British stock market got talents

British stock market got talents

 

Coming to the end of 2014 and it has been an exciting year in terms of investment.  US stock market is still in bull cycle.  Russia Ruble has finally rebounded after depreciated by 40% against the USD since July.  China cut 1 year benchmark borrowing rate from 6% to 5.6% to simulate the slowing economy.  Japan Abenomics turbo charged the money printing machine and sent Japanese Yen to 7 years old against the US Dollar.

 

The global markets have some big swings and looking at the UK stock market, it may look bored from the surface as the FTSE100 is almost unchanged for the year.  However, it is actually a sweet and sour dish with a few star performers and disappointment from some counters.  The talents are Shire Plc, Dixons Carphone, Ashtead Group, United Utilities Group, Astrazeneca and London Stock Exchange Group all showing over 30% year to date return as of 21 November, 2014.　The laggards are IMI, Standard Chartered, Rolls-Royce, Tullow oil and Tesco who dropped 30% to 42% year to date over the same period of time. 

 

The UK supermarkets are have a price war and killing each other.  Sainsbury and WM Morrison are also down 29% year to date.  Grocery sales fell by 0.2% in the 12 weeks to 9 November and it is the first fall since records began two decades ago according to Kantar Worldpanel data.  It looks like the supermarket chains have passed the part of the growth curve where more shops mean more profit.  Rolls Royce and Standard Chartered may have little in common in their business but both enjoy strong growth in emerging markets.  Rolls Royce gets more order as emerging markets build more airports and their airlines buy more planes.  Standard Chartered is viewed as a global player with strong presence in emerging markets.  Russian economy is getting colder by the day.  China economy is still slowing down.  Latin American has Argentina, Venezuela and even Brazil with red light flashing.  The emerging market opportunities have become threats.  For Rolls Royce, it could mean less new orders and existing purchase getting delayed.  For Standard Chartered, it could be a double punch in less revenue and potentially more bad debt.

 

Let’s look at the bright side of life.  Dixons Carphone is up 52.5% in one year as of 21 November, 2014.  It is a GBP 4.8 billion market capitalization company and it is the largest UK electronics retailer.  It is experiencing strong growth in earnings.  According to Bloomberg data, its earnings in 2014/2015 financial year is expected to be over 2.5 times the previous year.  Dixons has really done well in a business that looks simple.  Selling mobile phones, tablets and laptops look easy.  Well, last year Comet collapsed and currently, Phones 4u is looking for buyer to save itself from liquidation.

 

Shire is a health care company in the biotech and pharma sector based in Dublin.  It is GBP 26 billion market capitalization and is up 58.6% in the past 12 months.  Worth noting that was an acquisition play with Chicago based AbbVie trying to buy Shire then move the combined company’s legal address to the UK for a lower tax bill.  The US Treasury Department stepped in and made tax inversion deals more difficult.  AbbVie probably could even sense the heat in Chicago and pulled this deal.  Without the merger story, Shire share price skydived in October from 5200 GBp to GBp 3500 level.  For the shareholders who survived the free fall or the brave ones who bargain hunt, they would be pleased that Shire has climbed back to GBp 4500 level in November.  For this kind of global merger, hedge funds will participate in two ways.  Some hedge fund managers would believe the deal would go through and try to accumulate Shire at a lower price than what AbbVie would pay for.  As the share price of Shire climbed to above GBp 5000 level in September, some hedge fund managers might think the deal may not go through and decide to short the stock.  Thus when the stock dropped in October, the hedge fund managers who shorted the stocks could be buying back.  The bounced back in Shire share price in November could reflect two things.  The real valuation of the company on its own and the fact that it is ready to be sold, it may demands some premium in valuation as it is a “ready to be served” takeover target.

 

Happy Christmas to everyone and always good to have a more profitable 2015.

