For a market which was struggling two weeks ago, whether it was China, whether it was Middle East crisis, US macro data, global markets have rediscovered their rhythm. Can we say that storm has come and gone?
Mark Matthews: Can we say that storm has come and gone? No, of course not. There are always storms on the horizon. But as investors, we know that we should not fear them as they come and they go and so I guess what I am trying to say is that there will be more storms, but we should remain invested. But are you somewhere surprised the strength of global markets and especially the US markets? Dow made a new high last night, Nvidia has made a new high, while we can make a case for the US economy slowing down, but that in a sense is not the deterrent, at least for equity investors.
Mark Matthews: I am surprised. We had been expecting more volatility and more downside to the major US indices going into the presidential election. And I guess what has happened is the economic data has been very good in America as evinced by the strong retail sales and weak unemployment claims yesterday.
But there are several other data points that would confirm the strength of the economy. On the other hand, inflation is tame, as we saw in the most recent Consumer Price Index readings. And then the third quarter results, the banks are the first major sector to report and they did well.
And then Taiwan Semiconductor yesterday announced a 54% year-on-year increase in their earnings. So, we could extrapolate from that that the artificial intelligence story is for real. It is not just a story. There is real money behind it. So, there are all those things going on. But I guess I would say also that the polls are indicating quite clearly now that Donald Trump will be the next president. And as chaotic as his first administration was, I do not really see why the second one should be any different. It was good for the stock market. We all know that. The stock market under Donald Trump did very well up until the pandemic. And so that is probably the reason as well why the market has been so robust.
Is that a fear that who is going to be the next US president, something which could add to volatility because the Democrats have already got on record and have said the following, that if they come back to power, they would be increasing corporate taxes and corporate taxes go higher, earnings go lower.
Mark Matthews: Well, that would require what they call a blue wave, the Democrats securing congress, which is very unlikely. The chance of that is in the single digits. So, they can talk about this populist agenda, which they should. I mean, it is in their DNA.
They are supposed to be the party of the working people. But the reality is they would not be able to do those things. I think the concern about the election was more that it could be extremely close and you could have unrest as the results are argued over. But as the polls are now showing Trump with in excess of a 20% lead, the likelihood of that kind of uncertainty around the election is diminishing.
What are your thoughts on this India versus China trade or China versus India trade?
Mark Matthews: Well, the way I put it is that over the next 6 to 12 months, China will outperform India. But over the next 6 to 10 years, India will outperform China. So, it depends on your time horizon. But right now, I think that China has some very interesting things going on. We all know the 180% degree change in policy. I do not mind the fact that the market has cooled off a little bit, should not go up 30% in one week and I think the authorities also do not want that. But clearly, there has been a major change in their policy.
They now do want to stimulate their economy and get their stock market up and not 30% in one week, but on a sustainable basis and it is still extremely cheap. I could give you 40 names in China, large liquid stocks, where numerically the price earnings ratio is below the dividend yield.
And I remember Peter Lynch, who was a Star Fidelity fund manager in the 80s, value investor, used to say, if you can ever find a company where numerically the price earnings ratio is lower than the dividend yield, that is an extremely cheap stock. So, I am not going give you all 40, but just for example, HSBC, which you probably know, has a price earnings ratio of 6.4 times and a dividend yield of 7.2%.
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