Buying equities based on hope - for example, the hope of a giant Fed intervention, which pushed up markets last week - is rarely a sound investment strategy.
Rather, common sense suggests we should buy stocks based on fundamentals - specifically, their price relative to their outlook for earnings and growth. In periods of weak economic growth and elevated prices, who in their right mind - the logic goes - would buy equities knowing that profit growth was falling?
The answer, apparently, is quite a few of us. According to the latest filings for companies that comprise the MSCI Asia ex Japan index, year-on-year earnings growth contracted by 15.3 per cent.
That shouldn't come as a surprise. The firms that make up this index have been reported slowing earnings as far back as the second quarter of 2010, with profit growth turning negative late in 2011.
Of the 91 per cent of the companies in the Asia-Pacific index that have reported quarterly earnings since July 1, fully two thirds came below analyst projections. Just 35 per cent surpassed expectations.
