DeCoupling US and Global Markets?
Interesting follow up to to our weekend post on overseas markets dragging US markets along with them: Today's WSJ looks at An Unrelated Story: U.S., Global Stock Markets Increasingly Take Separate Paths.
"The problem is that many analysts see economic and corporate-profit growth slowing in the U.S., while still expanding in much of Europe, Japan and the developing world. The U.S. economy has expanded about 2% over the past year. In Europe and Japan, economies are expanding at a 2.5% clip, according to Morgan Stanley. Growth in much of the developing world is poised to continue expanding at a faster pace than in the U.S.
The higher correlations earlier this decade reflected the bursting of the tech-stock bubble, because it dragged down most developed markets, says Leila Heckman of Heckman Global Advisors, a unit of Bear Stearns Asset Management. In recent years, she says, the U.S. market tended to be less correlated with Japan, Australia, New Zealand and Singapore than it did with European shares...
Still, signs that economies around the world might be decoupling from the U.S. are fueling hopes that stock-market performances will diverge even further. While U.S. profit growth in the first quarter is expected to be at the lowest level in five years, "the rest of the world can continue to post solid growth even if U.S. growth remains subpar," J.P. Morgan wrote in a recent report.
Foreign companies may depend less on the American consumer than in the recent past. Morgan Stanley says U.S. exports account for only about 2.9% of Japan's gross domestic product, compared with 4% of GDP in previous decades. Emerging markets, meanwhile, are increasingly selling commodities and other goods to China and India, lessening their historical dependence on the U.S. export market."
Intriguing concepts: Correlation fading, global capital flows morphing, economic power shifting. We do indeed live in interesting times.
An Unrelated Story: U.S., Global Stock Markets Increasingly Take Separate Paths
CRAIG KARMIN and JOANNA SLATER
WSJ, April 23, 2007; Page C1
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To get an accurate sense of Japan's dependency on exports to the US, one would have to add in the goods they do the profitable parts of in Japan (design etc.) but farm out the non-profitable parts (final assembly) to China and SE Asia. Such production shows up as a Chinese export to the US, but is really mostly a Japanese export.
My hunch is that Japan is actually more dependent on the US consumer than ever.
Posted by: Kevin Rooney | Apr 23, 2007 7:51:38 AM
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