The Edhec-Risk Institute of Nice, France, reports on a study of 10 years of major Asian stock market indexes whose conclusions are startling. They "display a pronounced lack of efficiency" failing to provide "an efficient risk-reward trade-off" in comparison to European or US indexes. Asian indexes are heavily concentrated in a few large cap stocks, at levels up to 60% in some cases. This cuts diversification and increases risk.
In fact, the Edhec researchers found that indexes fluctuate madly in sector exposure and style (growth vs value, for example.) An example: "the weight of Consumer Staples in the Indian Nifty index fluctuated between 3% and 37%" in the last decade. The less developed Asian countries, also including China, show the highest variability in sector allocation. But they are not alone. Hong Kong's Hang Seng index weighted telecom services anywhere from 10% to 20% at different times in the last decade.
With our Dow Jones Industrial Index (a better gauge than the Asian ones) at a new high this morning, the argument for foreign investment becomes even more compelling. One factor I like to look at is currencies. One of my favorite far away lands saw its currency rise today on the assumption that interest rates there will be cut.
Two of our shares reported today, from Canada and Ireland. We also have news from Australia, India, Spain, The Netherlands, Japan, and Israel.