Stormy weather across all markets

Stormy weather across all markets

Ebola, weak economic data in Europe and China, US leading the fight against IS, Occupy Central in Hong Kong…  So much happening and we all know negative stories get more “likes” and “share” in general.  The more important ingredients should be Euro zone is still weak as expected and higher steroid dosage has limited effect.  US economy is strong or at least stronger than other continents but quantitative easing is tapering off.  Emerging markets are trouble, not the global economy drivers.  Stick to the simple supply demand, bulls versus bears concept.  The bears have the perfect storm to attack and they managed.  What was amazing was the fact that the storm was not just in equities market but spread to other capital market instruments, meaning currency and bonds.

Let’s look at scale of the wave.  S&P 500 index closed at historical high on 18 September at 2,019.36 and within a month, it has corrected 7.8% to close at 1,862.76 on 16 October.  It has rebounded to 1,925 level on 21 October.  In the past year, there were two significant corrections in the S&P 500 index bull run.  A 3.9% correction in July / August and a 5.6% correction in January / February.  So a 7.8% correction is a big deal.  Is this a good time to get in?  Let’s look at some areas where got hit even more severely by the storm.

Eurostoxx 50 Index fell 12.1% in the same period from 3271.37 to 2874.65.  The index rebounded to 2980 level on 21 October but the damage was made.  The close on 16 October, 2874.65, was 1 year low hence created a dip based on the past 12 months performance.  The UK’s FTSE 100 Index also dropped 9.1% in the same period from 6819.29 to 6195.91.  If trend is your friend, Eurostoxx 50 and FTSE100 Indices are friends of the bear camp.

GBP’s weakness continued and the rebound after the Scottish roller coaster was wiped out and even USD 1.6 to GBP 1 was broken a few times in October.  All the gain in GBP against USD in the past 12 months has gone.  The winners are those who went to US for summer holiday. EUR against USD is down 7% in the past 12 months.  EUR has been weak since July like GBP but EUR never enjoyed a rally against USD in the first half of 2014.

The US Treasury market has also gone yoyo as money ran away from risky asset like equities or high yield bonds to safe asset like government bonds.  iShares 10-20 year Treasury Bond ETF listed in US tracks the investment results of a basket of US Treasury Bonds with 10 to 20 years remaining life.  The ETF price had a big spike in October as its price rallied from USD 130 in the beginning of October to USD 137.7 on 15 October and came back to USD 133.6 level on 21 October.  Compared to a steady uptrend since January 2014 from USD 125 to USD 130 at the end of September, the spike in October is like the Shard in the City.  While US Treasury is getting money in, High Yield Corporate Bond funds see money running away.  iShares Euro High Yield Corporate Bond ETF had a bungee jump in October.  Its price dropped from EUR 108.5 level EUR 105.13 on 16 October then rebounded back to EUR 107.5 level on 21 October.  Considering the ETF has been crawling up and down between EUR 108 and EUR 111 in 2014，paying average 5.3% dividend a year. The dip in October looks like Moses crossing the Red Sea on the price chart.

Gold put on a dead cat bounce in October after breaking the psychological support of USD 1200 per ounce on 6 October.  The last time Gold prices went below USD 1200 was in 31 December, 2013.  Coupled with the fear in equity markets, gold got some love and bounced back to USD 1250 level on 21 October.  Gold rallied from USD 1200 level in January 2014 to almost touching USD 1400 level in March.  Then Gold prices have been treading downward since.  Why Gold prices could be just having a dead cat bounce?  Look at Crude Oil prices which has been falling and falling since end of June from USD 103.66 to below USD 80 at USD 79.1 on 16 October.  Oil was once called Liquid Gold.  With Emerging Markets losing growth momentum and US using more and more shale gas, if oil is liquid gold then gold prices would find it hard to decouple from falling oil prices.  No fear of inflation and no sight of gold replacing USD, mean less reason for gold prices to rally.

GBP went through a Scottish roller coaster

GBP went through a Scottish roller coaster

 

3 big events in September and they happen on the same day.  1) Scotland independence referendum; 2) listing of Alibaba in New York； 3）Apple iPhone 6 launch.

