Previously on Sharpfokus
Growth is back ⬆️ Sharpfokus118
December 15th, 2019
⏰ 2 minute read
⏰ 2 minute read
Growth
Weak growth is the big issue around the world & this has become obvious to everyone in 2019. But there are signs that growth is returning. In terms of the 3 global growth indicators, low bond yields have been rising again, the oil price is back to $60 & the $ has recently been weakening. Here’s a growth roundup around the world.
US
Yields
First up is the US, which is the leader & where the strongest growth can be found. Bond yields have always followed nominal GDP growth almost perfectly. No surprise then that the US 10 year yield is the highest of all the major economies. After rising since 2016, bond yields declined back below 2% in 2019. But the yield has jumped again towards 1.9% into early December.
Dow
The US stock market has become by far the largest in the world & by far the best performing. Since early 2018, the Dow has been trading in a range. But In a sign of the improving growth outlook, the Dow has clearly broken out of this trading range & has moved to a record above 28,000. It doesn’t seem that long ago that the market first broke 10,000!
$
One of the clearest signs that the US is the strongest growth economy by far has been the strength of the $. This has been even more evident during the recent growth weakness. As interest rates have fallen, US rates have remained by far the highest & so the $ strengthened. But in the last couple of months the $ index has declined from 99 to now 97.
Europe
Yields
Europe has now become the weakest part of the major global markets. We know this simply because of the 10 year bond yields. The leading economy, Germany has negative interest rates & the lowest of the negative interest rates. However from almost minus 0.7%, German 10 year yields have now improved to negative 0.3% in a sign of less negative growth.
UK
The U.K. is the strongest part of Europe, but even the U.K. had weakened significantly. 5 years ago, UK & US rates were closer together, now they’re far apart with the U.K. yields at less than half the US. But the UK is clearly trying to fight back. The election this week gives a mandate to leave the slow growth EU & forge a new economic relationship with the faster growth US.
Catchup
If this were to happen, the upside potential for the U.K. is obvious. It doesn’t seem that long ago that the Dow crossed 10,000, but it is almost 20 years. While the Dow has now almost tripled over those years, the U.K. FTSE has barely increased at all. Leaving the EU & making friends with the US could see U.K. stocks triple too.
ASIA
Japan
While Europe is now clearly the weakest economic region, that mantle used to belong here in Asia. The leading Asian economy is not China, its Japan. Despite a much smaller population, Japan has a bigger stock market than China. Last week Japanese bond yields turned positive (although they didn’t quite hold that level) in a sign that growth is returning to Asia.
30 years
While the US economy moves constantly higher & higher, the European economies haven’t grown in 12 years since 2007. In the U.K. case it’s 13 years since 2006! You can google it. But in Asia, the Japanese economy hasn’t grown in 30 years. While the Nikkei & Hang Seng indexes used to be the darlings, both have now been overtaken by the Dow.
JCI
You night be surprised to learn (although we’ve mentioned it here before) that Indonesia also hasn’t gone anywhere in 30 years. Yes the JCI index has risen 10x from 600 to 6,000 since 1990. But that’s in rupiah. The $ was at 1,700 before & now its 14-15,000 which has wiped out almost all of the 30 year gains.
Sales
30 years is a long time to go without! But with signs of improving growth now, we are much more optimistic about what lies ahead. The signs are increasing that growth is returning. We now cover 64 stocks in our Sharpfokus Saham. Our data shows that the total sales of those companies jumped 7% in the 3Q from 2Q & the average annual growth rate is now recovering slightly to 5% from 3% in the 2Q. It’s a beginning.
Be a great investor !
Sebastian
Weak growth is the big issue around the world & this has become obvious to everyone in 2019. But there are signs that growth is returning. In terms of the 3 global growth indicators, low bond yields have been rising again, the oil price is back to $60 & the $ has recently been weakening. Here’s a growth roundup around the world.
US
Yields
First up is the US, which is the leader & where the strongest growth can be found. Bond yields have always followed nominal GDP growth almost perfectly. No surprise then that the US 10 year yield is the highest of all the major economies. After rising since 2016, bond yields declined back below 2% in 2019. But the yield has jumped again towards 1.9% into early December.
Dow
The US stock market has become by far the largest in the world & by far the best performing. Since early 2018, the Dow has been trading in a range. But In a sign of the improving growth outlook, the Dow has clearly broken out of this trading range & has moved to a record above 28,000. It doesn’t seem that long ago that the market first broke 10,000!
$
One of the clearest signs that the US is the strongest growth economy by far has been the strength of the $. This has been even more evident during the recent growth weakness. As interest rates have fallen, US rates have remained by far the highest & so the $ strengthened. But in the last couple of months the $ index has declined from 99 to now 97.
Europe
Yields
Europe has now become the weakest part of the major global markets. We know this simply because of the 10 year bond yields. The leading economy, Germany has negative interest rates & the lowest of the negative interest rates. However from almost minus 0.7%, German 10 year yields have now improved to negative 0.3% in a sign of less negative growth.
UK
The U.K. is the strongest part of Europe, but even the U.K. had weakened significantly. 5 years ago, UK & US rates were closer together, now they’re far apart with the U.K. yields at less than half the US. But the UK is clearly trying to fight back. The election this week gives a mandate to leave the slow growth EU & forge a new economic relationship with the faster growth US.
Catchup
If this were to happen, the upside potential for the U.K. is obvious. It doesn’t seem that long ago that the Dow crossed 10,000, but it is almost 20 years. While the Dow has now almost tripled over those years, the U.K. FTSE has barely increased at all. Leaving the EU & making friends with the US could see U.K. stocks triple too.
ASIA
Japan
While Europe is now clearly the weakest economic region, that mantle used to belong here in Asia. The leading Asian economy is not China, its Japan. Despite a much smaller population, Japan has a bigger stock market than China. Last week Japanese bond yields turned positive (although they didn’t quite hold that level) in a sign that growth is returning to Asia.
30 years
While the US economy moves constantly higher & higher, the European economies haven’t grown in 12 years since 2007. In the U.K. case it’s 13 years since 2006! You can google it. But in Asia, the Japanese economy hasn’t grown in 30 years. While the Nikkei & Hang Seng indexes used to be the darlings, both have now been overtaken by the Dow.
JCI
You night be surprised to learn (although we’ve mentioned it here before) that Indonesia also hasn’t gone anywhere in 30 years. Yes the JCI index has risen 10x from 600 to 6,000 since 1990. But that’s in rupiah. The $ was at 1,700 before & now its 14-15,000 which has wiped out almost all of the 30 year gains.
Sales
30 years is a long time to go without! But with signs of improving growth now, we are much more optimistic about what lies ahead. The signs are increasing that growth is returning. We now cover 64 stocks in our Sharpfokus Saham. Our data shows that the total sales of those companies jumped 7% in the 3Q from 2Q & the average annual growth rate is now recovering slightly to 5% from 3% in the 2Q. It’s a beginning.
Be a great investor !
Sebastian
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