Global PMI Scorecard: Services Sector Drives Acceleration in Global Growth

Monday, March 12th, 2012

Growth in global economic activity continued to accelerate for the fourth consecutive month in February. Highlights of the February PMIs are as follows:

• The JP Morgan Global Composite PMI increased to 55.5 from 54.5 In January.
• The JP Morgan Global Services PMI jumped to a rather robust 56.5 from 55.4 in January.
• Growth in the global manufacturing sector slowed markedly, mostly as a result of a sharp slowdown in the U.S.
• After stabilizing in January the Eurozone economy is sliding again as the situation in Italy, Spain and Greece has worsened.
• Growth in the BRICS countries is accelerating, especially in larger China.
• Pockets of robust growth are emerging:
  • U.S. non-manufacturing sector
  • India’s manufacturing and services sectors
  • Brazil’s services sector
  • South Africa’s manufacturing sector
  • Saudi Arabia’ overall economy.

Tags: Acceleration, Brazil, Cape Town, Economy, Global Economic Activity, Global Growth, Global Services, Greece, Jp Morgan, Manufacturing Sector, Pmis, Pockets, Postcard, Robust Growth, Saudi Arabia, Scorecard Services, Services Pmi, Services Sectors, Slowdown, South Africa
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Global Manufacturing Sags Again in February: U.S. the Culprit!

Tuesday, March 6th, 2012

After rebounding from contraction in November last year the global manufacturing sector finds itself on the brink of stagnation again. The GDP-weighted manufacturing PMI that I calculate for the major economies fell to 50.8 in February from 51.5 in January, but is still higher than the 50.3 I recorded in December last year.

The U.S. ISM Manufacturing PMI’s fall to 52.4 in February from 54.1 in January contributed 0.6 points to the fall in the GDP-weighted PMI. Excluding the U.S., growth in the manufacturing sector in the rest of the world remained basically unchanged.

Although still indicating contraction at 49.0 the Markit Eurozone Manufacturing PMI shows that the manufacturing sector in the region is stabilizing.

Growth in Greater China is accelerating, with my seasonally adjusted CFLP Manufacturing PMI up to 51.9 from 51.0 in January, while the manufacturing sector in Taiwan is at long last growing again. The growth outlook in the other BRICS countries has turned for the better, with South Africa’s PMI surging to 57.9 from 43.2 in January while Brazil’s PMI rose to 51.4 from 50.6.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Holdings****; ISM*****.

Sources: Markit*; Li & Fung**; Kagiso***; Plexus Holdings****; ISM*****.

Tags: Amp, Brazil, BRICs, Brink, Contraction, Culprit, GDP, Greater China, Growth Outlook, Hypho, Ism Manufacturing, Kagiso, Manufacturing Sector, Markit, Plexus, Pmi, Rest Of The World, Sags, South Africa, Stagnation, Taiwan
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Global Stock Market Moving Averages: Tide Lifts Some Boats More than Others

Thursday, January 12th, 2012

I often use the 50-day moving average as an indicator of the secondary trend of a stock market, and the 200-day moving average as an indicator of the key primary trend. Specifically, one would like to see a stock market index trading above both these measure, but importantly above the longer-term 200 day line.

I have analyzed the numbers using yesterday’s closing levels, and the following are a few key observations:

• The global stock market rally since the third week of December has pushed most benchmark indices above their 50-day moving averages. Among the bigger markets, Japan and China are notable exceptions.
• Notwithstanding the rally, most markets are still trading below their 200-day averages.
• However, there are a few exceptions. Among mature markets, these include Ireland, U.S., U.K., Switzerland and Denmark.
• As far as emerging markets go, the ones trading above the 200-day averages are: the Philippines (that has just made an all-time high), Venezuela, South Africa, Mexico, Indonesia, Thailand and Brazil.
• Some of the worst performing mature markets, according to the 200-day lines, are debt-ridden countries such as Greece, Portugal and Spain, but Japan, New Zealand and Austria are also lagging.
• The emerging markets lagging the 200-day averages by most include Pakistan, Sri Lanka, Turkey, China, the Czech Republic and India.