 

The Scotland independence referendum was “the” global event and made a big impact to the currency world.  The British Pounds with the threat of losing an arm and a leg, dropped like a rock against USD in the first week of September from 1.661 level on 2 September to 1.605 on 10 September.  It then rebounded and spiked to 1.653 on 19 September when “No” won the race.  EUR was also struggling with weak economic data and cold response from economic simulation plan.  EUR continued its weakening against the GBP that started at 1.200 level in April and it was EUR 1.2804 to GBP 1 on 19 September.  Considered it was EUR 1.24 to GBP 1 on 10 September, the 3% weakening in EUR in 9 days is a roller coaster.　 Imagine UK becomes a mini Euro zone.  With England taking the leadership role like Germany while Scotland, Wales and Northern Ireland pick their choices of being Italy, Spain and France.   England controls the GBP money printing machine.  Not a pretty picture.  The UK stock market was relatively calm with the whole event with the FTSE 100 index range bounded between 6750 and 6900 level in most of September but it snapped on 23 September with geo-conflict to 6650 level.  In Sterling terms, UK FTSE100 Index is down 1.1%, Eurostoxx 50 is down 2.7% and S&P is up 8.6% year to 233 September.

 

Alibaba is kind of an Amazon plus PayPal in China and it is USD 215 billion market capitalization.  It operates the biggest online shopping sites in China.  www.taobao.com is like eBay where anyone could open their own online stores but a shop may need to pay a few thousand pounds a month for marketing packages to get eyeballs.  There is naturally thousands of anything you can imagine.  You type “Rainbow Loom” and there are 8,675 items found.  There is www.tmall.com that only allows selected merchants to list their products.  So brands like Prada and Louis Vuitton are available in Tmall.  Alibaba’s PayPal equivalent is called AliPay which is the biggest online payment gateway in China.  Alibaba is same size as Amazon and eBay combined.  Amazon is USD 150 billion market capitalization, still in heavy investment stage expect to report losses.  Year to date share price performance is down 19% as of 23 September.  eBay is USD 65 billion market capitalization, making good money and trading at 18 times estimated profit to earnings ratio.  The stock is down 4% year to date as of 23 September.

 

Apple launched iPhone 6 and its share price has been rallying since April from USD 75 a share to USD 102.64 as of 23 September.  Not bad at all considering it is losing market share to Samsung and other Android phones.  Basic iPhone 6 16GB are offered at GBP 539 and the bigger iPhone 6 Plus 128 GB at GBP 789.  The price tag can pay for a nice holiday.  But what’s the point of going on a holiday if you cannot have the latest iPhone 6 to take selfies, checking facebook , Instagram, Pinterest.  When iPhone 5 was launched, it marked a peak in Apple share price.  Hard to say whether iPhone 6 would bring the same fate as Apple’s pricing strategy on iPhone has been pricing it on a premium to competitors.  It was also announced that iPhone 6 sold over 10 million units over the first weekend which is a new record for Apple.

 

A smaller event in September.  GlaxoSmithKline (“GSK”) suffered a massive fine of GBP 300m from the Chinese government for bribery.  At least it is done and dusted after a year of investigation accusing the company paying as much as GBP 30m in bribes to doctors in China.  With the dark cloud hanging in the past year, GSK share price has been suffering and it has come off from GBp 1700 level in February to as low as GBp 1365 on 8 August.  It has been paying more than 5% dividend yield since 2010.  It is back to GBp 1400-1450 level as of 23 September.  GSK is a blue chip company and the current price is back to 2013 level.  Worth taking a look if it is worth bargain hunting.

It is a Bulls eat Bears world in the stock market, for now.

It is a Bulls eat Bears world in the stock market, for now.

