Asia: Market risks & opportunities
-What is your Asia markets outlook?
*Cautiously pessimistic
*The reason is that the Economic Time® is still not good: there is a very clear excess supply of goods in the Western economies, meaning that their stock markets will keep performing sub-optimally.
*One would be a Don Quixote to expect Asian markets to “buck the trend” and move up while Wall Street etc. are heading south.
*The only exception is Australia, whose Economic Time is characterized by an excess supply of money and an excess demand for goods, courtesy of Chinese demand for raw materials.
- Interest rates and exit strategies for various economies recovering at different speeds?
*The key difference between stimulus packages for most of Asia’s Emerging (EM) vs. the West’s Developed Markets (DM) is that in the Ems, stimuli work. They work for two reasons:
**First, being at earlier stages of development, “make work” programmes, e.g. infrastructure, get people working. This is contrary to the West, where the work ethic for “such jobs” simply does not exist, and
**Secondly, with their budgets generally being in surplus, they have plenty of money to spend. The West’s politicians have seen to it that DMs do not have this luxury any more.
*Now to the exit strategies:
**Basically they are of monetary nature up until now: China is raising reserve ratios as well as interest rates, as are India and Korea.
**in the West, however, the lacking “real economy” effects of the stimuli (see above) mean that they will “exit” way after the EMs have.
**The real risks lie at the long end of the yield curve in the West’s DMs, and at the short end in the East’s EMs
- Risk of double dip less likely, but is it still a concern?
*Very much a concern
*We have been pontificating about a “recession in L” for many moons, and stick with this view. In particular, with unemployment remaining sticky at high levels, consumption – that key driver of growth – simply cannot revive. In America, the financial detox means that household savings ratios are now at 4.8% - versus 1% a year before. That is a huge leap in savings – and thus a huge plunge in consumption.
- Where do you see the risks at this point?
*For the East’s EMs: at the short end of the yield curve; for the West’s DMs, at the long end of the yield curve
*Overall, I still see a great deal of wishful thinking out there concerning an improvement in the Economic Clock® of particularly the West’s DMs: their Economic Time® cannot improve, courtesy of the stimuli not working just because their citizens don’t want “those infrastructure jobs”.
*For East Asia: inflation. For the West: deflation (including Japan)
- Which sectors do you like at the moment?
*In the West: Anything idiot proof, i.e. things that people need despite jobless recoveries, e.g. consumer staples, utilities, health care
*In the East, consumer discretionary, property
- Any other points you might wish to raise?
*Am very worried that the current “democratic undulations” in Hong Kong will irk Beijing to such a degree that she may intervene here, which would be a shock to the system.
**I simply do not know what our legislators really have achieved: English has rotted, pollution is rotting our lungs, and the cartels are alive and kicking….