The tables below show the detail, with stock markets ranked from those trading the furthest below their moving averages to the ones that are the furthest above the averages.

Developed markets: ranked according to 50-day moving average

Developed markets: ranked according to 200-day moving average

Emerging markets: ranked according to 50-day moving average

Emerging markets: ranked according to 200-day moving average

Tags: Boats, Czech Republic, Denmark, Emerging Markets, Exceptions, Global Stock Market, Greece, Index Trading, Indonesia, Market Rally, Mature Markets, Moving Average, Moving Averages, Pakistan, Philippines, South Africa, Stock Market Index, Stock Markets, Tide, Venezuela
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Where Falling Inflation Means Rising Valuations (Koesterich)

Thursday, December 29th, 2011

by Russ Koesterich, Chief Investment Strategist, iShares

One silver lining of the current slow growth environment is that inflation in emerging markets appears to have hit an inflection point.

In recent months, for instance, inflation in both China and Brazil has come down. In China, consumer prices rose 4.2% in November from a year earlier, a 14-month low. Similarly, in Brazil, annual inflation fell to 6.64% in November, close to the 6.5% upper limit of the Brazilian central bank’s target range.

Emerging market inflation should decelerate further in 2012 thanks to a combination of continuing slower global growth and the lagged impact of monetary tightening. Brazil’s central bank has said it expects inflation to “fall sharply” by the second quarter of next year.

With the outlook for emerging market inflation improving, my team recently ran an analysis to determine which developing countries are likely to see their valuations benefit the most from falling inflation.

Here is the list, with each country ranked in order of how much they should benefit.

1.      Brazil

2.      India

3.      Egypt

4.      South Africa

5.      Russia

6.      Turkey

To develop the list, we looked at the relationship over the last five years between valuations (as measured by price-to-book values) and inflation levels for various emerging markets. For some countries, the relationship is positive — modest inflation is better for growth and translates into higher valuations during periods of inflation.

However, for other countries, the relationship is negative and higher inflation means lower valuations. This is especially true for countries that have gone through hyperinflation in the past, where investors are particularly sensitive to inflation readings and where valuations should benefit from decreasing inflation.

For our ranking, we focused on countries with a negative relationship that also still have high levels of inflation. For instance, Mexico and Indonesia would benefit from declining inflation. But they didn’t make our list because their inflation has already come down to a good range, which has already helped their valuations.

So how much should our top six countries benefit from falling inflation? Historically, every percentage point increase of inflation in Brazil is associated with Brazil’s price-to-book value decreasing by 0.3. I would expect the opposite to hold if Brazil’s inflation decreases.

At the bottom of the list, every percentage point increase of inflation in Turkey is associated with Turkey’s price-to-book value decreasing by 0.03. The other countries on the list fall somewhere in between.

But keep in mind that emerging market inflation is likely to stay above the comfort zone of many central bankers. In addition, inflation is not necessarily slowing in all emerging markets on our list. In Turkey, for instance, inflation has accelerated since February due to a combination of an overheating domestic economy and very unconventional monetary policy.

(Potential iShares solutions: EWZ and ERUS)

Disclosure: Author is long EWZ and ERUS

Source: Bloomberg

In addition to the normal risks associated with investing, international investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Securities focusing on a single country may be subject to higher volatility.

Copyright © iShares

Tags: Book Values, Brazilian Central Bank, Chief Investment Strategist, Developing Countries, Egypt, Emerging Market, Emerging Markets, Global Growth, Growth Environment, Hyperinflation, inflation, Inflection Point, Negative Relationship, Periods, Russ, S Central, Second Quarter, South Africa, Target Range, Valuations
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Global stock market moving averages – a mixed picture

Wednesday, October 12th, 2011

A quick whizz around the moving averages of global stock markets makes for interesting reading. Specifically, I have considered the standard deviation from the 50- and 200-day moving averages for both mature and emerging stock market indices.

As shown in the tables below, the key conclusions are as follows:

• Most developed markets are again trading above their 50-day moving averages (indicating the secondary trend), including the MSCI World Index and all the major U.S. indices. It is not surprising to see markets such as Greece and Portugal bucking the trend, with Japan also an underperformer.

