A lesson in history

The sharp turn around in US equity markets last night followed through into Europe on Tuesday morning as the FTSE 100 once again looking to test the top end of its trading range. We have included a chart demonstrating how the FTSE 100 has trended to grind gently higher within that trading range over the past couple of years. What is worth keeping an eye on is the recent performance of the FTSE 250 companies, after a stellar year last year, and a good start to 2014, the last couple of months have seen something of a correction. Some investors look to the mid cap stocks as a lead indicator for how the big stocks may move. The mid sized companies have out performed the larger capitalised ones in the past 3 years; perhaps a period of catch-up is to be expected. 

Source: IG

Ahead of next weeks ECB meeting we pointed out that this week was quite a big week for euro area macro data. Industrial and economic sentiment came in line with expectations; on the inflation outlook the European Commission reported that the indicator of consumer’s inflation expectations for the next 12 months fell again. May the 8th is the date for the next ECB meeting, Frank Investments view remains that Mario Draghi will take the first steps to quantitative easing by cutting rates to zero from today’s 0.25%. 

A couple of interesting reports caught the eye today; CNBC reflecting on the 25 years it is has been reporting business news. In 1989 more than half the 20 biggest companies in the world ranked by market value were based in Japan, less than a third in the US. Apparently Americans were telling their children to learn Japanese, which has a certain ring with today as parents encourage their children that the future lies in understanding Mandarin. Ten years later only 2 of the top 20 companies were Japanese. As of last year and according to Forbes, two Chinese banks were at the top of their Global 2000 list of the biggest and most powerful listed companies in the world. Of the top 25, 10 were financial institutions, 5 Chinese companies, and none were Japanese. Furthermore, 10 were US companies while the UK had 3. In a quiet moment, readers can work out the names, or you can look on the Forbes website. 

As we pointed out yesterday, comparisons are always being made with history, in an attempt to learn from the past. The 2000 boom in technology stocks is another example of where comparisons have been drawn. Those who worked through the bubble of 2000 will realize the comparisons are quite off beat, but Bloomberg have provided some quite useful numerical differences between present day valuations and 2000. In 2000 the median IPO price was 30x revenues, in 2013 it was down to just over 5x. In 2000 the average stock price rose by 65% on the day of its listing, in 2013 the rise was 21%. Finally the one that to us is the most relevant, the average age of a company before it becomes public has gone from 6 years in 2000 to 12 years in 2013.

Bloomberg Visual Data infographic

Posted on April 30, 2014 .