Macro surprises positive in the US and Northern Europe, negative in Pacific and Southern Europe

The chart of ASR (Absolute Strategy Research) shows we are probably a bit too pessimistic about the growth in the Eurozone outside the war zone of the PIGS. The IFO in Germany told a completely different story than we hear every day, namely that it is crisis and that will be the case the rest of the year (at least). Also Scandinavia surprises positively (again) and in the UK the current affairs are not more depressing than initially thought. It is to hope that will also apply for France and the Netherlands. In the Netherlands the real estate market is too bad to let consumer confidence improve meaningfully while income growth is dreadful. It is too difficult to compensate this with better exports. In Germany things are rosier: the housing market is clearly recovering, the confidence is still high, the unions will get a nice rise of the wages and the lower euro will help exports. This is not yet visible in better growth of the industrial production and retail sales but you can hope on improvement coming. So it is not that strange that the DAX is doing so well in the last weeks.

In the US it looked like the surprise indices had topped, but unexpectedly they came back at the old tops. The surprises refuse to vanish, we seem to need more patience (a few months?) before economists have drowned their black poison with excessive QE abuse.

In the Pacific the surprises disappoint. That is amazing, because we hear every day that things are going so well and that growth will not be that vulnerable for low growth in the West because they are selling more and more toe ach other in Asia. The growth in china seems to disappoint a bit more than previously thought. We have had the warnings: declining house prices, overspeculation in Wenzhou but especially clearly lower demand from steel and electricity than thought. The growth of China can drop to 7.5%, also because infrastructure spending is slowing and investments in real estate ought to soften also.

Emerging Markets cheap and good for 80% of the growth in the world

Twee plaatjes uit een presentatie van ons Emerging Markets team: eentje waar je kunt zien dat de koerswinstverhoouding erg laag is, veel lager dan in de VS of Japan (maar niet lager dan in Europa) en dat je best wel enige stijging van de koerswinstverhoudingen kunt verwachten.
Het andere plaatje is van Morgan Stanley waar men prognotiseert dat de Opkomende Landen 80% van de groei in de wereld voor hun neming zullen nemen.

Two charts from an F&C presentation from our Emerging Markets team: one where you can see that the PE is very low, way lower than in the US or Japan (but not lower than in Europe) and that some rise of PE’s is very well possible, the base expectation.
The other chart is from Morgan Stanley where they forecast that Emerging Markets will have 80% of the GDP growth in the world in the coming years, so it seems not unreasonable to expect that they will show more profit growth than Developed Markets..

So prospects for Emerging Markets equities ought to be good, but take care when the cyclical indicators like the ISM declined in the past Emerging Markets did fell more than Developed Markets.

Shame on me: Dylan Grice (2)

To my (and hendrik Jan's) surprise also Dylan Grice called his column last Friday something with shame (Shame On Me). Hendrik Jan touched an open nerv with is remark that Dylan Grice has lost his bearishness on Emerging Markets.
In his Friday column Grice wittingly described how the humans are quite inventive for over a 50.000 years without needing quantitative easing.
I utterly agree with him that productivity growth is the most important for economic growth and that crying about deleveraging is not that important when you want to explain economic growth % (but of course, Grice wanted to tell the opposite, that we are lost for quite some time because of deleveraging; but now he wanted to divert the attention to put the shame on the Fed because of QE2 what will be a success I think).
Grice makes plausible in his charts based on valuations according to the Shiller-PE's that you should not expect too much of equities in the coming years (valuation are not good enough according to him, but I'm quite satisfied with current valuations).
But then he gives the expected returns of the most important emerging markets, the Bric's. And suddenly you see lots of optimism. So it is not yet clear what has happened with Dylan Grice, maybe he is indeed a fraud as he describes himself and is he no longer a bear on everything, since he is writing something positive on emerging markets for the second time.