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An Update on Global Capital Markets
Ronald E. Copley, Phd, CFAO: 910-452-7147
November 5, 2009
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Total Return EquationTotal Return Components for International Investment:
Yield--dividends and interest (income/begin price) Growth—price appreciation (end price-begin price)/begin price Currency Conversion—repatriation of foreign currency to US dollars
Example t=0: Invest $1000 in a Euro-denominated investment (exchange
1USD:1€)T=1: Investment earns yield (5%) plus growth (10%) plus currency
conversion (exchange 1USD:1/2€, or 1€:2USD)
Total Return = 5% + 10% + 100% = 115%
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Foreign Country Returns
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UUP vs. GOLD
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U.S. Equity Performance
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Foreign Equity Performance
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Fixed Income Markets
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PCY vs. SHV (Exchange Traded Funds)PCY: Seeks investment results that correspond generally to the price and yield, before fees and expenses, of the DB Emerging Market USD Liquid Balanced index.
SHV: Seeks results that correspond generally to the price and yield performance, before fees and expenses, of the Barclays Capital U.S. Short Treasury Bond Index.
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http://www.dailymarkets.com/stocks/2008/10/21/credit-default-swaps-%E2%80%93-a-disastrous-unwind/
Size of the CDS Market
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http://www.inflationdata.com/inflation/Inflation_Rate/CurrentInflation.asp
CIM’s Selected Choices for GrowthChina:
• Baidu, Inc (BIDU)—Search Engine• BYD CO LTD H SHS (BYDDF)—Electric Cars
US:• Apple Inc (AAPL)—Computers• STEC, Inc (STEC)—Solid State Storage
Latin America:• iShares S&P Latin America 40 Index (ILF)• T. Rowe Price Latin America Fund (PRLAX)
Europe/Asia:• iShares MSCI EAFE Index (EFA)• iShares MSCI Emerging Markets Index (EEM)
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Conclusions• Global equity markets attractive especially non-dollar
denominated investments in Asia;• Global bond markets still adjusting as spreads continue to
narrow (long rates declining relative to short rates);• US dollar in a long-term decline, but will not crash;• Credit Default Swaps remain a potentially large problem;• Deflation is a short-term problem, inflation a long-term
problem;• Gold is an excellent hedge against uncertainties.
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You can find a copy of this presentation and others at:
www.CopleyInvestmentManagement.com/articles
Thank you.
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