October 17, 2006 –
I’ve said many times on previous blog posts that the reasons I discuss the U.S. markets so often is that the U.S. markets drive all other markets around the world. It is quite common to see a record day on the S&P 500 followed by stellar days on the LSE and Nikkei indexes the following day and vice versa. Just look at recent parallel movements. The U.S. Dow hits all —time highs (well not really but if you don’t adjust for inflation, it has), then the Sensex in India last Friday closed 65 points higher than its earlier record high of 12,671.11. This past Monday, in early morning trading, the Nikkei and Topix indexes opened higher in Japan along with the Kospi in South Korea and the S&P/ASX 200 in Sydney.
However there are so many factors today that have made emerging and other developed markets less dependent on the U.S. economy. There will come a time, especially as the globalization of the world’s stock markets rapidly progresses, that such behavior exhibits more divergence than convergence. The Euro, only in existence since 2002, has become a much more stable currency than the U.S. dollar, allowing central banks all over the world to reduce their country’s exposure to the dollar. Emerging economies like China, Russia and India are replacing traditionally European and American roles of lending to other emerging nations. These same emerging economies are also investing billions of dollars into other nations that have traditionally depended upon U.S. aid for survival.
For example, I remember reading an analyst confidently state that Venezuela, despite all of the rhetoric and public disdain displayed by its President for U.S. President Bush, could not sever ties with America because its economy depended upon U.S. oil infrastructure. Doing so, this analyst claimed, would be “economic suicide” for Venezuela. Not true. Many people don’t realize how far some of these emerging markets have risen, including apparently this analyst. Russia now hold’s the world fourth largest reserves. And it is Russia and China that are investing billions of dollars building oil infrastructure in Venezuela. Venezuela in the future may not need any American investment at all. There is a delusional belief among many analysts, especially American analysts, that certain countries’ economies would collapse without American aid and investment.
As I discussed in a previous blog, even the U.S. Federal Reserve Chairman Ben Bernanke has delusions about the necessity of the lion’s share of the unwinding emerging markets’ savings glut returning to the U.S. I’m sure much of it will but the lion’s share does not necessarily have to return to the U.S. as the emergence of more stable and vibrant economies worldwide will be able to support much of this unwinding savings gllut. As we can see now, the economic landscape is quickly shifting in Africa and South America away from the U.S. and Europe towards Asia. And as I mentioned before, China is on the brink or replacing the U.S. as Japan’s largest trading partner. It is for exactly this reason, that I decided to move to Asia a while ago. I wanted to stay on top of the pulse of global stock markets and found it impossible to do that in the United States. Asia is where it’s at, and where it will be at for the next couple of decades.
