In today’s briefing:
- Before You Call Artificial Intelligence a Bubble, Understand that Bubbles Are Rare!
- Earnings Watch: Which Equity Markets Offer the Best Opportunities Across the Pacific?
- Incorporating Climate Change into Economic Scenarios
- EA: HICP Inflation Resumes Trend Lower
- AFC Vietnam Fund May 2023 Report
Before You Call Artificial Intelligence a Bubble, Understand that Bubbles Are Rare!
- A comprehensive empirical study by Goetzmann (2016) covering more than 3000 stock market-years in 21 stock markets between 1900 and 2014 reveals that bubbles are incredibly scarce.
- The likelihood of the stock market declining by 50% (crash) within a year after a rise of 100% or more (boom) in the previous year is only just 4%.
- Interestingly, stock prices rose by another 100% after a rise of 100% or more (boom) in over 8% of the cases. These findings will not resonate well with perpetual bears.
Earnings Watch: Which Equity Markets Offer the Best Opportunities Across the Pacific?
- Expected earnings growth has broadly trended downwards along with the realization that a bill from the Covid-boom had to be paid. Even so, momentum has shifted.
- In the current conditions characterized by high-interest rates, borrowing costs are higher, which, all else equal, reduce corporate profits and lead to lower forward earnings expectations
- When observing broad market price-earnings Japan does not look cheap as much as the US looks expensive.
Incorporating Climate Change into Economic Scenarios
- Climate change, a pressing concern in the socio-economic landscape, is shifting from environmental to economic challenge; integrating climate risks into economic forecasting and strategic planning is critical.
- Approaches for incorporating climate risk into scenario analysis include bottom-up, top-down, and hybrid methodologies.
- Scenario modelling provides insight into potential futures based on emission levels. Despite complexity, incorporating climate change into economic scenarios is doable with available resources, data, and expertise.
EA: HICP Inflation Resumes Trend Lower
- Flash EA inflation fell by 86bp to 6.11% in May-23, undershooting forecasts by 0.2pp. The outcome still resumes the downward trend since the Oct-22 peak.
- Germany was the primary geographic source of the downside news for us, but energy prices were the weakest area. Transport, housing, and food are driving inflation down.
- We expect another fall for similar reasons in June, albeit slightly smaller. Excessive underlying inflationary pressures remain inconsistent with reaching 2% sustainably.
AFC Vietnam Fund May 2023 Report
- In May the stock market exhibited a subdued demeanor, characterized by predominantly sideways movement and limited trading volume.
- Nevertheless, the VN-index managed to increase by+2.48%, and the AFC Vietnam Fund recorded growth of +3.2% to an NAV of USD 3,118, according to internal estimates.
- Despite a relatively quiet stock market environment in May, the index managed to gain 26.05 points and closed at 1,075.17, representing an increase of 2.48% and the AFC Vietnam Fund recorded another positive month, slightly outperforming the index with a 3.2% gain.
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