IQ Weekly Takeaways for 24 August 2020

August 23, 2020 IQ Weekly Takeaways, Macro Musings, Market Monitors


1) Week in Review: IQ Articles Published this week

2) The Bigger Picture of “Peak Growth” vs “Trough Value”

3) Highlights from GMO’s White Paper: Reasons (NOT) To Be Cheerful

4) CLSA’s “Eh?” moment for Tesla stock

5) Market Monitors: Short-term Overbought and Oversold Stocks

6) Market Monitors: Corporate Earnings Releases in the Week Ahead

7) Market Monitors: Country Macro Data Releases in the Week Ahead

1) Week in Review: IQ Articles Published this week

For Our Singaporean Readers, 3 Ways To Level Up Your Investments
The Hang Seng Index rebalances on 7 Sept! Can you make money from the “Index Inclusion Effect”?
*Note: An earlier version of this article had a typo in Section 1 for the second diagram. For “Stocks to be removed”, the median stock outperformance in Period C is -1.1%, NOT -4.5%.

2) The Bigger Picture of “Peak Growth” vs “Trough Value”

No one knows if and when the stock rotation out of “Growth” into “Value” will occur (JPM thinks it won’t happen in the near term). However, below are some interesting snippets from Bank of America’s Flow Show (20 August 2020), which make me more cautious on Growth Stocks.

The bigger picture of “Peak Growth”:

  • Apple’s market cap ($2tn) almost equivalent to UK FTSE index ($2.2tn)
  • Duration of secular bull market in growth>value 6 months away from being longer than the Jul 1926 to May 1940 growth bull
  • Magnitude of growth outperformance Apr-June’20 almost as powerful as the Oct 1932 and Jan 2000 periods (chart below)
  • Exogenous catalysts of 2020 (800k COVID deaths, 50mn unemployed, $10tn GDP loss, 173 rate cuts, $8.5tn in QE, that’s $1.6bn/hour) not to be repeated next 12 months

The bigger picture of “Trough Value”:

  • Secular themes of Bigger Government, Smaller World, Dollar Debasement drive Main Street inflation
  • Fiscal stimulus ($12.1tn) now dwarfing monetary stimulus ($8.5tn)
  • US dollar in bear market & bear markets of 1970s & 2000s were outperforming decades for EM equities, commodities, small cap, and value stocks
Source: BofA’s The Flow Show: Addicted to Dove, published 20 August 2020.

3) Highlights from GMO’s White Paper: Reasons (NOT) To Be Cheerful

GMO has been bearish on the markets in recent months and their recently published White Paper puts current market valuations in perspective. I will highlight the most relevant parts below:

The driving narrative behind a V-shaped recovery in the stock market seems to be centered on…“liquidity creation.” It is tricky to argue for any direct linkage from the Fed’s balance sheet expansion programs to equities…

Nor can one claim a good link between QEs to yields to equities. In fact, during each of the three previous waves of QE, bond yields actually rose. In addition, yields around the world are low but you don’t see other equity markets sporting extreme valuations.

On Current Stock Valuations:

History teaches us that the market is usually a master of double-counting, attaching peak multiples to peak earnings, and trough multiples to trough earnings.

For instance, in 1929 the U.S. market P/E was 37% above its long-term average, and earnings relative to 10-year earnings were 46% above their normal level. Similarly, in 2000 the market P/E was 98% above its average, and earnings relative to 10-year average earnings were 37% above their normal level. Peak multiples on peak earnings.

In comparison, in 1932 the market was just 64% of its average valuation, and earnings relative to their 10-year average level were just 54% of the average – trough multiples on trough P/Es.

…Today we see something different (charts below). Valuations on a Shiller P/E basis are in the 95th percentile (right up there in terms of one of the most expensive markets of all time), and economic growth measured as real GDP is in the 4th percentile based on pretty generous assessments of this year’s growth (which is one of the worst economic outcomes we have ever seen).

The “established” rationale on why stock markets are back to all-time highs: In performing QE, the Fed lowers the bond yield and, because this serves as the discount rate for other assets, it drives up the stock market.