• The recovery of emerging markets is lagging that of the developed ones, and most of these markets are still below their 50-day averages. Pakistan, South Africa, Turkey and Venezuela are notable exceptions.

• Considering the 200-day moving averages (an indicator of the primary trend), all the developed markets with the exception of New Zealand are below their averages, with Austria, Greece and Singapore more than two standard deviations in the red.

• As far as emerging markets go, only two – Pakistan and Venezuela – are above their 200-day averages. The MSCI Emerging Markets Index, as well as three of the BRIC countries – China, Brazil and Russia – is more than two standard deviations under water.

I would not be surprised to see a further recovery in stock markets over the next few weeks, with those markets most deeply oversold relative to their 200-day moving averages offering the strongest recovery potential. But until we see the majority of the indices (as well as the majority of individual stocks) breaching their 200-day lines, one would be hard-pressed to talk of a resumption of the bull market.

Developed markets – ranked by standard deviation from 50-day moving average

Emerging markets – ranked by standard deviation from 50-day moving average

Developed markets – ranked by standard deviation from 200-day moving average

Developed markets – ranked by standard deviation from 50-day moving averages

Tags: Brazil, Bric Countries, Conclusions, Emerging Stock Market, Exceptions, Global Stock Market, Global Stock Markets, Greece, Moving Averages, Msci Emerging Markets, Msci Emerging Markets Index, Msci World Index, Pakistan, Resumption, South Africa, Standard Deviation, Standard Deviations, Stock Market Indices, Stocks, Venezuela, Whizz
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Strike at South African Mines: Bullish for Platinum?

Tuesday, July 19th, 2011

By Prieur du Plessis

As wage talks between South African mines and labour have become deadlocked, the mood among mine workers and labour in general is for strikes and I doubt it will be averted.

Last year’s settlements were generally below 10% but expectations are much higher this time around. I think we are probably in for a minimum of two to three weeks – similar to what happened in 2009. The major two-week strike in 2009 from 24 August to 8 September saw Implats lose 50 000 oz of production and Aquarius about 17 000 oz.

With South Africa’s production approximately 88 000 oz per week, it means best 88 000 oz may be lost if all the mines close for one week. If the strike lasts three weeks, a total of 264 000 oz or the equivalent of 40% of last year’s total investment demand will be lost. There was very little industrial action in 2010 – in the spirit of the FIFA World Cup.

But let us have a look at what happened to the platinum price and the prices of other precious metals in 2009 from the time the strike started at Impala Platinum to when it ended.

Source: Plexus Asset Management (based on data from I-Net Bridge).

The platinum price did not react initially as it was felt the company had sufficient inventory to fulfil its obligations to its customers. The price surged after it became clear that the strike would last longer and intensified. On the day the strike started the platinum price closed at $1 239 per ounce. On the day the strike ended the price closed at $1 347 – a surge of $108 per ounce or 8.7%! The positive momentum also benefitted gold, which rose by $75 from $943 to $1 018 per ounce or 8% over the same period. Palladium, the other major platinum group metal, lagged, though, as the price rose by $16 from $282 to $298 per ounce or 5.7%.

I am of the opinion that this time around the impact of a strike could be much greater than in 2009. Platinum demand was then still subdued in the aftermath of the 2008/2009 global liquidity crisis and producers such as Anglo American Platinum were still slashing production to adjust to lower demand. Although global economic growth has slowed down mainly as a result of supply-line shortages due to Japan’s terrible twin disasters, supply and demand are relatively evenly matched. With the wheels of industry turning again and consumer confidence improving, Japan’s economy is heading for better times and that should rub-off on the rest of the globe.

A three-week strike resulting in a loss of 264 000 ounces of platinum is certainly going to lead to a blow-off in the platinum price. Yes, you can bet your bottom dollar the producers have probably used the recent weakness in the price to buy in the expected production shortfalls resulting from the strikes by purchasing futures and call options.
My message to the platinum bears: let the seller beware!

