Stocktake

Volatile reactions:Large one-day market gains invariably generate excitable media reaction. Such moves tend to occur in times of great uncertainty, however.

Bloomberg data shows that the SP 500 has recorded daily climbs of at least 3 per cent on 36 occasions since Lehman’s September 2008 collapse. During the previous nine years, most of which recorded overall gains, this happened on only 27 occasions.

While market volatility peaked in August, it remains 35 per cent above its long-term average.

In Europe, the Euro Stoxx Volatility Index has averaged readings of 25 since 1999. Despite equity gains over the last two months, readings in and around the 40 level persist.

Since the debt crisis erupted, volatility levels have closely resembled past crises such as the 1997 Asian financial crisis, the 1998 Russian bond default, the 9/11 attacks in 2001, and WorldCom’s 2002 bankruptcy. Typically, volatility subsided within three months or so, which makes the current crisis one of the more long-lasting bouts of market nerves.

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Broad horizons: Active fund managers attempt to beat overall market returns; instead, most underperform.

They’d be better off looking for alpha in less developed and less efficient markets. A new study found active managers exceeded annual index returns by 2.5 per cent in emerging markets – a sizeable difference that more than makes up for the higher trading costs involved.

Another recent study broadly confirms these findings, noting that value investors tend to yield particularly strong returns in emerging markets.

With companies like Interactive Brokers making it increasingly easy for ordinary investors to trade global markets, investing horizons are likely to broaden in coming years.

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Sweet Apple:Apple's $350 billion market capitalisation makes it the second-most valuable company in the world. However, some say the stock remains cheap.

Apple trades at just 14 times trailing earnings, and 10 times 2012 estimates, compared to a price-earnings ratio of over 30 just two years ago. Despite sales growth of 66 per cent this year, Apple’s PE is the same as the SP 500 as a whole.

The law of large numbers means the company’s furious growth rate cannot continue.

Still, analyst estimates keep rising, with annual earnings growth of 19 per cent over the next five years predicted. With a forward PE of just 10, Apple’s price-earnings to growth ratio (PEG) is just 0.5. Its PE is lower than its lowest point in 2009, when markets anticipated massive economic contraction.

Then there’s Apple’s cash pile, which is predicted to exceed $135 billion in 2012.

Apple faces many challenges, but it is well-placed to extend its decade-long bull run.