3 Reasons why GMO is skeptical of the above-mentioned link between bond yields and equity valuations:

  1. Japan and Europe both have exceptionally low interest rates, mirroring the U.S., but they aren’t witnessing stock market valuations at nosebleed-inducing levels.
  2. If the interest rate is low because growth is low, then the valuation is unchanged in a simple DDM framework.
  3. QE hasn’t actually managed to lower bond yields (chart below), which truly emasculates the argument. All three of the completed cycles of QE have actually ended with yields higher than they were when the QE began!

4) CLSA’s “Eh?” moment for Tesla stock

Continuing on with the theme of “Growth Stocks”…it’s interesting to learn how an automobile tech stock quintuples its market cap in the worst recession since The Great Depression. See table below…

For reference, the sequences goes: doubles…triples…quadruples…quintuples

Source: Adapted from CLSA’s Bits & pieces, published 21 August 2020.

5) Market Monitors: Short-term Overbought and Oversold Stocks

The below is a screen of the most technically “Overbought” and “Oversold” stocks from our Global Stock Watchlist, primarily sorted by the stocks’ traded currency. Some of these stocks may be trading at these extreme ranges due to fundamental reasons, so please do your own due diligence before investing.

“Overbought” stocks are those stocks which are currently trading with RSI >70 or have breached their upper Bollinger Band. These are two commonly followed technical trading indicators.

“Oversold” stocks are those stocks which are currently trading with RSI <30 or have breached their lower Bollinger Band.

Source: Bloomberg, retrieved 23 August 2020.

6) Market Monitors: Corporate Earnings Releases in the Week Ahead

Summarizing the date and times of key company earnings for the week of 24th to 30th August 2020. Do note that some of the below data are expected release dates and may be revised in real-time. A more comprehensive list may be found on this page.

Stock NameExchange CountryRegionExpected Release DateRelease Time
(GMT +8, SG  Time)
Fortescue Metals Group LtdAustraliaAsia Pacific24/8/2020 
CITIC Securities Co LtdChina / HKAsia Pacific24/8/2020 
China Overseas Land & InvestmentHong KongAsia Pacific24/8/2020 
AAC Technologies Holdings IncHong KongAsia Pacific24/8/2020 
SATS LtdSingaporeAsia Pacific24/8/2020Bef-Mkt
     
Country Garden Holdings Co LtdHong KongAsia Pacific25/8/2020 
ANTA Sports Products LtdHong KongAsia Pacific25/8/2020 
New China Life Insurance CoHong KongAsia Pacific25/8/2020 
Haidilao International HoldingHong KongAsia Pacific25/8/2020 
Best Buy Co IncUSANorth America25/8/2020Bef-Mkt
Medtronic PLCUSANorth America25/8/202018:45
J M Smucker Co/TheUSANorth America25/8/202019:00
salesforce.com IncUSANorth America25/8/2020Aft-Mkt
Intuit IncUSANorth America25/8/2020Aft-Mkt
Hewlett Packard Enterprise CoUSANorth America25/8/2020Aft-Mkt
     
PetroChina Co LtdChina / HKAsia Pacific26/8/2020 
China Life Insurance Co LtdChina / HKAsia Pacific26/8/2020 
China Resources Land LtdHong KongAsia Pacific26/8/2020 
Longfor Group Holdings LtdHong KongAsia Pacific26/8/2020 
China Mengniu Dairy Co LtdHong KongAsia Pacific26/8/2020 
CSPC Pharmaceutical Group LtdHong KongAsia Pacific26/8/2020 
Sino Land Co LtdHong KongAsia Pacific26/8/2020 
Xiaomi CorpHong KongAsia Pacific26/8/2020 
Polymetal International PLCEnglandEurope26/8/2020Bef-Mkt
     
Woolworths Group LtdAustraliaAsia Pacific27/8/2020 
Wuliangye Yibin Co LtdChinaAsia Pacific27/8/2020 
Shenzhen Mindray Bio-Medical EChinaAsia Pacific27/8/2020 
Foshan Haitian Flavouring & FoChinaAsia Pacific27/8/2020 
Inner Mongolia Yili IndustrialChinaAsia Pacific27/8/2020 
Ping An Insurance Group Co ofChina / HKAsia Pacific27/8/2020 
China Vanke Co LtdChina / HKAsia Pacific27/8/2020 
Fosun International LtdHong KongAsia Pacific27/8/2020 
Rolls-Royce Holdings PLCEnglandEurope27/8/202014:00
Flutter Entertainment PLCEnglandEurope27/8/202014:00
HP IncUSANorth America27/8/2020 
Tiffany & CoUSANorth America27/8/2020 
Dollar General CorpUSANorth America27/8/2020Bef-Mkt
Dollar Tree IncUSANorth America27/8/2020Bef-Mkt
     