Tags: 8 September, Aftermath, Aquarius, Asset Management, Fifa World Cup, Impala Platinum, Investment Demand, Labour, Momentum, Ounce, Oz, Palladium, Platinum Group Metal, Platinum Metal, Platinum Price, precious metals, Prieur, South Africa, South African Mines, Strikes
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Most Overbought ETFs Across the World

Monday, April 4th, 2011

by Bespoke Investment Group

The screen below allows us to display a large amount of price trend information in a relatively small space so that investors can easily analyze an entire portfolio or basket of stocks.  Below we highlight the 30 most overbought ETFs out of all the securities we track in our daily ETF Trends report over at Bespoke Premium.  The trading range tool for each ETF is essentially a compacted price chart.  It shows where the ETF is currently trading relative to its historical range along with where it was trading one week ago.  An in-depth description on how we calculate overbought and oversold levels is included at the bottom of the screen.

While India was one of the most oversold markets a few weeks ago, it is currently the most overbought!  As shown below, the MSCI India ETN (INP) is at the top of the screen, meaning it’s currently the farthest above the top of its trading range out of any ETF/ETN across all asset classes that we track.  South Africa (EZA) isn’t far behind in second place, followed by GUR, DBS, and SLV.  Nearly all of the ETFs on the most overbought list are related to emerging markets or commodities.

Copyright © Bespoke Investment Group

Tags: Asset Classes, Bespoke Investment Group, Commodities, Dbs, Depth Description, Emerging Markets, ETF, ETFs, Etn, Eza, Gur, India, Inp, Investors, Msci, Price Trend, Slv, South Africa, Stocks, Tool
Posted in Commodities, ETFs, India, Markets | Comments Off

International Market Snapshot (July 22, 2010)

Friday, July 23rd, 2010

This note is a guest contribution by Bespoke Investment Group.

The S&P 500 has made a nice move back above its 50-day moving average after playing ping pong with it over the past week or so.  As shown in our trading range chart below, the index still has quite a bit of work to do if it wants to reclaim the losses seen since late April.

As we noted in our last post, many other countries have recently done better than the US in terms of equity market performance.  The charts of 20 major equity indices below highlight this recent trend.  While Australia, Canada, Japan, France, and Switzerland remain in downtrends, the rest of the charts show mostly overbought markets.  India’s Sensex looks the strongest of them all, as it has just moved to a new bull market high.  Brazil, the UK, Singapore, South Africa, Sweden, and Spain are all well into overbought territory, while Germany, Hong Kong, Taiwan, Malaysia, Mexico, Russia, and South Korea are at the very top of their trading ranges.  After breaking their downtrends on the recent run-up, many of the overbought countries are getting close to their April highs.  And while still well below its bull market highs, China has even broken some key resistance points recently.

Copyright (c) Bespoke Investment Group

Tags: Australia Canada, Bespoke Investment Group, Brazil, BRIC, BRICs, Canadian Market, China, Hong Kong Taiwan, India, Losses, Market Performance, Market Snapshot, Moving Average, Ping Pong, Resistance Points, Russia, Sensex, Singapore, South Africa, South Korea, Spain, Trading Ranges
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World Cup Fever in Africa

Friday, June 25th, 2010

This article is a guest contribution by Mark Mobius, Vice Chairman, Franklin Templeton Investments.

I’m sure a number of you have been keenly following the World Cup matches as they play out across South Africa. For me, even though I was sitting far away, the opening match in the awe-inspiring Johannesburg venue felt especially close to home, since we have an office in this city originally called the “Place of Gold”

We have been coming to South Africa for several years, and we also have a number of South African companies in our portfolios, so we rejoice along with the South Africans that they are hosts of the FIFA World Cup 2010. In our opinion, the country has many world-class companies that present good investing opportunities. These companies have capable management teams and many are expanding their international market share. Higher global demand for commodities, a recovery in domestic demand and the hosting of the World Cup should further support South Africa’s economic resurgence this year.

A number of sectors could benefit from the World Cup, most notably those related to infrastructure, tourism, retailing, media and telecommunications. This is the first time the World Cup has ever been held on the African continent. The fact that the World Cup occurs in South Africa could enhance the country’s image and improve the world’s perception of South Africa, as well as potentially attract more tourists and investors to the region.

