Advertisement
Features

Europe to lag, Asia to lead

According to investment consultancy Gavekal, Europe is heading for troubled times. On the other hand, says their report, Asian equities and real estate are the place to be.

Europe is heading into troubled times, predicts the well-regarded investment consultancy GaveKal.

It is starting to experience "the full effects of higher taxes, higher interest rates and a higher exchange rate" a combination "usually enough to floor even the toughest economy (which Europe is not)."

Fiscal tightening has cut economic growth by 0.7 per cent in the Eurozone over the past couple of years. Interest rates have doubled. The Euro is two-thirds more expensive in dollar and yen terms than it was six years ago.

Advertisement - Article continues below

Leading indicators are now worse than for the US, despite the latter's highly-publicized problems. Retail sales in Germany, the biggest European economy, are running well below last year's level. And judging by the actions of the European Central Bank, European financial institutions are being hit especially hard by the global crisis in credit markets.

After previous financial crises, "Europe has usually turned out to be a weak link in the global economy," says GaveKal, due to "lax management in state-run or protected financial institutions" and reactive rather than pro-active monetary policies.

Two big risks for Europe now is that its global export markets will weaken the US foreign trade balance is already improving markedly - and that nations with huge trade surpluses such as China cut back their investment in European government bonds.

"The Euro should fall sharply," GaveKal predicts.

The consultancy reckons that inflation fears will soon subside and the world is now heading into a period of "mild deflationary boom." The places for investors to be will be Asian equities and real estate especially in Hong Kong and shares of the best multinationals.

"Investors in Asian assets are today sitting in a very comfortable position. They will either see massive currency appreciation and a boom in domestic consumption, or they will witness large liquidity injections [in the global financial system by central banks] which almost de facto guarantee a sharp rise in asset prices.

"We see a high probability of strong gains in Asian assets over the next two years.

"The fact that Asia has just experienced its strongest upward corporate earnings revisions in three years and that current stock price valuations do not reflect this very positive earnings momentum also reinforces our optimism.

"The Asian bubble has not even started!"

By Martin Spring in On Target, a private newsletter on global strategy

Advertisement
Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/517688/the-british-equity-market-is-shrinking
Stockmarkets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019
Visit/511212/reasons-for-investors-to-be-bearish-but-stick-with-the-stockmarket-bulls
Stockmarkets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019
Visit/510684/good-news-on-jobs-scares-stockmarkets
Economy

Good news on jobs scares US stockmarkets

June brought the best monthly US jobs growth of the year, but stockmarkets were not best pleased.
11 Jul 2019

Most Popular

Visit/economy/inflation/601584/the-end-of-the-bond-bull-market-and-the-return-of-inflation
Inflation

The end of the bond bull market and the return of inflation

Central bank stimulus, surging post-lockdown demand and the end of the 40-year bond bull market. It all points to inflation, says John Stepek. Here’s …
30 Jun 2020
Visit/investments/commodities/gold/601587/bullish-gold-price-cup-and-handle-chart-pattern
Gold

This chart pattern could be extraordinarily bullish for gold

The mother of all patterns is developing in the gold charts, says Dominic Frisby. And if everything plays out well, gold could hit a price that invest…
1 Jul 2020
Visit/economy/global-economy/601579/how-pent-up-demand-could-drive-a-v-shaped-economic-recovery
Global Economy

How “pent-up demand” could drive a V-shaped economic recovery

“Pent-up demand” is usually a myth. But not this time. The Covid lockdown has created genuine pent-up demand, says Merryn Somerset Webb. That’s now be…
29 Jun 2020