Equity Monthly: Has Asia finally turned?
Head of Equity Strategy
Summary: As we've previously observed, in any given business cycle, South Korea tends to be the first to buck the trend. With the country's leading indicators now again turning higher, it might be assumed that where South Korea goes, others will follow.
South Korea has turned higher
In March we got confirmation that South Korea’s leading indicators already turned higher in December and have continued to expand in January. OECD releases February figures on 8 April and we expect further confirmation that South Korea has turned in terms of the business cycle, demonstrating that Chinese stimulus has indeed proved to be enough once again to lift growth in Asia. As the months pass the effects will trickle into Europe and North America. This is likely also why the market was quite relaxed this morning when Germany Factory Orders in February hit -8.4% which is the worst growth since 2009 and at the 7th percentile of observations since 1992.
The global economy is currently in the fourth column (economic activity below trend and contracting) but if South Korea once again proves to be the first country to lead the world then global leading indicators will soon turn into the first column which is often called the recovery phase. In this phase investors should be overweight Asia Pacific (and in particularly China, Taiwan and Singapore) and North America. European equities are not worth being overweight until later into the business cycle.
In our latest equity presentation (which can viewed in a recorded version here) we draw parallels between now and 1998. As in 1998 the US 3M/10Y spread went negative at around the same time as a major crash in global equities and a policy panic by the Fed. Typically a US yield curve inversion has spelled trouble for investors with S&P 500 returns being negative -8% over the next 18 months. However, two recent cases go against this pattern: 1998 and 2006.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.