A recently published study noted that country allocation weighs much more into stock performance than is commonly thought. A second conclusion, even more interesting, is that it is not by choosing solid and healthy countries to the detriment of fragile ones that the best results are necessarily achieved, but by focusing on changes in the political and economic climate.
Paradoxically, a country that is perfect from this point of view can only get worse, while a country that looks like hell can only get better. Of course you have to seize the moment. Singapore has always been perfect and North Korea has been less so for just as long. Waiting for things to change can therefore take a lifetime and perhaps several generations. However, if even small nuances of variation for the better or for the worse are guessed, the results can be remarkable.
What a discovery, it will be said, it is also the same for the individual titles. A perfect blue chip is already priced as such, while an awakening wreck can give great satisfaction. The difference is that a single stock, especially if the majority shareholders don't care about it, can remain in the shadows and not be valued as it deserves. On the other hand, a country is always the object of attention, if only by those who live there.
Let's take some concrete examples. Throughout 2014 we said and repeated that the American economy is the most solid and healthy in the world. Indeed, the SP 500 has gained 12.7 per cent in euros since 47.4 January. In the same months, however, we have also said and repeated to ourselves an infinite number of times that one of the most unfortunate countries imaginable is the 'Argentina. In the newspapers we have read only news about the devaluation of the peso, the new default on restructured bonds, increasingly suffocating currency controls and an economy suffocated by a total lack of investment and forced into stagnation as far as the eye can see. Well, the Buenos Aires stock exchange has returned XNUMX per cent in euros since the beginning of the year. Of course, Argentina traditionally treats its foreign creditors like fish in the face, but this year it was enough that the fish were a little smaller to move the bondholders.
And on the other hand, an economic policy that is chaotic and populist in the cube, such as that of Buenos Aires, heartens local shareholders and fills them with hope if it becomes chaotic and populist in the square. Brazil too was spoken only badly this year . The country is no longer growing, has anti-business policies and has accumulated a lot of private debt. Emerging presidential candidate Marina Silva has been to Lula's left as minister, she has not said a single word about his economic program and is an absolute mystery across the board. It doesn't matter, says the São Paulo stock exchange, any candidate is better than outgoing president Dilma Rousseff. The result is that São Paulo has grown by 29 percent in euros since the beginning of the year. Companies in the public sphere grow even more (Petrobras is up 90 percent). All this without there being any certainty that Rousseff will not be re-elected.
As for the Mashrek, the Arab east that extends from Cairo to the Arabian-Persian Gulf, the flow of news included the terrible Syrian civil war, the conflict between Gaza and Israel, the collapse of the state borders established by France and Great Britain in 1916 and the eruption on the scene of the Islamic State that sows death and terror. The Cairo stock exchange, in euros, gains 38 percent this year, the Saudi stock exchange 34.5, Qatar 39.1, the Emirates 54.1. Israel is up 7.4 and Palestine up 0.6. For its part, Turkey, now in open war against Syria, is growing by 23.2 per cent in euros. And why on earth? Egypt controlled by the military and Salafis (ie by the United States and Saudi Arabia) is more stable. Gulf countries feel less threatened by Iran. Turkey has not descended into chaos as feared. Everything is relative.
The review can only end with Ukraine. January 54.2st was a country crossed by strong tensions but limited to the square in Kiev. Today it is in civil war, with a blood price of two thousand dead, and is the epicenter of a potentially global conflict. Kiev's stock market rose 2.7 percent in local currency because the new government is pro-business (or pro-oligarch, depending on your point of view). The depreciation of the hryvnia means that, in euros, the stock market is down by 2015 percent. In any case, a figure that is better than those of Japan, Hungary, Austria, Estonia, Latvia and Malta. From these summer digressions we draw an idea that concerns us closely. It is known that the Eurozone is in a very delicate situation. Debt rises, production stagnates, deflation is approaching and there is no structural way out on the horizon. Yet, exactly as in the cases around the world that we have mentioned above, the hope of a Quantitative easing at the end of the year or at the beginning of XNUMX to make the European stock exchanges grow more than the American one in the coming months, as has already been the case for three weeks.
The big question, of course, concerns Germany's attitude towards Qe. Our impression is that the German government has already accepted this, if only as a serious working hypothesis. For a few weeks he will hang it from above, as he always does in these cases. He will take his time, he will ask for the effects of the Tlter and the Abs purchases to occur first, he will claim that it will be yet another gift to the Mediterranean cicadas, he will play the victim, he will say no to the last minute and then he will say yes. negotiate counterparts on reforms with France and Italy and to confirm the image of strict guardian of monetary orthodoxy. The happy ending (not yet a certainty, but we bet) will be due to the fact that the crisis has begun to touch Germany itself and to the consideration that the entire political construction of the Eurozone is today even more at risk than in 2011.
Hollande's clamorous profession of faith in the German line these days, although carried out in conditions of extreme weakness, cannot have been completely free (nothing is ever free in politics). The counterpart, probably, has been and will be (in addition to the acceptance of the French deficit by Brussels and Berlin) the weak euro. And the weak euro sooner or later passes through Qe. It seems to relive the Japanese experience. The emergence of Qe weakens the yen and sets off the Tokyo stock exchange which, once Qe has started, even goes into overshooting. This is followed by a period of consolidation and then a rally again. We don't know how it will end in Japan. Consents for Abe are declining and the outcome of his plan remains to be verified. However, Europe (Ukraine permitting) is only at the beginning of this journey.
