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Can the Alibaba IPO Kick-start the Chinese Stock Market?

Written by Nicholas Vardy, CFA.

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U.S. investors have lost a lot of money betting on the "China Miracle" since the market peaked in the fall of 2008.

But after more than five years of suffering disappointingly poor returns, the Chinese stock market just might be making a comeback.

Over the past three months, the iShares China Large Cap (FXI) — the major Chinese ETF that tracks an index of 25 Chinese large-cap stocks — has soared 15.53%. That makes the Chinese stock market the single-best-performing stock market over that time period among the 46 that I track at my firm, Global Guru Capital.

Dig a bit deeper, and you'll find that the Chinese technology sector — and within that, the Internet sector — has shown even more strength than the overall Chinese market.

That's why the renewed focus on Chinese Internet stocks — thanks to the upcoming listing of Chinese e-commerce giant Alibaba — could make Chinese Internet stocks one of the hottest sectors in the coming months.

Alibaba: The Biggest IPO in History?

If the investor relations firms are doing their jobs, you'll be hearing a lot more about Alibaba in the coming days. A hodgepodge of various online marketplaces for consumers and businesses, Alibaba is minting a fortune by charging fees to 8.5 million businesses advertising on its sites.

As with all things Chinese, the numbers associated with Alibaba are all about superlatives.

Alibaba is already the largest e-commerce company in the world in terms of value of merchandise sold. Alibaba's transaction volumes already surpass eBay Inc. and Amazon.com, combined. It boasts 279 million active buyers. That already trounces Amazon.com's global user base of 244 million.

Just yesterday, Alibaba's senior management hit the road, hat in hand, looking to raise $20-$24 billion for the company's upcoming initial public offering (IPO). That puts the Alibaba offering on track to become the biggest-ever IPO, topping the $22 billion raised by Agricultural Bank of China Ltd. in 2010.

To put those numbers in perspective, Twitter raised about $2 billion in 2013 and Facebook generated $16 billion in 2012.

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Is a “September Swoon” in the Cards?

Written by Nicholas Vardy, CFA.

 

SNAG Program-0750“October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”

–Mark Twain

As the summer draws to a close and traders return to their desks today, the mood in the financial markets is as nervous as ever.

Sure, the S&P 500 just closed its strongest month since February, climbing over 4% in August. Yet, there were few signs of celebration when it closed above 2,000 for the first time, 16 years after it first breached the 1,000 level. Indeed, rarely has a new major high in the U.S. market been greeted with greater skepticism.

Emerging markets have done even better, rallying 6% since the start of June.

But you wouldn’t know it from reading the headlines. Facing a potential full-scale war in Ukraine and in the midst of another Middle Eastern crisis, market sentiment is still firmly rooted in fear. The “doom and gloom” crowd is already predicting that September 2014 will mark the start of another massive market drop. The ever-attention-grabbing Harry Dent has already predicted that the Dow is set to drop all the way to 6,000 — though we’ll have to wait for that until 2016.

September Swoon: A Grim History

October has a particularly bad reputation among investors as a bad month for stocks. Mark Twain’s famous quip notwithstanding, September — and not October — has been always the lousiest month for investors.

Since 1926, September is the only month of the year with an overall negative average return in U.S. markets. More recently, since 1950, September has seen an average decline in the Dow of 1.1%. The Nasdaq also has fallen an average of 1% during September since it was established in 1971.

Nor does the September anomaly only hold true for the United States. A Georgia Tech study looked at data for 18 developed stock markets around the world going back as far as 200 years. Among all the markets examined, investors lost money in September in 15 of them.

But it’s not the statistics that account for September’s fearsome reputation.

It’s the drama that always seems to occur around this time of the year.

The crash of 1987 may have happened in October, but the market peaked right around Labor Day. And although the crash of 1929 is commonly associated with October, the market hit its highs just around this time of the year.

And what was the worst month of the Great Depression? September 1931, when the Dow fell a whopping 30%.

More recently, it was six years ago in September 2008 that Lehman Brothers collapsed and brought the entire global financial system to its knees. And it also was in September 2000 that the post-dot-com bubble collapse accelerated. Two years later, in September-October 2002, the bear market hit its lows. And although the Russian government defaulted on its debt in August, 1998, it was in September that hedge fund Long Term Capital Management collapsed. Quaintly, Bill Clinton called that crisis “the greatest financial crisis since the Great Depression.”

September Swoon: What is to Be Done?

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GLOBAL GURU CAPITAL – MONTHLY UPDATE

Written by Nicholas Vardy, CFA.

Untitled Document

GLOBAL GURU CAPITAL – MONTHLY UPDATE
August  2014

The "Ivy Plus" Investment Program gained 2.66% for the month.

The "Global Gains" Investment Program added 1.04% for the month.

The "Double Your Dividends" Investment Program rose 3.04% for the month.

The "American Alpha" Investment Program added 5.09% for the month.

The “Masters of the Universe” Investment Program gained 3.88% for the month.

THE "IVY PLUS" INVESTMENT PROGRAM
DIVERSIFIED BETS PERFORM ACROSS THE BOARD


The "Ivy Plus" Investment Program added 2.66% for the month. The program is up 5.94% year-to-date, through August 31.

