Many believe that understanding economics is the key to being able to predict the stock market. Curiously the Chinese economy is growing the fastest of all economies and is variously described as the global growth engine. And the Chinese ripples positively impact many peripheral economies too, as my recent visits to Singapore have shown me.
Meanwhile the US economy is in the doldrums, threatening to fall into another recession with anemic growth, stubbornly high unemployment and continued weakness in housing.
And yet the Chinese market as measured by the Shanghai Stock Exchange A Share index remains 65% below its high of 6391.98 in October 2007. Perhaps ironically the S&P500 made its high of $1565.42 on October 10, 2007 and today it sits just 11% below that. If the Total Return index is taken into account, its sits level or just above its 2007 highs.
So all that chatter about recessions, depressions, unemployment and the like counts for very little. How many children are suffering needlessly because the money spent on economists isn’t directed to the kids?
What we do know is that investors should be looking at individual companies. Or talking to people on the ground. In China, balance sheets are deteriorating as receivables blow out while in the US, of the 411 companies listed on the S&P 500 that have reported earnings so far this quarter, 297 have exceeded analysts’ estimates, while less than 110 have missed their forecasts. And as many of our travelling clients have informed us, things seem to be swimming along in the US.
Keep an eye on individual companies and you’ll go far. So don’t worry about whether you should say Go Australia or not. We say Go ARB, Go WOW, Go CCP, Go COH and Go CSL!