June Summary and Outlook

The socioeconomic decline in the US, and partially in the Europe Union, is still accelerating despite some improving macro data. The level of the decline remains devastating for the majority of the population resulting in lower consumption and investment. For the Asian economies, this lack of demand will cause a bit of a dent although the dependency towards Western economies has been steadily decreased over the years. India may be hit harder than any of the other nations from the decline in western demand.

China reacted quickly and put in place a wide measure of internal as well international policies which allows a fast recovery. The mixed set between support for the real economy, financial markets as well as international trading partners shows a careful weighted decision to stabilize all pillars of the Chinese economic system.

On a global scale, financial markets are still strongly supported by monetary policies and it can be expected that the policy makers remain their stance on stabilized financial markets are supporting the real economy as well. More and more, questions arise whether further monetary policies are actually helpful for the stability of the overall economic system and policy makers start considering more intervention supporting the real economy directly. Interesting, the more east the stronger the support for the real economy in comparison the more west the stronger the support for the financial economy. Japan is an exception to this trend.

FX markets show stabilizing signals and the "flight to safety" reverses. More rational capital flows are pushing Asian currencies higher compared to the unsustainably managed USD. If this trend continues it will push Asian equity markets up as well as interest rates down. In conclusion we expect higher FX rates, lower interest rates and increased equity prices.

Commodities and precious metals are, by historical and empirical levels, strongly underpriced compared to equities - especially in the tech sector, and could offer long term opportunities. Given that we can can expect increasing commodity prices with the restart of the global economy and higher prices due to declining global trade, an increased exposure to the commodity sector and respective countries could make sense.

Default rates are heavily controlled by governmental and monetary policies (strongest in Asian nations, in the EU to a lesser extend, and weak in the US where we have already seen increased defaults), therefore we expect low default rates in Asian economies as well as rates compressions likely to continue. India is facing socioeconomic hardship which likely results in negative measures for capital owners. Therefore any additional exposure in Indian financial markets could result in increased losses.

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