All assets classes except for commodities rose in the "Ivy Plus" Investment Program in August.  The leading performers were specialist U.S. strategies focused on Initial Public Offerings and Buybacks, which rose 6.8% and 5.5% respectively. This was followed by strong performances by mainstream small and mid cap indices, which rose 5.06% and 4.70%.

Emerging markets were the next best performing asset class, with the various strategies rising between 3.23% and 3.84%.

The surprising standout performer was the equity long-short hedge fund strategy, which soared 7.01%, and whose August performance almost equaled its performance for all of 2014. Clearly, it wasn’t very short, and its long bets had a spectacular month.

Developed market large and small caps stocks were noticeable laggards, barely eking out gains of 0.26% and 0.20%, respectively.

The “Ivy Plus” investment program positions performed as follows:

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2014: Another Lousy Year for Hedge Funds

Written by Nicholas Vardy, CFA.

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Even as the S&P 500 flirts with the 2,000 level, up a solid 7.71% through the first eight months of 2014, the hedge fund industry is enduring yet another difficult year.

Once renowned for risk-loving "cowboy" trading and double-digit percentage returns, hedge funds have failed to live up to their reputation as money-making machines.

Hedge Funds: Trailing the Market in 2014, Yet Again

According to data compiler Preqin, hedge funds have trailed Standard & Poor's 500 stock index in 2014, both through the end of July, as well as over the past 12 months. Year-to-date through July, the Preqin Hedge Fund All Strategies benchmark posted a gain of 3.47%. That's far below the 4.45% gain for the S&P 500 over the same period.

Other observers of the hedge fund world confirm this underperformance. The Barclay Hedge Fund Index is up 3.26% through end of July, while Hedge Fund Research pegs the average hedge fund return at just 2.5% over the first seven months of the year.

Preqin also notes that hedge funds underperformed the broad U.S. stock market over the past 12 months. Having rallied 14.5% over the past year, the S&P 500 outpaced the Preqin Hedge Fund All Strategies benchmark by more than 5%. Perhaps most surprisingly, not a single one of the 19 major hedge fund strategies tracked by Preqin have beaten the S&P 500.

Nor is the picture any better across the pond. The $492 billion Europe-focused hedge fund industry generated a return of 2.1% in the first half of 2014. That is less than one-third of the 6.7% return of the benchmark STOXX Europe 600 Index. As Barbara Wall, Europe research director at Cerulli Associates points out, hedge funds last outperformed European stocks in 2008, when hedge funds fell 17.4% and the STOXX Europe 600 slumped 43%.

Hedge Fund Investors: Increasingly Disaffected

Looking at this underperformance, no wonder some institutional investors have cut back or even completely axed their investment in hedge funds.

The disaffected group includes $300 billion mega pension fund California Public Employees' Retirement System (CALPERS); the $18.3 billion Los Angeles Fire & Police Pension System; and even the $2.7 billion Oxfordshire County Council, Oxford, England; all of which have reduced their hedge fund investments.

The Market Claims Its Scalps

Up until 2008, hedge funds had a fantastic run. Since then, making money in the markets has become markedly more difficult. The big hedge fund managers achieved most of their big returns before 2008. Since the market bottomed in March 2009, almost all the big names have lost their way.

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Are We on the Verge of a Market Crash?

Written by Nicholas Vardy, CFA.

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Much like the Great Depression did to the "Greatest Generation," the financial crisis of 2008 seared the souls of millions of investors. Almost six years after the collapse of Lehman Brothers, professional Cassandras never ceased predicting that the next economic meltdown and a stock market crash is just around the corner.

That's ironic...

After all, U.S. stock markets have been in a classic bull market for over five years now.

Instead of gold hitting $5,000 an ounce and the Dow Jones collapsing below 1,000, the S&P 500 has risen 189% from a low of 683 on March 2, 2009, to yesterday's close of 1,971. The Nasdaq closed yesterday at its highest level since early 2000.

And that's with the most anti-business U.S. administration since the days of Woodrow Wilson.

The Case Against a Coming Crash

First, let's review the factors that have supported this surprising bull market.

Most of the global economy has recovered from the very worst of the economic contraction between October 2008 and March 2009. Strong earnings growth, combined with record levels of share buybacks, has boosted companies' earnings per share. Finally, artificially low interest rates supplying liquidity to the banking sector have served as a tailwind to asset prices around the world.

There are still several contrarians willing to endure the public humiliation of being in the bull camp. The much-reviled Goldman Sachs reckons that another economic collapse is unlikely. Sure, Goldman concedes that the stock market could crash any day. But one of the key preconditions needed for an economic bust is high credit growth. Credit may be accelerating. But in the grand scheme of things, it's still at pretty low levels. The global economy is more macro-economically stable than headlines would suggest.

Steven Auth of Federated Investors is another brave bull who thinks the S&P 500 will hit 2,100 by the end of 2014. Auth also predicts the S&P 500 will reach 2,500 within the next 18 months to two years. The combination of growth, bond rates and perceptions of risk will continue to propel the U.S. stock market ahead. With the Fed paranoid about tightening rates too soon, as it did in 1937, a liquidity backdrop for stocks will remain favorable.

@NickVardy