The Year of the Dog
Another parade is taking place in the City of Brotherly Love today. This parade is a LOT smaller than the Eagles parade, the subject of my last post, and is taking place about ten blocks due east of my office in the Chinatown section of Philadelphia. Today’s parade commemorates the start of the Chinese New Year, and this year will be recognized as “the Year of the Dog”. I’m all over something as provocative as “the year of the dog”, and this blog about investments can go a bunch of different directions. Let’s see where this adventure takes us.
First, you might ask “why is the Year of the Dog interesting?” Well, investors often refer to bad investments as “dogs”. There is even a popular investment strategy that takes last year’s losers, the Dow Dogs, and bundles them together to make up a nifty portfolio of stocks.
Some of my clients have heard me utter “time to sell the dogs” when I refer to investments that have delivered less than optimal results (that’s a nice way of saying they were losers….no advisor is ever 100% correct in their investment selections, folks). And while you love dogs around the home, a dog in your portfolio is not something you want to tolerate.
Another reason to comment on this celebration of Chinese culture is to draw attention to the whistling hot Chinese markets. According to this week’s Market Flash report from Raymond James, thru last Friday the MSCI China Index has delivered a scorching 39.63% return. Compared to the S&P 500 return of 15.78%, the US markets were like a trusted beagle while the Chinese markets were a sleek greyhound. To be fair, during the tumultuous markets last week, the US slipped only 5.1% while the Chinese market fell 9.99%. Maybe the dog for 2018 will be the Chinese market? I don’t think so. Economic forecasts indicate the Chinese economy should grow north of 6%, and this is very healthy growth. Moreover according to CEIC the price/earnings ratio of the Chinese market stands at 17.73, meaning that Chinese stocks on average are priced a little less than US stocks, currently sporting a 20.63 P/E, based on RJ data. I am not making any predictions about relative returns on markets – you will remind me of my recent history with predictions if I make new ones….and I’m not going there.
China Gross Domestic Product (GDP) is likely to be roughly 62% of US GDP in 2018, placing her second of all countries. That’s a big jump from the year 2000, when China GDP was the sixth largest at 12% of US GDP. Forging important alliances with China, and watching the alliances China forms, will be critical to investor success in the coming years.
Last, I must comment on another interesting and timely event taking place not too far from China, the Winter Olympics taking place in PyeongChang, Korea. 2952 athletes from 92 countries will compete in 102 events across 15 sports. While some say curling is not a sport, I disagree and find it fascinating. For your information, the Chinese delegation includes 81 athletes and they have earned three silver and two bronze medals thus far. US athletes number 242 and are the largest delegation at any Winter Olympics ever. To date US athletes in PyeongChang have earned eight medals – 5 gold, 1 silver and 2 bronze. By the way, the US medal count places them in fifth position overall. Norway leads the medal count, with Germany, the Netherlands, and Canada coming in second thru fourth respectively. I guess GDP has little correlation to athletic prowess. Curiously, the mascot of these Olympics is a bear named Soohorang. A bear??? I won’t even start.
Enjoy the Winter Games!
Ralph McDevitt February 16, 2018
Views expressed are not necessarily those of Raymond James and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets. Price Earnings Ratio (P/E) is the price of the stock divided by its earnings per share. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI China Index captures large and mid cap representation across China H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). With 152 constituents, the index covers about 85% of this China equity universe. Keep in mind that indexes are unmanaged and individuals cannot invest directly in any index. Index performance does not include transaction costs or other fees, which will affect the actual investment performance. Individual investor results will vary. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success.
