Opening Bell 27.02.2015

Your world at 9am

world.2015-02-27

Equities

Major
DAX(DEU) +1.04%
CAC(FRA) +0.58%
UKX(GBR) +0.21%
NKY(JPN) +0.07%
SPX(USA) -0.15%
MINTs
JCI(IDN) -0.14%
INMEX(MEX) +1.39%
NGSEINDX(NGA) -0.50%
XU030(TUR) -1.03%
BRICS
IBOV(BRA) -0.10%
SHCOMP(CHN) -0.08%
NIFTY(IND) -0.95%
INDEXCF(RUS) +0.83%
TOP40(ZAF) +0.28%

Commodities

Energy
Brent Crude Oil +1.17%
Ethanol +0.00%
Heating Oil +0.00%
Natural Gas +0.00%
RBOB Gasoline +1.55%
WTI Crude Oil +1.29%
Metals
Copper -0.52%
Gold 100oz +0.00%
Palladium +0.46%
Platinum +0.31%
Silver 5000oz +0.01%

Currencies

USDEUR:-0.13% USDJPY:-0.13%

MINTs
USDIDR(IDN) +0.37%
USDMXN(MEX) -0.09%
USDNGN(NGA) +0.20%
USDTRY(TUR) +0.08%
BRICS
USDBRL(BRA) +1.28%
USDCNY(CHN) +0.17%
USDINR(IND) +0.17%
USDRUB(RUS) -0.03%
USDZAR(ZAF) +0.10%
Agricultural
Cattle +0.00%
Cocoa +0.00%
Coffee (Arabica) +0.07%
Coffee (Robusta) +0.00%
Corn -0.26%
Cotton -0.03%
Feeder Cattle +0.00%
Lean Hogs +0.00%
Lumber +0.44%
Orange Juice -1.38%
Soybean Meal +0.59%
Soybeans +0.56%
Sugar #11 +1.67%
Wheat -0.10%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM -0.14%
Markit CDX NA IG -0.19%
Markit iTraxx Asia ex-Japan IG -1.48%
Markit iTraxx Australia -1.33%
Markit iTraxx Europe +0.17%
Markit iTraxx Europe Crossover -1.76%
Markit iTraxx Japan -0.39%
Markit iTraxx SovX Western Europe -0.20%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) +0.00%
A railway budget that was a budget. Looking forward to the day when Indian budgets become a non-event. Some would argue that it already is…

Must reads

Will Narendra Modi be India’s Thatcher? We’ll know tomorrow. (BBC, #economy)

Rail budget: No new trains. No increase in passenger fares. Consumer-centric. Four goals. Five drivers. Eleven thrust areas. And hopefully, lesser bed-bugs and cockroaches. (LiveMint, FT)

The best traders and investors in the world freely acknowledge just how hard it is to see what’s around the corner, but pundits act as though it’s simple. A pundit with real knowledge about the markets would almost certainly not be writing about it. He would be too busy spending his investment billions. (RCM)

Good luck!

Funds that (also) invest in foreign markets

Diversification vs. Returns vs. Currency hedging

Some Indian funds, under the guise of diversification, invest in foreign equities. However, the benefit of diversification comes from investing across asset classes. Does investing in the same asset class, i.e., equities, really give the investor uncorrelated returns? Or are funds using international equities as a rupee-short in disguise?

World Equity Correlation

When you run correlations between the monthly returns of the S&P 500, Nasdaq, FTSE 100, Nikkei and CNX 500, here’s what you get:

S&P 500 Nasdaq FTSE 100 Nikkei 225 CNX 500
S&P 500 1.0000000 0.8387130 0.8537901 0.6144493 0.5226191
Nasdaq 0.8387130 1.0000000 0.6913427 0.5909979 0.5499836
FTSE 100 0.8537901 0.6913427 1.0000000 0.5717508 0.5216565
Nikkei 225 0.6144493 0.5909979 0.5717508 1.0000000 0.5633231
CNX 500 0.5226191 0.5499836 0.5216565 0.5633231 1.0000000

world-correlation

A zero or negative correlation would validate the diversification claim. But that is not the case. Indian equities are loosely correlated with international stock markets.

World equity Returns

When it comes to returns, Indian equities have outperformed all the main indices.

world equity returns

Currency hedge

The 50% depreciation in the rupee since 2000, however, make a strong case for adding short-INR/long-USD assets.

USDINR

Competency

Although Rupee depreciation makes a case for holding dollar assets, why do it in a convoluted way by buying individual stocks? The competency of an Indian asset manager in picking stocks in a foreign market is questionable.

For example, the PPFAS fund holds about 20% of its assets in foreign equities. This, at a time when most developed markets have given up on stock-picking and have turned to indexing instead. Can a manager, sitting in India, select stocks in a foreign market that outperform that market?

The problem with a mixed-in portfolio like PPFAS is that it is very difficult to break performance down to its components. Between 2014-01-01 and 2015-02-25, PPFAS Long Term Value Fund has returned a cumulative 44.20% with an IRR of 37.45% vs. BSE MID CAP’s cumulative return of 58.84% and an IRR of 49.50%. (http://svz.bz/1DZzX1L)

Conclusion

Exposure to US Dollar assets makes sense given the historical depreciation of the Indian rupee against the US dollar. However, we are not convinced that buying a fund that tries to pick stocks in foreign markets is the way to go. Investors would be better of being net short the rupee, or buying the S&P 500 ETF separately.

