Please find below 5 charts that tell interesting stories on Markets and Investing.
1) US Tech is not in Bubble Zone like 2000:
Source: JP Morgan Research
US Technology Index has become ~10 times since 2009. The Index also has the record of falling by ~80% during the tech meltdown of 2000. The question is whether US Tech is again in bubble zone now and will it correct.
Correction can happen anytime, market necessarily don’t have to reach the previous bubble zone for correction. However, presently, US Tech Index is definitely not in bubble zone similar to the level seen in 2000.
The above chart shows the percentage share of tech companies in market cap of S&P 500 Index vs earning contribution of tech companies in S&P 500 Index. In 2000, the weight of tech companies in S&P 500 Index was 33.6% but earnings contribution was only 16.3%. In 2020, the weight of tech companies in S&P 500 Index is 28.2% but earnings contribution is 23.7%.
It can be clearly seen that in 2000, the earning contribution of tech companies in Index was almost half of their weight. But in 2020, the earning contribution is almost similar to their weight.
2) Trump VS Biden – Proposed Spending Plan
*Source – MRB Partners
The above chart shows the proposed spending plan of Trump and Biden if they become President of the United States of America. Both Trump and Biden plan to increase their spending on the economy by printing more money. This will lead to increase in inflation and increase in asset prices.
Biden plans to increase the tax collection by raising the corporate tax rates which may have a negative impact in short term on corporate profitability. Biden also plans to spend heavily on infrastructure, education etc which will have positive impact on the economy in long term.
3) India’s Export growth has been 3rd highest between 1995 and 2018
*Source – Research paper by Arvind Subramanian & Shoumitro Chatterjee
Between 1995 and 2018, India’s overall export growth has averaged 13.4 percent annually, the third-best performance in the world among the top 50 exporters, nearly twice the average world growth and not far behind China’s growth of just over 15 percent.
Contrary to wide belief, Indian export has done well primarily supported by service industry and high skills manufacturing. The only weak area for Indian export is low skill manufacturing like apparel, textile, leather, footwear etc.
Low skill manufacturing is what helped the export of countries like Vietnam, China and Bangladesh. India has a huge advantage in terms of low cost labour but it doesn’t gets benefit of the same due to bad labour laws. Indian Government should relax labour laws to increase employment and enable faster growth of low skilled manufacturing exports.
4) Impact of US Dollar on Global Stock Markets
*Source – JP Morgan Research
The above chart shows movement of US Dollar Index (USDX) since 1995. The US dollar index isn’t just a movement against Indian Rupee (INR) but it’s a measure of the value of US dollar relative to the value of a basket of currencies of the majority trading partners of US.
The above chart shows that US Dollar Index weakened between 2000 and 2010, this was also the time when emerging market equity was doing well and US equity struggled. Between 2010 and 2020, US Dollar Index became stronger and during this time emerging market equity struggled and US equity did well.
So it can be said that US Dollar Index has positive correlation with US equity and negative correlation with emerging markets equity.
Make a correct prediction about the movement of US Dollar Index and you will be able to pick the right equity market to invest.
5) Household Savings & Public Sector Borrowing:
*Source – Book – Bad Money: Inside the NPA Mess by Vivek Kaul
The above chart shows the movement of household savings and public sector borrowings as percentage GDP of India. The chart shows that household savings has been falling and public sector borrowing has been increasing gradually.
Due to higher borrowing and lower savings, longer term Interest rate continues to be high in India despite almost zero interest rate globally.
Due to limited scope of further borrowing, Government has been reluctant in providing fiscal stimulus. Any additional fiscal stimulus has to be funded by printing of money by RBI which will lead to high inflation. The retail inflation in India is already at 7.34%. Government cannot afford to risk any higher inflation because high inflation is one of the biggest reason for political parties losing election (Read UPA).
Dr. Mukesh Jindal CFA, CFP, CAIA, Ph.D.