US stock market put on a good show in August.  The S&P 500 index that represents the US stock market failed to test 2,000 in July and slid to touch 1,900 in the first week of August.  That is a 5% correction and got the bears very excited.  The bears have been saying the US stock market was too strong for too long and the bubble has to burst.  The Tapering measure means less money is pumped to the system every month and the bears are convinced that gravitational force should apply to US stock market.  The bears had their best week in watching the market fall since January when the S&P500 corrected from 1850 level to 1750 level.

The 100 moving average, which is the average number of the past 100 trading days closing prices of the index, turned out to be a magical number.  As S&P500 touched 1,900 level at the time when it was also the 100 days moving average, magic happened and the market rebound all the way to 1,994.76 on 21 August.  Considering S&P500 was at 1,627.47 on 28 August, 2013 which is also the lowest print in the past year, US investors have done well with 22.6% return in USD in just under a year.

The technology sector in US is harder to read although there are probably more people reading their Apple iPhone screens than reading the Oxford Dictionary.  Nasdaq Composite Index which represents the high tech stocks in US has had an awesome run in the past year.  Its low point in the past year was 3,573.6 on 27 August, 2013 and the high point was 4,534.1 on 21 August, 2014.  This means a 26.9% return in USD in under a year.  This is impressive.  If we consider there are more ups and downs in Nasdaq and the tech sector is more fashionable than the boarder index like S&P500, S&P500 index fund is perhaps a more stable investment target than Nasdaq index fund.  What is more significant for the Nasdaq Composite Index is that it has captured the 4,500 level and new high in 14 years.  For those who participated in the Tech Bubble in year2000, they would remember Nasdaq Composite index shot up from 3,000 at the end of 1999 to 5,132.5 on 31 March, 2000 and dived to almost touch 3,000 again.  Then rebounded to reconquered 4,000 level before heading south all the way to 2,000.  In short, Nasdaq at 4,500 level is a very high and happy level for investors if one removed the spike in year 2000.

There are some amazing performers in the tech sector.  We all know Tesla, ran by Elon Musk the Iron Man in real life.  Tesla is up 69% year to date as of 21 August.  Sandisk (maker of memory cards) and Facebook are up 38% and 36% respectively.  Mighty Amazon.com is down 16.5% year to date.  These high tech counters could swing widely and buy and hold strategy could give you a roller coaster ride.

The European stock market has done a bungee jump in August.  Eurostoxx 50 Index, started near 3200 level in August, dropped through 3,000 level and bounced back to 3,124.6 on 22 August.  UK stock market had similar fate.  FTSE100 started at 6,800 level in August and was slammed to below 6,550 level and rebounded to 6,780 level on 22 August.  The dropped in European and UK stock markets in the first week of August was scary.  Combined with weak economic data and the tension in Ukraine, the bears really thought they could have the last laugh.  However, the market believes weak economy means potentially more money printing exercise hence asset appreciation.  The bears win again.

The British Pound dropped like a rock against the USD in August, erasing all the gain since April.  The drop started in mid-July after a high print of GBP 1 to USD 1.719 on 15 July and fell to 1.657 on 22 August.  That is a 3.6% drop in over a month.  The scary thing is that the GBP movement is like a whole month of landslide without much rebound.  GBP against the USD dropped though 50 days moving average at 1.69 level near the end of July, then the 100 days moving average at 1.68 in the first week of August and 200 days moving average at 1.67 after mid-August.  The momentum and magnitude of the movement has not been seen for a year.  GBP has broken many technical support and hopefully, 1.65 level could give Sterling a breathing space.  The EUR is falling against the USD even faster than GBP.  EUR has fallen 5% since May from EUR 1 to USD 1.399 to 1.328 on 22 August.  EUR is not far from its one year low at 1.311 on 6 September, 2013.

Cannot find the straw that broke the camel’s back?

Cannot find the straw that broke the camel’s back?

