“Please may I ask you a few questions on how you see the global equity markets? From the perspective of cash on the side lines & with regard to your preferred markets –particularly  China & India -do you have any strong views on whether to wait for a correction (or for evidence of sideways consolidation) to the 200 day MAV or just buy & forget if a medium term investor (say 5 years or so). Your view on the US given its current ‘over extension’ would also be appreciated in this regard.

You have indicated that geopolitical ‘events’ could spoil the party but if my memory serves me correctly, after initial shocks in such scenarios, markets often seem to become more sanguine, but who knows, I guess?

“I’m not quite sure why I feel slightly cautious at present but Eoin does refer in (his book & seminars) to a sharp pull back followed by a rally (A la October) as possibly suggesting a ‘penultimate’ up move. You know what I mean, but may be its perverse wishful thinking because I’m not fully invested at present!

“On a completely unrelated topic you might be intrigued as I was by the attached flyer for the ‘Asian’ festival of music. Probably my ignorance & I am aware of all the eg Chinese virtuoso performers these days etc, but I still think of the ‘centre of gravity’ for classical music being in Europe & North America, but presumably that is all changing, & why not!”

David Fuller's view

You may indeed and thank you for your email questions which are likely to be of general interest to many subscribers.

In considering this email, the first point I would make is that you will not be alone in wondering if you should buy India and China for the perhaps lengthy medium to longer term.  While these two markets are quite different, they had been shunned by most investors until this year – India’s Mumbai Sensex due to concern over governance before Narendra Modi’s majority victory, and China’s Shanghai A-Shares for uncertainty over changing policies and its considerable underperformance until more recently. 

Significantly, these two markets were largely shunned by locals, in addition to international investors, which is one of the reasons why this year’s moves have been so explosive.  It has been one-way traffic so far. If you already have a position in these two markets, and share my medium-term views, it is easier to wait for some consolidation of recent gains and at least a small reaction.  India has eased recently and China is due for a pause before long.  If you have no position in these two markets, I would buy lightly and add on any easing.  Of the two, China clearly has the better valuations but I maintain that the Modi factor is special. 

The US market is also temporarily overextended so some consolidation towards the MA would not be surprising.  Geopolitical events are often a risk but the only known serious one at this time, in my opinion, is Putin.  However, it is at least partially discounted and also much more of a risk for Europe and perhaps the USA, than for China and India.  US Dollar strength is a potential economic risk for some markets which have borrowed in USD.  Eoin’s point on penultimate highs in his excellent book is worth remembering and the S&P 500 did have some uptrend inconsistencies in October.  However, I would not worry about them unless the S&P moves sharply back beneath 2000.  It is never hard to compile a long list of concerns and market crowds are emotional.  Nevertheless, monetary policies - always hugely important in my opinion - remain largely favourable and the drop in oil prices is certainly bullish for many economies, not least India and China.

Thanks for mentioning the Asian Festival of Music, and enclosing their brochure.  By coincidence, our last concert this year with the London Philharmonic Orchestra, which Mrs Fuller and I enjoy so much, was last Saturday, before heading out the following day for China.  I also believe the LPO made the first ever visit to China by a Western orchestra, way back in 1973.