The Global Strategist Buy the Mystery, not the History!
Highlights
*The past two weeks have seen a deluge of data indicating an extraordinarily strong global economy. Analyst revisions momentum is at a record high; the US economy expanded at 7.2% in the third quarter; and official projections for Japanese industrial production growth suggest an expansion in the three months to November at a rate not seen in Japan in forty years. Is this the cyclical peak or - after some pause - could we see even stronger and more synchronized growth in the spring of next year?
*With the 'easy cyclical' money already made, investors now have to put their hand on their heart and decide whether there really is a secular bull case on Japan. We think there is, but its roots lie in corporate Japan's response to China's spectacular growth more than anything else. The Japanese corporate sector is highly cash-flow positive, and the longer China sees double-digit GDP growth, the greater the risk that Japanese investment spending will have to respond. And the more China impacts Japan, the more it takes Japan 'out of' the Western economies. It may take Japan's excess savings away from America. It may also take Japanese competition away from Western manufacturers. Rather than try and play China directly, maybe we should focus on who would benefit from less competition from Japan.