Thursday, September 10, 2009

International leading U.S. --- ?

International "green shoots" may be sprouting in a more visible way than in the country where the cute phrase was coined. There is a renewed vibrancy to many overseas markets. They are still working with challenges from the crisis, as we are here, but there is beginning to be a feeling that those sprouts are more tangible. That combined with the fact that once the contagion started in the fall of '08 many overseas equity markets declined as much as U.S. markets and in some cases much more, the rebound going on now could just be the beginning of a much bigger move in these non-U.S. markets. At the moment that may be underpinning the U.S. rally.

To date the focus has primarily been on China, and the Chinese have done more things right than wrong to address the crisis and, more importantly, their dictatorship/market economy has allowed them to implement stimulus quickly. That's not admiration, just a fact that they jumpstarted infrastructure spending almost immediately. There has been stability there and already they are concerned about overheating again.

Other areas in Asia are percolating, especially the export engine of South Korea and the banking and finance focused Singapore. Japan has a new government that is saying all the wrong things but the guess here is that the market doesn't care because nothing has worked for almost 20 years. Regardless of what the new government is saying, it is possible that any change is good, anything that shakes up the bureaucracy and shadow power structure of their rigid system.

Western Europe is a mixed picture but France and Germany have been relatively resilient. While their leaders refuse to be optimistic and stress more difficult times ahead, the economic numbers aren't so bad and the confidence surveys have not fallen off the table. Observation suggests that the leaders are sandbagging, not wanting to get ahead of themselves and wanting to take credit for the turnaround that may be in the works.

Emerging markets is the biggest story in the nascent global recovery. The fact that they did not collapse and are at the least tracking the recovery of major economies is amazing relative to post WWII history. Corporates in emerging Asia and Latin America went into this downturn, generally speaking, with limited leverage and hedged currency exposures. That was a first and given the growth potential of many of many of these economies, they not only are not a drag but may be an engine of global growth that will absorb more Asian exports to at least partially offset the sluggish U.S. consumer. Some may feel that, from an investment point of view, the emerging markets train has already left the station though it may be a long ride.

Eastern Europe and Russia are a wild card still, resource rich but in some areas terribly managed.

This international landscape, as projected here, should be good news for U.S. multinationals and a continuing opportunity for agile investors.


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