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Home Economy

Staying the Course

by Ram Balakrishnan
January 21, 2008
Reading Time: 1 min read
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robynm (CC0), Pixabay

robynm (CC0), Pixabay

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Global markets took a big dive today. The TSX Composite closed down 4.6%, following the plunge in other stock markets – Japan down 3.9%, Germany down 5.35%, UK down 3.9% and France 4.5%. Emerging markets were hit hard as well – Hong Kong down 5.5%, China 5.1% and India 7.4%. The only port in this storm has been bonds with 5-year Canada bond yields dropping to 3.47%. US markets were closed for the Martin Luther King holiday but press reports suggest that Dow might open as much as 500 points lower on Tuesday.

I don’t know if today marks the bottom of this sell-off but I’m staying the course and doing nothing. At times like this, it is reassuring to look at valuations, which I believe are reasonable. The S&P 500 sports an earnings yield (inverse of the traditional p/e ratio) of 7.6% (based on Friday’s close and estimated earnings for 2008), a spread of 4% over bonds. I’ve been a bit early with REITs in our portfolios but you can only pick the precise bottom through sheer luck. However, I am glad that I picked up bonds last summer when 5-year Canada bonds at yields ranging from 4.3% to 4.5%. I’m still underweight emerging markets in our portfolios and I’m hoping for a buying opportunity in the Vanguard Emerging Markets ETF (VWO).

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