Economic Clock: Where Are We In The Cycle?
Our only change is that now, you should start buying China and thus Hong Kong.
1. What we wrote in April
Just this April we issued a piece in which we not only outline the approach of our Economic Clock, but also where we are in the cycle for: the United States, Europe, Japan and China.
2. No major change to the G3
We'll stick with our "buy" recommendations on the US, Europe and Japan. Regarding the United States, its stock market level may be reaching all time highs - but as Miles Johnson points out in the Financial Times (FT) of 21st July, the market's valuations are NOT above those od the last 50 years.
Next to valuations, we note with glee that America's earnings prospects seem to be improving - bang in time with what we have suggested since April: whenever there is an (even mild) excess demand for goods, overall corporate profits must improve on account of higher turnover and, perhaps, higher margins. But we do remain nervous about "The Big Short - II" hitting America's retail debt market. That's because of all of that mischievous bundling of automobile loans...Re Europe, Draghi has to keep easing because of those Italian banks on the verge of teetering.
We'll be less harsh now: there will be some Brussels fudge on offer soon, as Europe cannot allow the whole Italian banking system to implode. Then there is Japan. Well, now that he has won his election, he wants to throw more money at this reform mausoleum, so her excess supply of money intensifies.
3. China
Contrary to our advice of 27th April, we now are comfortable advising a "buy".That's because Beijing is intensifying its excess supply of money. Witness those loans rocketing by RMB 1 bn recently! Our view is simple: not all of these RMB 1.6 trn will be lent to (state) corporations, so this excess money will be put elsewhere. Step in China's stock markets.
4. Investment implications
Keep buying all four markets, with particular emphasis on China's and thus Hong Kong's.