The UK stock market has some exciting moments in July.  Banco Espirito Santo SA, Portugal’s second largest bank by market value, gave the market a cold shower as some of Grupo Espirito Santo’s units missed commercial paper payments.  FTSE 100 Index first rallied to 6850 level then broke the 200 days moving average support for the first time since April and tested 6650 level.  It then bounced back to 6800 which was the supporting level in May and June.  For the past year, it has been a good strategy to buy FTSE100 when it dips below its 200 days moving average (the average price of the past 200 trading days’ closing prices) and sell a month later.  6900 level has been challenged in May, June and July and with the continuous bullish sentiment in US stock market, there is still a chance for FTSE100 to be above 6900 level in 2014.

While the FTSE100 has had an uptrend in the past year, the index has only gone up 3.5% from 25 July, 2013 to 24 July, 2014.  Buy and hold investors have done better than bank deposit and inflation.  The US stock market represented by S&P500 index has gone up 17.6% in price but only 6.1% in GBP terms in the same 12 months period.  GBP has been strong against the USD strengthening from a low of GBP 1 to USD 1.4814 on 9 July, 2013 to GBP 1 to USD 1.7192 on 15 July, 2014.  This makes the S&P500 index gain in USD much less lower in GBP terms.  It is still great to be up 6.1% in 12 months for those invested in US S&P500 Index Funds.

The Euro stock market has been as bullish as US.  It may sound illogical as US has recovery written all over it while Europe only has managed to pick up World Cup in Brazil.  Eurostoxx 50 Index is up 17.5% in the past year and was up 20% until the Banco Espirito credit issue emerged.  GBP has also gained against EUR in the past year and the 17.5% gain in Eurostoxx 50 in EUR terms would become 7.9% gain in GBP terms.  So sticking to the big index funds in US, Europe and UK have been fairy fruitful investments in the past 12 months.

Zooming into the individual stocks in FTSE100, there are a lot of dramas.  2014 top performers are Shire Plc which is up 75% year to date as of 24 July.  United Utilities and Randgold Resources are up 34% to 35%.  Weir Group, Ashtead Group, Next Plc, Fresnillo Plc, Smith & Nephew, AstraZeneca and Glencore are up 23% to 27%.  There are a lot of household names in the worst ten performers.  Tesco, Pearson, Vodafone, Kingfisher, Coca-Cola HBC, Hargreaves Lansdown, Barclays, ARM Holdings, Royal Mail are down 18% to 21%.  At the bottom of the list is WM Morrison that is down 33.5% year to date.

Shire Plc is a biopharmaceutical company with over 5,000 staff and it is bought by its US rival AbbVie Inc for about GBP 32 billion.  AbbVie can lower its tax rate as the new combined company will be a UK domiciled company.  After the AbbVie Shire merger, AstraZeneca shareholders are hoping for a better bid from Pfizer after the last bid was rejected in May.  However, its share price at 4,300-4,400p level has already priced in a merger premium.

While UK pharmaceutical companies enjoy bidding interest from US rivals, the UK supermarkets are beaten up.  WM Morrison is struggling to find breathing space between the 3 giants (Tesco, Asda and Sainsbury) and the 2 rangers (Aldi and Lidl).  Morrisons are not really big in online or in physical convenience stores.  Even Tesco is down 18% year to date which shows how tough it is in the supermarket space.

Post Office is not supposed to be a roller coaster business but Royal Mail share price have been swinging like high tech stock share price.  Royal Mail, the 500-year-old institution, came to the stock market at 330p to close at 455p on the first day of trading and peaked at 615p on 15 January which made every investor very happy.  But the share price has been heading South since March with a one month rebound in mid-April.  It closed at 441.1p on 25 July.  Amazon is withdrawing its entire business from Royal Mail.  Amazon has expanded its own delivery network and introduces a GBP10 minimum spend for free delivery.  Amazon scrapped free “super-saver” delivery on items worth less than GBP10 in January which resulted in less business for Royal Mail.  New entrants like TNT are also cannibalizing Royal Mail’s business.

The third quarter is going to be interesting for stock investors with the Russian Ukarine situation as a potential catalyst and the US unstoppable bull market could be waiting for the straw that broke the camel’s back.

