Bài giảng Investment - chapter 17: Macroeconomic and Industry Analysis

CHAPTER 17Macroeconomic and Industry AnalysisMarket efficiencyEfficient market: the market price provides the unbiased estimate of the true value.Efficient market doesn’t mean price be equal to true value every point in time. However, the deviations must be random.If the market is efficient: Process of valuation  justifying the market priceIf not efficient  valuation process spot under/over valued firms. The strategies are profitable if market s correct the mistakes over times.Is the market efficient?All Markets are not efficient to all investors, but a market can be efficient to certain investorsWhat information is reflected in price?Source of efficiency: competitionFundamental AnalysisApproach to Fundamental Analysis:Domestic and global economic analysisIndustry analysisCompany analysisWhy use the top-down approach?Framework of AnalysisPerformance in countries and regions is highly variablePolitical riskExchange rate riskSalesProfitsStock returnsGlobal Economic ConsiderationsTable 17.1 Economic Performance in Selected Emerging Markets Figure 17.1 Change in Real Exchange Rate: U.S. Dollar versus Major Currencies, 1999–2006Gross domestic productUnemployment ratesInterest rates & inflationBudget deficitConsumer sentimentKey Economic VariablesFigure 17.2 S&P 500 Index versus Earnings Per Share Demand shock - an event that affects demand for goods and services in the economyChanges in tax, money supply, government spending, foreign export demandDemand ShocksSupply shock - an event that influences production capacity or production costsChanges in price of imported oil, freezes, flood, drought, educational level of work force, and wage rate.Supply ShocksFederal Government PolicyFiscal Policy: Demand-side managementTax rate cutIncreases in government spendingFederal Government Policy ContinuedMonetary Policy - Demand-side managementManipulation of the money supply to influence economic activityInitial & feedback effectsTools of monetary policyOpen market operationsDiscount rateReserve requirementsFederal Government Policy ContinuedProduct market:Privatization, Deregulation of markets Free international tradeMeasures against anti-competition (price-fixing, monopoly) Measures to encourage SMEs/ entrepreneurshipCapital investment and innovation (corporate tax cut, tax relief on R&D)Labor marketEncourage old worker stay in workforce, relax labor migrationSpending on education and trainingMarginal tax incentivesBusiness CyclesThe transition points across cycles are called peaks and troughsA peak is the transition from the end of an expansion to the start of a contraction A trough occurs at the bottom of a recession just as the economy enters a recoveryFigure 17.3 Cyclical IndicatorsLeading indicators tend to rise and fall in advance of the economyExamples:Avg. weekly hours of production workersStock Prices Leading IndicatorsTable 17.2 Indexes of Economic IndicatorsCoincident Indicators - indicators that tend to change directly with the economyExamples:Industrial productionManufacturing and trade salesCoincident IndicatorsLagging Indicators - indicators that tend to follow the lag economic performanceExamples:Ratio of trade inventories to salesRatio of consumer installment credit outstanding to personal incomeLagging IndicatorsFigure 17.4 Indexes of Leading, Coincident, and Lagging IndicatorsTable 17.3 Economic CalendarIndustry AnalysisSensitivity to business cyclesFactors affecting sensitivity of earnings to business cycles:Sensitivity of sales of the firm’s product to the business cyclesOperating leverageFinancial leverageIndustry life cyclesFigure 17.5 Economic Calendar at Yahoo!Table 17.4 Useful Economic Indicators Figure 17.6 Return on Equity, 2007 Defining an IndustryNorth American Industry Classification System, or NAICS codesCodes assigned to group firms for statistical analysisFigure 17.7 Industry Stock Price Performance as Measured by Rate of Return on Dow Jones Sector iShares, January-October 2007Figure 17.8 ROE of Major BanksTable 17.5 Examples of NAICS Industry Codes Figure 17.9 Industry Cyclicality Table 17.6 Operating Leverage of Firms A and B Throughout the Business Cycle Figure 17.10 A Stylized Depiction of the Business CycleSector RotationPortfolio is adjusted by selecting companies that should perform well for the stage of the business cyclePeaks – natural resource extraction firmsContraction – defensive industries such as pharmaceuticals and foodTrough – capital goods industriesExpansion – cyclical industries such as consumer durablesFigure 17.11 Sector RotationStage Sales GrowthStart-up Rapid & IncreasingConsolidation StableMaturity SlowingRelative Decline Minimal or NegativeIndustry Life CyclesFigure 17.12 The Industry Life CycleIndustry Structure and PerformanceThreat of entryRivalry between existing competitorsPressure from substitute productsBargaining power of buyersBargaining power of suppliers