Profits and The Investment Cycle
It might be unpopular but we are attaching another upbeat report on global growth prospects and the Asian region. Admittedly, the market mood could change fundamentally if the US and China make progress on their trade talks. In addition, it is clear that the Fed is beginning to back off from its previously held interest-rate hiking course.In the attached report, Profits and The Investment Cycle, we look more closely at the signal being sent by returns on equity in Asian and global stock markets. We explain the central role of the profit mechanism in economic growth and explain how that can be tempered if the incorrect price signal is being sent by real lending rates. The good news is that, for most countries, the lending rate signal is in the ‘acceptable’ range from our perspective.
However, it is also worth noting that politics, uncertainty and bad policy decisions can disrupt the working of profits and lending rates. Korea, for example, has experienced a tremendous upswing in return on equity, has appropriate real lending rates but investment has collapsed in the last year. Why? Because the government has enacted pro-labour policies, including sweeping hikes in the minimum wage, that have discouraged business expansion and resulted in rising unemployment. In other parts of the region investment decisions are on pause either waiting for the smoke to clear from the China-US spat or for domestic elections to take place and clarify domestic policies for the future.
Regardless, the fundamentals are good in Asia and elsewhere and will support economic expansion throughout 2019. With valuations also much more reasonable these days it makes for a good backdrop for equity markets.
Best for now,
Jim
Asianomics, founded by Dr Jim Walker in 2007 and based in Hong Kong, specialises in economic analysis research, cross-referencing their work with credit cycles, profit cycles and cash flows. Asianomics focus is on developments in the Asia-Pacific region, and they also cover developed markets like the US and Europe.
The Austrian Economics model provides a framework for the economic research. The basis of the School of Austrian Economics is that economies work more efficiently and effectively when companies and individuals are free from excessive interference by government and special interest groups. The Asianomics economic research team includes Deputy Chief Economist Sharmila Whelan who is recognised for non-consensus thinking and her depth and quality of primary research, and Chief Economist Dr. Jim Walker.
Asianomics’ subscribers have access to regular economic commentary, stand-alone Country Reports, Special Reports and Investment Strategy Reports. Dr. Jim Walker also provides weekly webcasts.
Dr. Jim Walker is regarded as one of Asia’s leading economists. Prior to setting up Asianomics, he was the Chief Economist at CLSA Asia-Pacific Markets, where he worked for more than 16 years. He has achieved numerous ‘Best Economist’ rankings in the Asiamoney, Institutional Investor and Greenwich surveys of fund managers.
Previous successful calls include:
- In 1995 Dr. Jim Walker wrote about the prospect of Asia being forced off its de facto dollar peg “within the next two-three years”. The Asian Crisis, precipitated by the Thai baht devaluation, began in July 1997.
- Forecasted the US 2007 downturn and financial sector meltdown in series of ‘Apocalypse’ reports.
- Called early the upswing in the Indian stock market in the final quarter of 2013.
Recent Recommendations:
- Overweight China - We are overweight Chinese equities with momentum improvement in the economy.
- Short Sterling, Long Renminbi - China’s currency offers good upside with a positive carry.
- Short European Financials, Long Indian Financials - This is the simplest pair trade to play superior demographics and growth in Asia relative to the region with the biggest problems.
- Long EM Asia, Short Developed countries - South and SE Asia, and direct investors from North Asia, are ‘buy and hold’ investment bets.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.