Industrial Bank Co LtdChinaAsia Pacific28/8/2020 
Shanghai Pudong Development BaChinaAsia Pacific28/8/2020 
ZTE CorpChinaAsia Pacific28/8/2020 
CRRC Corp LtdChinaAsia Pacific28/8/2020 
ICBCChina / HKAsia Pacific28/8/2020 
China Construction Bank CorpChina / HKAsia Pacific28/8/2020 
Agricultural Bank of China LtdChina / HKAsia Pacific28/8/2020 
China Merchants Bank Co LtdChina / HKAsia Pacific28/8/2020 
China Petroleum & Chemical CorChina / HKAsia Pacific28/8/2020 
China Shenhua Energy Co LtdChina / HKAsia Pacific28/8/2020 
China Minsheng Banking Corp LtChina / HKAsia Pacific28/8/2020 
BYD Co LtdHong KongAsia Pacific28/8/2020 
Sino Biopharmaceutical LtdHong KongAsia Pacific28/8/2020 
China Communications ConstructionHong KongAsia Pacific28/8/2020 
Wing Tai Holdings LtdSingaporeAsia Pacific28/8/2020 
     
Midea Group Co LtdChinaAsia Pacific30/8/2020 
Gree Electric Appliances Inc oChinaAsia Pacific30/8/2020 
Bank of China LtdChina /HKAsia Pacific30/8/2020 
Source: Bloomberg, retrieved 23 August 2020.

7) Market Monitors: Country Macro Data Releases in the Week Ahead

Date / Time
(GMT +8, SG time)		CountryEventPeriodExpectedPrior Period
(Actual)
08/24 13:00SingaporeCPI YoYJul-0.6%-0.5%
      
08/25 16:00GermanyIFO Business ClimateAug92.290.5
08/25 16:00GermanyIFO ExpectationsAug9897
08/25 20:00BrazilIBGE Inflation IPCA-15 MoMAug0.25%0.30%
08/25 22:00USConf. Board Consumer ConfidenceAug9392.6
08/25 22:00USNew Home SalesJul785k776k
      
08/26 13:00SingaporeIndustrial Production YoYJul-6.9%-6.7%
08/26 14:45FranceConsumer ConfidenceAug9494
08/26 16:30Hong KongExports YoYJul-3.9%-1.3%
08/26 19:00USMBA Mortgage ApplicationsAug 21     —-3.3%
08/26 20:30USDurable Goods OrdersJul P4.5%7.6%
      
08/27 12:30JapanAll Industry Activity Index MoMJun6.3%-3.5%
08/27 20:30USGDP Annualized QoQ2Q S-32.5%-32.9%
08/27 20:30USInitial Jobless ClaimsAug 221000k1106k
      
08/28 07:30JapanTokyo CPI Ex-Fresh Food YoYAug0.3%0.4%
08/28 14:45FranceCPI YoYAug P0.1%0.8%
08/28 14:45FranceGDP QoQ2Q F-13.8%-13.8%
08/28 14:45FranceGDP YoY2Q F-19.0%-19.0%
08/28 16:00ItalyConsumer Confidence IndexAug101100
08/28 16:00ItalyManufacturing ConfidenceAug88.985.2
08/28 19:00BrazilFGV Inflation IGPM MoMAug2.57%2.23%
08/28 20:30CanadaGDP MoMJun5.6%4.5%
08/28 20:30CanadaQuarterly GDP Annualized2Q-39.0%-8.2%
08/28 20:30USPersonal IncomeJul-0.4%-1.1%
08/28 20:30USWholesale Inventories MoMJul P-0.8%-1.4%
08/28 20:30USPersonal SpendingJul1.5%5.6%
08/28 21:45USMNI Chicago PMIAug52.551.9
08/28 22:00USU. of Mich. SentimentAug F72.872.8
08/28-09/03 UKNationwide House PX MoMAug0.5%1.7%
08/28-09/03 UKNationwide House Px NSA YoYAug2.0%1.5%
Source: Bloomberg, retrieved 23 August 2020.

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