Anon9001 wrote: ↑Fri Nov 27, 2020 9:01 am
It entirely depends what market you are talking about. The same Malkiel said China A shares that active managers overwhelmingly beat passive indexes. If we are limiting ourselves to Eurocentric Western view of "Market" than yes it is efficient and highly impossible to beat for most active managers.
Glad you think developed markets are Type II efficient (no outperformance with publicly available analysis and information). That's c 80% of world markets by market cap?
Malkiel kind of went off the deep end on China, I think.
The point about active management in a market like China is that things are inefficiently priced. Indeed my impression of Far Eastern investors in places like China is that they treat the stock market as another kind of casino. So momentum and rumour are big factors.
However I do know from former colleagues who invest in Emerging Markets, that the main problem is simply that there is an enormous amount of inside information and insider trading in these markets. Party officials will of course know what is going on at these companies long before the general public, and that information seems to be employed.
A lot of the trick in EM seems to be knowing where the weight of money is flowing. External capital (which is the majority of the money invested, unless we are talking about markets like China and Saudi Arabia which are restricted to foreigners) flows in, the stocks are mostly illiquid, drives prices up. Then something happens macro/ political, and it flows out again. The money will flow to the headline, biggest and most liquid stocks, because there's no other way to build up a position. Valuation? Earnings trend? These are less important.
I do hold a Far East ex Japan smaller companies ETF. Because it's basically full of companies I have never heard of, (as opposed to simply a huge weighting in TSMC in a straight index fund), and the headline valuation numbers look reasonable. There have to be some gems buried in there. Whereas say the big Chinese internet stocks? They look to have similar valuations to their western equivalents, with all the additional concerns about accounting, corporate governance etc.
You know that old line "in poker, if you haven't figured out who the mug is within 5 minutes, you are the mug" -- See "Molly's Game"
with Jessica Chastain and Kevin Costner for some great examples of this (it's based on the story of the woman who ran the highest stakes poker game in America, for a while).
Well in these markets the western fund manager is very much the mug. The insiders have the advantage. Russia? 10 times the case. If they don't like you they get you sentenced to a long prison term - -where you may mysteriously die from some previously undiagnosed ailment. Magnitsky Act etc.
I will say that the quality of sell-side company analysis coming out of China sometimes impresses - Chinese nationals, educated in the west, doing the CFAs, going back and doing quality work. The problem is the level of company disclosure (plus not at arm's length dealing etc). If you saw the movie "The China Hussle
" you can see the problems of doing quality investment work in China - for example that it is illegal to investigate a company if you are a private citizen.
It's one reason why I am not full index weight in EM. Although I do hold an EM Dividend tilted fund/ ETF. My logic being that "talk is cheap, whiskey costs money". i.e. that a dividend is as strong as possible a credible signal that the cash and the underlying productive assets of the company really are there, and the benefits are accruing to shareholders. It has underperformed wonderfully