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CONCLUSION: New data points, including negative revisions to the official growth forecasts out of Singapore and Hong Kong, affirm our bearish conviction on the slope of global growth with respect the intermediate-term TREND duration. Applying a longer-term lens, would argue that the incessant policy responses out of the global central planning cartel over the last ~5yrs have set us up for broadly weak economic fundamentals for the foreseeable future.

This week, Singapore and Hong Kong each cut the upper limit of their respective 2012 GDP forecasts by -50bps and -100bps, respectively. Singaporean officials now see Real GDP growth coming at +1.5-2.5% for 2012 and officials in Hong Kong anticipate domestic economic growth in the +1-2% range for the full year. We continue to trumpet the heightened sensitivity of Hong Kong and Singapore to the global economic cycle and view these countries as the best barometers for global growth out there: 

  • At 211% and 223% of GDP, respectively, Singapore and Hong Kong are far and away the most export-oriented countries in Asia – far more levered to global demand than other noteworthy exporters (China: 29.6%; South Korea: 52.4%; Japan: 15.2%; Thailand: 71.3%; and Taiwan: 58.9%);
  • The ratio of Singapore and Hong Kong’s share of world exports to their individual shares of world GDP are 7.1x and 7.5x, respectively – besting the next closest economy in Asia (Malaysia) on this metric by at least 3.7 turns; and
  • Singapore and Hong Kong are home to the world’s second and third-busiest container ports, handling 28,431,100 and 23,669,242 TEUs, respectively, per the latest yearly data from the American Association of Port Authorities. 

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The fact that both countries independently revised down the upper band of their 2012 GDP forecast this week (even as the SPX raced to another long-term lower-high) is telling. Data points like these continue to affirm our bearish conviction on the slope of global growth with respect the intermediate-term TREND duration. China’s JUL Export/Import numbers (released overnight) also lend credence to this view.   

  • JUL Exports: +1% YoY from +11.3%
    • JUL Exports to US: +0.6% YoY from +10.6%; lowest since NOV ‘09
    • JUL Exports to EU: -16.2% YoY from -1.1%; lowest since SEP ‘09
    • JUL Imports: +4.7% YoY from +6.3%
    • Key Takeaways: China’s bombed-out Export growth numbers – particularly those to the US and Europe – portend negatively for the slope of end-consumer demand growth across those regions over the next few months. Furthermore, China’s slowing Import growth continues to remind people that China, itself, remains a drag on the slope of global economic growth and demand for raw materials. 

Applying a longer-term lens, we continue to side with 219 years of data afforded by the renowned analysis of Reinhart and Rogoff to conclude that we should expect slower rates of world economic growth going forward. We would argue that the incessant policy responses out of the global central planning cartel over the last ~5yrs have set us up for broadly weak economic fundamentals for the foreseeable future. Across the globe, various markets and economies have, unfortunately, not been allowed to clear, leading to a broad-based misallocation of capital and resources. Much akin to a company with bad CapEx management, the “management teams” of the world economy (i.e. our central planners) have broadly set the stage for subpar performance on the top line by encumbering us with sovereign debt loads well beyond critical thresholds and perpetual monetary Policies To Inflate.

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As always, we encourage disagreement and debate – having such an intelligent collection of clients has certainly made us jocks much smarter over the years. Feel free to ping us if you’d like to discuss any of our existing theses.

Have a great weekend,

Darius Dale

Senior Analyst