Opening Bell 26.02.2015

Your world at 9am

world.2015-02-26

Equities

Major
DAX(DEU) +0.04%
CAC(FRA) -0.09%
UKX(GBR) -0.21%
NKY(JPN) +0.55%
SPX(USA) -0.08%
MINTs
JCI(IDN) -0.14%
INMEX(MEX) -0.22%
NGSEINDX(NGA) +0.17%
XU030(TUR) -0.00%
BRICS
IBOV(BRA) -0.12%
SHCOMP(CHN) +0.70%
NIFTY(IND) +0.06%
INDEXCF(RUS) -1.46%
TOP40(ZAF) -0.31%

Commodities

Energy
Brent Crude Oil -0.78%
Ethanol +0.00%
Heating Oil -0.17%
Natural Gas +0.63%
RBOB Gasoline +0.38%
WTI Crude Oil -1.02%
Metals
Copper +0.21%
Gold 100oz +0.48%
Palladium +0.32%
Platinum +0.83%
Silver 5000oz +0.91%

Currencies

USDEUR:-0.06% USDJPY:+0.08%

MINTs
USDIDR(IDN) +0.00%
USDMXN(MEX) +0.13%
USDNGN(NGA) +0.23%
USDTRY(TUR) -0.06%
BRICS
USDBRL(BRA) +1.42%
USDCNY(CHN) -0.00%
USDINR(IND) -0.04%
USDRUB(RUS) -0.08%
USDZAR(ZAF) +0.07%
Agricultural
Cattle +0.00%
Cocoa +0.00%
Coffee (Arabica) -3.65%
Coffee (Robusta) +0.00%
Corn +0.07%
Cotton +0.00%
Feeder Cattle +0.00%
Lean Hogs +0.00%
Lumber +0.17%
Orange Juice -0.40%
Soybean Meal +0.17%
Soybeans +0.35%
Sugar #11 -2.40%
Wheat +0.00%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM +0.52%
Markit CDX NA IG -1.62%
Markit iTraxx Asia ex-Japan IG +0.05%
Markit iTraxx Australia +0.06%
Markit iTraxx Europe -1.13%
Markit iTraxx Europe Crossover -6.06%
Markit iTraxx Japan +0.42%
Markit iTraxx SovX Western Europe -0.46%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) -1.01%
The rail budget today will give us a glimpse of what is to come in the general budget on Saturday. Fingers crossed!

Must reads

RBI’s technical advisory committee has advised for a rate cut post Budget. (DNA, #rates)

JP Morgan: We are buying India for growth not value. (LiveMint)

Related: “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” – Keynes; “As long as the music is playing, you’ve got to get up and dance.” – Chuck Prince.

Google has built an artificial intelligence system that can learn – and become amazing at – video games all on its own. (TechCrunch)

Good luck!

Opening Bell 25.02.2015

Your world at 9am

world.2015-02-25

Equities

Major
DAX(DEU) +0.67%
CAC(FRA) +0.50%
UKX(GBR) +0.54%
NKY(JPN) +0.14%
SPX(USA) +0.28%
MINTs
JCI(IDN) +0.32%
INMEX(MEX) +0.62%
NGSEINDX(NGA) +1.18%
XU030(TUR) +0.41%
BRICS
IBOV(BRA) +1.16%
SHCOMP(CHN) +0.13%
NIFTY(IND) +0.08%
INDEXCF(RUS) -1.15%
TOP40(ZAF) +0.03%

Commodities

Energy
Brent Crude Oil +0.39%
Ethanol +0.00%
Heating Oil -1.23%
Natural Gas +0.24%
RBOB Gasoline -0.64%
WTI Crude Oil -0.02%
Metals
Copper +0.00%
Gold 100oz +0.00%
Palladium +1.20%
Platinum +1.11%
Silver 5000oz +0.00%

Currencies

USDEUR:-0.03% USDJPY:+0.20%

MINTs
USDIDR(IDN) -0.19%
USDMXN(MEX) -0.03%
USDNGN(NGA) +0.03%
USDTRY(TUR) +0.06%
BRICS
USDBRL(BRA) -1.73%
USDCNY(CHN) +0.05%
USDINR(IND) -0.26%
USDRUB(RUS) -0.22%
USDZAR(ZAF) +0.09%
Agricultural
Cattle +0.00%
Cocoa +0.00%
Coffee (Arabica) +0.55%
Coffee (Robusta) +0.00%
Corn -0.13%
Cotton +0.17%
Feeder Cattle +0.00%
Lean Hogs +0.00%
Lumber -0.41%
Orange Juice -2.53%
Soybean Meal -0.42%
Soybeans -0.49%
Sugar #11 -0.56%
Wheat -0.79%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM -0.45%
Markit CDX NA HY +0.00%
Markit CDX NA IG +0.10%
Markit iTraxx Asia ex-Japan IG -1.71%
Markit iTraxx Australia -2.65%
Markit iTraxx Europe -1.91%
Markit iTraxx Europe Crossover -8.24%
Markit iTraxx Japan -0.21%
Markit iTraxx SovX Western Europe -0.40%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) +0.16%
The FTSE 100 made new highs, NASDAQ ran past the tech-bubble high, the US Fed is going to maintain ZIRP for a while and credit eased. India remains transfixed on the budget…

Must reads

“India is like a two-wheeler: stable as long as there’s momentum; agile in heavy traffic, but risking mishaps with every move; and lacking much of a shell to protect its riders from the elements. The handlebars initiate the direction, but the body weight defines its trajectory.” (LiveMint, #economy)

Federalism FTW! (FP)

Software is eating the world, Pimping edition. (FT)

Good luck!