Asian Markets... US Data

Michael Rudd, CFA | President, CEO & Portfolio Manager

This week, we wanted to write about significant differences that we are seeing in Asian markets but this morning, the US released inflation and economic data that we thought we would include as well, so there are two topics today.

Asia: We often find that global economies and markets are correlated, so it is difficult to get equity diversification. It is different now and this provides us with investment opportunities. Figure 1 presents valuations of different markets in Asia and the US for comparison. As one can see from the chart, there are significant dispersion.
• While earnings data is not 100% comparable across countries, the chart does indicate that currently Asia has a lower valuation than the US. There is also significant differences between the individual Asian countries. This is new.
• This provides us with good opportunities to invest the portfolio: Japan seems to be emerging from decades long deflation, smaller south Asian countries are benefiting from near shoring and supply chain risk mitigation, the Indian economy is very strong, and China continues to struggle with reopening and consumer malaise.

US Data: consumer and inflation data were released today and the data is very interesting.
Retail sales have decreased, which indicates that consumer consumption (two thirds of US GDP) has slowed. This would indicate that the economy is slowing down.
• The inflation data that the US Fed heavily relies on has slowed as well. The Personal Consumption Expenditure (PCE) Deflator dropped substantially, which was good news. More importantly, the less volatile version of that index is also lower.

“This means that” the stock market took a positive view on the US data as it indicates that the US Fed’s attempts at slowing the economy, while moderating inflation, seem to be moving in the correct direction. Also, with respect to Asia, there seems to be significant opportunity to put capital to work in our investing themes. Next week, Pathfinder is on a group retreat so we will hang our “gone fishing” sign up for the PIO. There will be no Outlook on July 7th. We will return on July 14th with the Small Cap Quarterly Report followed by the Real Fund Semi-Annual Report on the 21st.

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