Better fun to support the British Sterling

Better fun to support the British Sterling
The British fans travelled all the way to Brazil to watch the World Cup maybe slightly disappointed with their soccer team performance.  However, they certainly enjoy the strength of the British Sterling which is at a 5 years high against US Dollar.  Sterling rallied through 1.70 level, the highest since October 2008.  The Sterling has risen 14% against USD and 11% against EUR since July, 2013.  GBP 1 was USD 1.4861 on 10 July, 2013 and USD 1.7040 on 20 June, 2014.  During the same period, GBP was EUR 1.1269 and EUR 1.2510 respectively.
Just as the World Cup started, the Bank of England chief, Mr Carney, gave the first sign that there may be a rate increase as early as this year.  He said rates could rise from their historic low of 0.5pc “sooner than expected”.   He made such comments in the annual Mansion House Speech and the British pound rallied to a five-year high against USD.  The Bank of England could be the first major central bank to increase rates, ahead of the Euro zone and US.
The FTSE 100 has spent May and June testing 6900 level on the upside and it may get harder with the backdrop of increasing interest rate.  The bulls and the bears in the stock market have different interpretation on Mr Carney’s words.  The bulls would think that Mr Carney is concern about inflation and the monetary policy being too loose for too long.  The economy recovery is in good shape and it is time to tighten up the monetary policy with a bit of a rate hike.  The bulls would take these positively and hope stronger economy means good news for listed companies earning growth.  Stronger Sterling could mean more asset allocation from insurance companies, pension funds and other financial institutions.   The bulls hope for more institutional money pouring into GBP investment meaning the Gilt, corporate bonds in GBP, UK stocks and UK properties.  All these could mean more upside for the UK stock market.
The bears in the stock market think the glass is half empty as they are worried that the UK stock market is at its peak and could be running out of steam.  An increase in interest rates makes bonds more attractive and there could be money getting out of the stock market and flowing to GBP bonds.  Money outflow from stock market means selling pressure and negative for share prices.  Increase in interest rate also increases business operating cost as most business are borrowers and hence could hurt earnings of listed companies.  Weaker earnings could lead to weaker share prices.

Investors may ask if UK stocks could be at or near its peak, how about the US stock market which seems to be making new highs every other day.  Federal Reserve chair Janet Yellen continues to tighten up its monetary policy.  On 18 June, Yellen announced Federal Reserve would reduce its asset purchase program by USD 10 billion to USD 35 billion a month.  In December 2013, the Fed started cutting USD 10 billion from its USD 85 billion monthly asset purchase program.  The stock market, taking S&P500 Index as benchmark, has gone up 7% since beginning of the year (as of 20 June, 2014).  One could see the tightening in monetary policy has not marked the peak of US stock market Bull Run.

Look at a few US tech giants to get a sense of the American dreams.  Apple is paying USD 3 billion for Beats that make trendy headsets.  Apple share price has been matching strongly and it is up 57.6% in a year.  As of 20 June, it is at USD 90.91 and on an uptrend to challenge its historical high in Q4 2012 which is equivalent to USD 100.  At USD 548 billion market capitalization, paying USD 3 billion for a headsets company is not going to hurt much even if Apple has overpaid.  Google is buying Skybox for USD 500 million.  Skybox is a satellite company and Google hopes to use Skybox’s satellite to improve its digital maps quality.  Think of the street views in Google map getting significantly better.  Again, USD 500 million for Google, a USD 378 billion company is decimal point.  Google’s YouTube is also planning to launch music streaming services that offer access to millions of songs for a monthly subscription.  This is clearly taking on Spotify and iTune.  Today’s human life is very much reshaped by tech giants like Apple and Google.  They can make revenue from almost every corner of the planet and every soul in the world.  They either charge the individuals or the merchants who want to reach the individuals.

Better shop in Zara or Next?

Better shop in Zara or Next?

