Rudi’s View: Three Risks Into Year-End

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 11 2021

In this week's Weekly Insights:

-Three Risks Into Year-End
-Confusing November
-Conviction Calls
-FNArena Talks
-Research To Download

By Rudi Filapek-Vandyck, Editor FNArena

Three Risks Into Year-End

With year-end approaching and equity markets having positively surprised thus far in 2021, the risk is investors become overly complacent, thinking nothing can possibly disrupt this year's uptrend given most calendar years end on a positive note.

Always good to keep in mind a positive finish to the year is not a given, as also highlighted by recent analysis published by CommSec confirming December has posted a positive return of 1.9% on average over the past 70 years, but with only 50 out of the 70 months closing the calendar year with a positive return.

On that basis, there is a 28.5% chance December may not deliver this year, while the odds, historically, are a lot worse for the remainder of November (see also below).

Besides, after a gain of 16%-plus ex-dividends since January 1st, and almost 27% ex-dividends over the past twelve months, maybe this is the most opportune time to start looking towards 2022 and specifically at the potential risks ahead?

Note also: the ASX200 has effectively been treading water post August with both September and October posting a negative performance.

While there is always the chance of an unpredictable event, i.e. the proverbial black swan, I believe global equities are currently facing three key risks; valuations, inflation and bonds, and corporate earnings. Time to have a closer look at each.

Share Market Valuations Are High

Whether valuations are now dearest since the dotcom euphoria of the late 1990s-early 2000 or not, it is hard to argue with the observation most equity markets are far from cheaply priced these days, and I am probably formulating it mildly. Every day, just about, I hear or read the term 'bubble', though that hasn't, thus far, stopped markets from powering higher.

Underlying, this story hasn't changed much over the past 5-6 years or so with growth stocks and dependable, quality performers attracting most of investors' attention, and funds inflows, hence the gap between market leaders and the laggards among cyclicals and Value companies remains large, if not very large, by historical standards.

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