CoreMacro
BCA’s flagship global macro and investment strategy platform, helping investors anticipate regime shifts, connect signals across regions and asset classes, and navigate the world’s most difficult macro questions.
European real GDP growth is stabilizing, so why would European equities continue to trade sideways for the remainder of the year? The answer lies with nominal growth and its impact on earnings.
Numerous divergences have opened up between global risk assets and global business cycle variables. These gaps are unsustainable, and odds are that the recoupling will occur to the downside with risk assets selling off.
In absolute terms, Mexican markets may correct given their impressive rally and an impending EM risk-off move. Relative to EM however, Mexico will continue to outperform given its unique cyclical and structural macro fundamentals, as well as attractive valuations.
China has generated 41 percent of the world’s economic growth through the past ten years, al-most double the 22 percent contribution from the US. Now that the Chinese growth engine is failing, we explain why it is arithmetically impossible for world growth to maintain the altitude of the past few decades. And we discuss an important investment implication.
Although the RMB has cheapened, macro conditions are not yet favorable for the Chinese currency. We expect the RMB to decline by at least another 5% in the next six months. A weak currency and subdued economic growth lead us to maintain a cautious stance on Chinese equities.
August offers an opportunity to review our key views. European growth is turning the corner and inflation is improving, but does it guarantee an imminent breakout in European stocks?
China’s extremely high savings rate is the real culprit behind its current economic woes. The authorities have been slow to stimulate the economy, and the risks of “Japanification” have increased. For now, the fact that China is exporting deflation is not such a bad thing. However, if global recession risks were to flare up again, a lethargic Chinese economy would be a cause for concern. Chinese stocks are quite cheap but lack a clear catalyst to move higher. Favor EM markets where earnings and sales estimates have been moving up lately.
Collapsed complexity, plus the unwinding of favourable base effects and favourable seasonal adjustments to the inflation and jobs numbers, all pose a danger to the Goldilocks market.
