: Overall performance 167% vs 26% (!!) 3 ANWENDUNG AKTIEN Ländervergleich

4 Performance The view of the CHF based investor: Massive differences remain The ranking of the country performance does not change (with the exception of CH), when local currency performances are translated into CHF performances Since 2005: The winner is GER Since Lehman 9/2008: The winner is USA For the CHF-based investor currently only USA is higher than at the ciclical high of 2007 GER remains the only country outperforming CH over the full period Dismal: Calculated in CHF, FR and UK have been the worst investments with a negative performance for the last 10 years 4

5 Country Factor That s odd: Given the many globalised multinational corporations in the indices, we expected more homogenous equity performances across the indices. But no: The country factor remains at work, even dominating: Irrespective of globalisation, country specifics remain important Our Misery-Index comprises Unemployment Rate, Capacity Utilisation and GDP Growth Ranking Performance Misery In CHF GE 1 1 CH 2 5 USA 3 3 JAP 4 2 UK 5 4 FRA 6 6 GER is well confirmed by its booming economy: Undisputed Top Rank CH is not fitting well into the picture: The country suffers heavily from its currency appreciation JAP, USA and UK are improving persistently and have digested the great financial crisis EMU: Slow but steady improvement from low level FR has not even started to heal 5 ANWENDUNG MISERY INDEX

6 Relative Ranking (in local currency terms) Building Stones 6

7 Earnings Earnings per share: Massive differences in trends, but disappoinment everywhere! Developments since 2005 with regards to EPS are truly disappointing: Only 2 countries are above the 2005 level, 2 countries are slightly below, 2 countries are decisively below that level Acceleration in trend in DAX and SPX SMI and NKY are average CAC and UKX at the bottom Earnings/Price: Expensive earnings! Earnings yields have fallen significantly If you cancel out the great financial crisis all indices are at the low point of the last 11 years 7

8 Dividends Dividends: Tendency is right And that s notwithstanding disappointing underlying earnings trends Growth rates of dividends differ greatly Winner: DAX followed by SMI In some indices dividends per share are below the pre crisis level, e.g. FR FR, UK and USA exhibit the lowest growth from 1/2005 to present Dividend Yields: Country specifics at work! The lowest dividend yield is traditionally in the NKY, followed by SPX If you want a high dividend yield, then invest in the UKX The pecking order is stable over time I.e. there are cultural or market/country specific differences across the sample 8

9 Book Values Book Value: Upward trend Book values increase steadily and consistently The winner is: DAX The loser is: SMI Growth rates here are more homogenous than elsewhere «Book value yields»: Strong country differences! Low book value yields in SMI, DAX and SPX High book value yields in CAC, NKY and UKX Very stable pecking order 9

10 Sales Sales: Couldn t be more diverse Part of the sample exhibits strong growth in sales: DAX, SPX and NKY UKX is retreating sharply SMI and CAC are completely under developed Sales per share prices: At the lows! In SMI and SPX sales/price is particularly disappointing, not because the level is so small anyway, but because it is at the decade s low UKX is the only market showing a decent value in the sample All others: Low 10

11 GDP Nominal GDP: Back to consistent growth, except CH With the exception of CH the countries economies are growing again The Anglosaxons are growing faster In nominal terms all countries (except Japan) have surpassed the levels of 2008 Japan is a special case after all the years of deflation. Here real GDP is trending upwards Stock markets are way off the real economy To improve comparability we have carried out a scale transformation The DAX is a good example: GDP growth has been decent, but stock prices have ballooned above fair value when comparing stock markets with GDP levels UKX is an example for the opposite 11

12 Leverage Gearing: Debt/Equity: Below the excesses of 2008 Big differences in the sample But the general tone is one of improvement That s very positive with regards to bubble considerations Leverage: Debt/EBITDA: Back to the excesses of 2008? The picture is unsystematic UKX and CAC, as well as SPX are releveraging DAX and NKY are de-leveraging The re-leverage is worrying us very much 12

13 Leverage and EBITDA We scale EBITDA with the balance sheet leverage: Are risk adjusted EBITDA figures improving? Depends which index you take But there remain country specific behaviour patterns DAX advancing CAC and UKX retreating SPX and SMI sideways Compare risk adjusted EBITDA with share prices: Pathetic! Even if you adjust EBITDA with the improved balance sheets, the margins look disappointing In most instances the risk adjusted EBITDA yield is at the low point of the last 11 years 13

14 Relative Ranking (in local currency terms) Building Stones Partial Results 14

15 What are we doing? Compare cashflows/book values/leverage etc to the price you have to pay High or low earnings per share are one thing, the price you have to pay for these earnings is another. Only if you compare earnings/book values/leverage etc to the price, then you get a sense of cheapness or expensiveness From building stone to building stone To get a first glimpse on differences in attractiveness we show the rankings based on each building stone in isolation. By doing so you get a feeling for strengths and weaknesses of each index Comparability through standardisation Wecarry out a transformation of scale to reach a high degree of comparability High visibility High marks: Expensive Low marks: Cheap 15

16 Ingredients Earnings Ranking 1. SMI 2. NKY 3. DAX 4. UKX 5. CAC 6. SPX Dividends Ranking 1. UKX 2. SMI 3. NKY 4. SPX 5. CAC 6. DAX 16

17 Ingredients EBIDA and Leverage Ranking 1. DAX 2. NKY 3. SMI 4. UKX 5. CAC 6. SPX Book Value Ranking 1. UKX 2. CAC 3. SMI 4. NKY 5. DAX 6. SPX 17

18 Ingredients EBITDA Ranking 1. NKY 2. DAX 3. SMI 4. UKX 5. CAC 6. SPX EBIT Ranking 1. NKY 2. SMI 3. SPX 4. CAC 5. UKX 6. DAX 18

19 Ingredients GDP Ranking 1. UKX 2. CAC 3. SMI 4. SPX 5. NKY 6. DAX Sales Ranking 1. UKX 2. CAC 3. DAX 4. NKY 5. SPX 6. SMI 19

20 Relative Ranking (in local currency terms) Building Stones Partial Results Full Model: 20

21 Model Specification Building Stones Dividends: 30% Earnings: Net Income 15% EBIT 5% EBITDA 5% Sales: 5% GDP: 10% Leverage: 10% Book Value: 20% 21

22 Results Full Model Ranking 1. UKX 2. SMI 3. NKY 4. CAC 5. SPX 6. DAX UKX is the top bargain: Boosted by cheap Dividends The SMI is well positioned: Earnings and Dividends are cheap with no particular weakness in other brackets The DAX is the most expensive market: Dividends and Book are expensive and the market is way off the economic fundamentals SPX is expensive too: EBITDA, Earnings, Leverage and Sales look expensive 22

23 Intramarket Juicy: UKX looks like a bargain vs. DAX Neighbours: DAX looks expensive vs. SMI Transatlantic: The global leading market looks expensive vs. SMI Eurozone derby: CAC cheap vs. DAX 23

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