For almost two years the South Korea economy has been declining as China slowed down and the US-China trade war hit investments and global trade. Today, OECD released its global leading indicators hinting that the global economy turned a corner in October moving from the contraction phase and into the recovery phase. The uncertainty is still high and adjustments over the coming months could wash away this on the surface turning point in the global economy.
The quote
below is the official press release text.
“Stable
growth momentum is anticipated in the euro area as a whole, including France
and Italy, as well as in Japan and Canada. Signs of stabilising growth momentum
are now also emerging in the United States, Germany and the United Kingdom,
where large margins of error remain due to continuing Brexit uncertainty. Among
major emerging economies, stable growth momentum remains the assessment for
Brazil, Russia and China (for the industrial sector). On the other hand, the
CLI for India continues to point to easing growth momentum.” (OECD – Paris,
9 December 2019)
Regardless
of October being a turning all the numbers are suggesting that growth momentum
is stabilising in all key economies including Germany. For now it looks like
the policy action from central banks have stopped the bleeding. Add to this
announced fiscal stimulus by Japan last week and South Korea last month. In
addition Europe is planning large green investments next year. The fiscal
impulse could lift growth momentum into 2020. If this is the case then on the
margin that is net positive for Donald Trump’s aspirations for being re-elected.
Our
business cycle map on country level going back to 1973 suggests that if the
turning point came in October then we are entering the most rewarding period
for investors in equities relative to bonds. The average outperformance for
equities vs. bonds in USD terms has been 9.4% for every recovery phase.
Historically the best performing equity markets have been Hong Kong, China,
Singapore, Sweden, Brazil, South Africa and Australia. This should not be a big
surprise given the pro-cyclicality of these markets. Another positive aspect of
these markets is that their valuations are below the global average.
The same
analysis carried out on industries shows that the best industries in the recovery
phase are semiconductors, household products, real estate, diversified
financials, consumer durables & apparel, and healthcare equipment &
services.
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