While South Africa is by far the largest and most liquid of the markets in sub-Saharan Africa, we are now also looking at lesser-known markets in the African continent, including Nigeria, Egypt, Kenya, Botswana, Ghana, Morocco, and Tunisia. Liquidity is the key concern for most investors, so markets that are the most liquid could attract greater investment flows. While markets in some African countries are developing quite rapidly, we think they have a long way to go before their potential is fully realized. In the meantime, private equity investments present an alternative channel for direct foreign investment, which is needed as a starter.

We have also observed the growth of new markets in the region. For example, Libya, which I wrote about earlier, already has a stock market and is encouraging the privatization of state-owned enterprises—a development some other African countries are repeating. Nigeria, a large country with substantial natural resources, is quickly emerging as an interesting investment destination. It has the second-largest proven oil reserves in Africa, and in late 2009, surpassed Saudi Arabia as the third-largest supplier of crude oil to the U.S.^[1]

Indeed, Africa as a whole has some of the world’s greatest deposits of natural resources, and only a fraction of those resources have been tapped so far. It is not only Africa’s mineral resources that appear attractive but also its agricultural potential and the abundance of water that we think may decide the rise and fall of nations in the future. In addition, the continent has a young and growing population, and its people could improve their education and skills to become a major asset to expanding manufacturing and mining enterprises.

We believe the outlook for Africa is positive. It has stirred the interest of countries like China, India and other fast-growing emerging markets, which require increasing resources for their growing economies, as well as countries like Russia and Brazil, who look to expand their enterprises into global operations. South Africa, acting as a representative for the continent through the World Cup, has shown that it can host an international event to international standards, and we believe this bodes well for the region’s future investment prospects.

No matter who lifts the World Cup trophy on July 11, I believe it is ultimately Africa that has won the attention of the world. Long after the games are over, we will continue to keenly follow the progress of this promising continent.

Copyright (c) Franklin Templeton Investments

Tags: African Continent, African Countries, Brazil, BRIC, BRICs, Capable Management, China, Commodities, Economic Resurgence, energy, Fifa World Cup, Fifa World Cup 2010, Franklin Templeton Investments, Global Demand, Gold, India, International Market Share, Investment Flows, Johannesburg, liquidity, Management Teams, Mark Mobius, Natural Resources, Russia, South Africa, South Africans, Sub Saharan Africa, Vice Chairman, World Cup 2010, World Cup Fever
Posted in Brazil, China, Commodities, Energy & Natural Resources, Gold, India, Infrastructure, Markets, Oil and Gas, Outlook, US Stocks | Comments Off

Richard Russell (Dow Theory Letters): Potential buyers of gold?

Monday, February 23rd, 2009

The following is an excerpt from Richard Russell’s Dow Theory Letters, February 18, 2009.

“Here are some figures, the first number is the nation’s holding of gold and the second figure is the percentage that gold is of their reserves. Nations with low percentages of gold in their reserves may be expected to be potential buyers of gold.

US — owns 8,135 metric tons of gold … Gold makes up 64.4% of US reserves. The US will not sell any of its gold.
Germany — 3,412 … 64.4% of reserves
IMF — 3,217 …
France — 2,508 … 58.7%
Italy — 2,451 … 61.9%
Switzerland — 1,040 … 23.8%
Japan — 765.2 … 1.9% (a potential gold-buyer)
China — 600.0 … 0.9% (should be a big buyer)
Russia — 495. 9 … 2.2% (is a buyer)
Taiwan — 422.2 … 3.6% (should be a buyer)
India — 357.7% … 3.0% (should be a buyer)
UK — 310.3 … 14.5% (sold most of its gold at the low price)
Saudi Arabia — 143.0 … 11.4% (should buy gold)
South Africa — 124.4 … only 9.0%
Australia — 79.8 … 6.3%”

Source: Richard Russell, Dow Theory Letters, February 18, 2009.

Hat tip: Investment Postcards

Tags: Buy Gold, Buyers Of Gold, Dow Theory Letters, Emerging Markets, Excerpt From, France 2, Gold Buyer, Gold Gold, Hat Tip, Imf 3, India, Italy, Metric Tons, Percentages, Postcards, Richard Russell Dow Theory, Russia, Saudi Arabia, Sell Gold, South Africa, Taiwan
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