2014 first half has been a difficult year for stock investors as the board market has been flattish and money has to be made by stock picking.  Stock picking is as hard as England getting into quarter final in the World Cup.  UK FTSE100 index has gone up by just 1.1% year to date as of 21 May, 2014.  The 5 best performing stocks have all gone up by more than 20% and they are United Utilities, AstraZeneca, Associated British Foods, Next Plc and RSA Insurance.  The worst 4 have gone down by over 20% and they are Rolls-Royce, WM Morrison, Coca-Cola Hellenic Bottling Company and ARM Holdings that designs chips for mobiles.

Europe wise, Eurostoxx 50 is up 2.5% year to date with Italian banks like Intesa Sanpaolo, Banco Santander and UniCredit in the top 10 performing stock list while BNP Paribas, Deutsche Bank and AXA in the 10 worst performing stock list.  One can say every dog has its day and the fear for Eurocrisis is fading.  Dow Jones is down 0.26%, S&P 500 is up 2.2% and Nasdaq100 is up 1.21% year to date as of 21 May, 2014.  Some big names like Yahoo!, Amazon.com, Coach, Whole Foods Market are down 15%, 24%, 26% and 35% respectively.

Let’s talk about some business we can touch and feel.  Looking at the retail sector in Europe and zooming into 2 companies, Next Plc is at GBP 10.3 billion market capitalization (how much one needs to buy every Next Plc share in the market) and Inditex, which runs Zara, is GBP 52.7 billion market capitalization.  To give the readers more reference points, GAP is GBP 10.7 billion and Esprit is GBP 1.7 billion.  (Data are as of 21 May, 2014.)

Citi Bank analyst cut Inditex 2015 estimated earnings by 5% to EUR 3.2 billion (which is still a lot of money).  He sees first quarter sales up by 5% but margin down by 1% due to negative foreign currency impact (cost in EUR and revenue in other currencies such as USD and JPY).  Inditex share underperforms Stoxx Europe 600 Retail Index by 10% (an index consists of 600 retail companies in Europe) this year.  Its share price was as high as EUR 121.8 on 30 October, 2013 and was still at similar level in January 2015. Since then, the stock has corrected 15%.

Inditex with its Zara chain has been the darling for fund managers in the past 5 years.  Since 2010, Inditex stock price has more than doubled from below EUR 50 to EUR 104.355 as of 21 May, 2014.  The stock had an amazing run in 2012 when the stock was in the EUR 50 to EUR 70 range in the first half of the year and it reached EUR 100 before yearend.  Most of the gain came from expectation of high growth which in technical jargon is called expansion in price earnings ratio (share price as a multiple of one year earnings).  Its share price was trading at 20 to 22 times earnings and expanded to 28 to 30 times earnings in 2012.  2013 was a similar story with price earnings ratio expanded to 31 times at the peak.  As of 21 May, Inditex share price is EUR 104.35 and at 27.3 times earnings.  It is important to understand the concept of price earnings ratios as investors could often choose the right company but if they pay too much for it, they may not see any profit from the investment.  Remember your friends who bought their dream holiday house in Portugal in 2007, the prices are very likely to be much lower today.

Next Plc share price has been climbing up since 2011, from GBp 2500 level to the current GBp 6600 level.  Its price earnings ratio has also improved from 8.7 times in March 2011 to 18.6 times in February 2014.  Next Plc share price enjoyed a nice jump from GBp 5500 a share to GBp 6000 in January 2014 moved up steadily to GBp 6960 on 26 March, 2014.  In April and May, the stock corrected 5% and closed at GBp 6615 on 21 May, 2014.  Between Inditex and Next Plc, it is a choice between an established global leader and a great local brand expanding cautiously overseas.  The difference in price earnings ratio also reflects the premium one has to pay for a leading global business.  China economy is slowing, India has a new Prime Minister, Brazil is busy with the World Cup and Russia has Ukraine as top agenda.  Growth in developed markets like Europe, US and Japan will need to justify most of Inditex current price earnings ratio.  Winning at home is perhaps an easier bet.