Global Equities: DM Surging Against EM
Over the long run, we continue to favour developed market (DM) over emerging market (EM) stocks, as the structural underpinnings in DM turn into tailwinds, while those of EM turn into headwinds.
In fact, developed world equities are breaking out technically against their EM counterparts after a brief pull back (as measured by the ratio of the MSCI World index to the MSCI Emerging Markets index). Apart from the US, upon which we have been bullish for a few years now, we maintain our more recently-adopted positive stance towards European equities, with our bullish eurozone financials view up 8.0% since September 24, and Eurozone over US equities up 2.7% since August 15.
Regarding EM, copper's break below US$7,000/tonne highlights pronounced near-term downside risks for industrial metal prices, despite resilient Chinese demand in Q4 2013. This puts the potential for a China-led EM slowdown back into focus.
Chinese equities look weak technically, which we believe could signal that the bounce in economic activity will fade before long. Both the Shanghai and Shenzhen Composite indices have seen critical support breaks in recent weeks, and given the predictive quality of equity markets in China, this helps support our downbeat growth forecast in 2014.
This Week's Trivia Question
Last week's question was as follows: What major work of American literature is among the small number of foreign titles available as e-books on North Korea's new Samjiyon tablet computer? (Hint: the book portrays a conflict which may have analogies with the Korean Peninsula's own modern history.) The answer is Gone With The Wind, which is set during the US Civil War (1861-1865) between the North and the South.
This week's question coincides with the 50th anniversary of the assassination of former US President John F Kennedy, and is as follows: Eight months before the Kennedy assassination, gunman Lee Harvey Oswald had attempted to kill a former public figure. Who was that individual?