Picking up speed

Encouraging data from around the globe backs a bull market view.

Summary: After years of uncertainty, strong signs of growth in key global markets are driving a fundamental re-pricing of stock markets the world over, to much higher levels.
Key take-out: Europe and America are catching up on continuing Asian economic boom.
Key beneficiaries: General investors. Category: Economics and strategy

The data from all around the globe this week, has been extremely encouraging of my Grand Bull Market view of the world. Morever, that view is in no way diminished by news reports this week of ‘China PMI data for manufacturing’ which came out at a low number of 47.7… these reports are based on a smallish sample put together by HSBC. Invariably this number turns out to be significantly upgraded once we see the “official” data, which has yet to be released. The official China PMI is very likely to come in at close to 50.0, which maintains a strong demand and positive overall economic outlook for China

This is the second largest economy in the world growing at a tremendous rate, and in the midst of a so far quite successful restructuring toward services and consumption, while the high achieving manufacturing sector continues to perform at its highest point of expansion.

The new first world

The “new first world” of Asia is something I have spoken of at length before, and this view has been further enforced by strong economic outcomes from South Korea this week, growing at 1.1% in the second quarter, which brings first half annualised growth to 3.8%. South Korea is likely to accelerate in the second half of the year. The really exciting indications however come from the trade statistics. South Korea is enjoying strong growth in both imports and exports, always a sign of a truly strong economy, and this story was backed up by similarly impressive, if not more so, trade data out of Japan. The Japan data also showed an up-tick in demand from Europe.

Europe itself also delivered encouraging economic data this week, with a positive expansion of manufacturing in the Euro-zone, a fall in German unemployment, and a steady pick up in sentiment indices across the region.

US rebound

In the US the story has been truly astounding with almost record growth in new home sales, plummeting jobless claims, an uptick in industrial production in some parts of the US, though not all, and a stock market continuing to threaten as forecast, all time record highs. The markets will continue to mature into the concept and inevitability of the tapering of quantitative easing, and the issue of sequestration is already consigned to history. The US private sector has proven itself now, strong enough to deal with a decline in government and military spending, and entrepreneurial enough to begin to fight back against the increasing global dominance of China and greater Asia.

What we are really looking at however is the coming together of the USA and Europe, in union with the already existing economic boom still holding in Asia. The synchronised global growth period I have been forecasting for the second half of this year is indeed upon us. This will mean historic levels of fresh and accelerating demand for resources, as well as a fundamental re-pricing of stock markets the world over, to much higher levels.

Conclusion

In the short-term we saw that typical and ludicrous response to strong US data by selling stocks in fear of tapering, but the market is almost over this absurd notion now, and will increasingly recognise strong economic data for what it is. A sign of ever greater corporate revenues and profits the world over, a massive and significant “buy” signal.


Clifford Bennett is chief economist of the White Crane Group at http://www.whitecranegroup.com.au/eureka/ clifford@cliffordbennett.com.au

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