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Tuesday, June 17, 2008

India: The Riskiest Market

India is the most expensive (over valued) emerging market…

Hang Around 73 Years for Final Check From India: Andy Mukherjee: “Markus Rosgen, a Citigroup Inc. equity strategist in Hong Kong, has turned the commonly used metric of dividend yield on its head with interesting results.

The inverse of dividend yield is, of course, the price of a share divided by its most recent payout.

The measure can be thought of as a dividend-payback period, with a 5 percent yield implying a 20-year horizon for return of capital to the investor discounting any gain or loss from a change in the stock price.

“The concept is simple,” Rosgen says. “Assuming no increase in the payout ratio, no rise in dividends, how long will it take investors to get the current outlay back in the form of dividends?”

Well, the answer is almost 73 years for the MSCI India index, which makes the third-biggest Asian economy “the most expensive market in the region,” Rosgen and his colleagues, Elaine Chu and Brian Li, said in a report yesterday.

When the outlook for capital appreciation is clouded -- as it is now, by high food and fuel prices, a global credit crunch and dinner-table talk of stagflation -- it's quite natural that investors will look for stocks that have more assured payoffs.”

A couple of the more interesting findings are that Pakistan (16 years) and Taiwan (22 years) as more attractive than not only India, but also South Korea (54 years) and China (39 years).

A 1991 study titled “The Equity ‘Yield Curve’” concluded that in uncertain times investors would rather own a short payback asset.

Translation, by this measure India is at the greatest risk of a significant correction because of the large 73 year payback period.

The assumption of course is that these are uncertain times…

I last mentioned India in Fibonacci Heaven and Update1.