Taking whimsical stream-of-consciousness financial commentary to levels even Aleksandar Kocic would blush, overnight BofA CIO Michael Hartnett has released a report titled “The Hitchhiker’s Guide to the Investment Universe”…
… which, to the delight of Douglas Adams fans everywhere, covers “Wall St Life, the Universe and Everything.”
Hartnett’s report is a primer for retail & institutional investors on the size, composition, performance, risks, fund flows, yields, and valuations of the bond & equity universe.
Of course, there are exactly “42” charts & tables in the report, which illustrate Wall Street’s huge bull run, the “great corporate rotation”, credit’s inflection point, the multi-year decoupling of US assets, tech’s leadership & vulnerability, and the shift to late-cycle returns in 2018.
For the sake of brevity, we will focus only on the 20 “don’t panic” must-know stats for investors highlighted by Bank of America:
1. Global financial assets = $180tn or 226% of global GDP, an all-time high. Global financial assets totaled $23tn in
1990, $64tn in 2000, $139tn in 2010.
2. By the end of 2017 the universe of global equities totaled $81tn. And in Jan’18 global equity market cap reached a high of $90tn, a massive jump from $30tn in Mar’09
3. The “great corporate rotation”: Since the GFC, US companies have issued $14tn of debt, bought $5tn of stocks. Corporations in the US have become more important relative to institutional investors in driving equity prices up & down
4. Number of listed equities on NYSE was 3572 in 2000, fell to 3062 in Q1’18. The diminishing number of public companies this century has coincided with much higher valuation
5. The US Treasury market is the largest debt market in the world with $17.6tn of debt securities. US = 37% of global government bond market. The US, no surprise, is the largest equity market, accounting for $24.9tn or 53% of the MSCI index, close to its all-time high53% of global stock market.
6. Tech sector market cap: US $6.6tn, China $0.7tn, Europe $0.5tn, Japan $0.5tn
7. Five largest global stocks 2018: Apple, Amazon, Google, Microsoft, Facebook
8. Five largest global stocks in 2009: ExxonMobil, GE, China Mobile, Microsoft, Gazprom
9. YTD returns: commodities best since 2002, REIT returns worst since 2011, US IG bonds worst since 1974
10. Peak-to-trough yield from GFC: global HY 23.1% to 5.0%; now 5.9%
11. Peak-to-trough yield from GFC: EM debt 10.8% to 3.6%; now 5.0%
12. Govt bond yields >7%: Turkey, Brazil, South Africa, India, Mexico, Indonesia
13. Dividend yields >5%: banks in Aust, Brazil, France, Italy; US telcos; UK energy
14. From all-time equity index high: US 3%, Japan 19%, Eurozone 27%, China 31%
15. Most creditworthy = German bunds (CDS 11bp), least creditworthy = Venezuelan debt (11507bp)
16. Evolution of “tail risks” since 2011: Eurozone debt crisis…US “fiscal cliff”…China “hard landing” & geopolitics…populism…quantitative tightening…trade war
17. Evolution of “crowded trades” since 2013: short Yen, long high “yield”, long US$, long high Quality, long Nasdaq, long Bitcoin, short vol, long FAANG+BAT
18. Price to book ratios >3x: US, India, tech, health care, staples, discretionary
19. Price to book ratios <1.5x: Russia, Italy, Korea, Spain, Japan, financials
20. Price to book ratio of China tech stocks = 8x, China financials = 1x
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