Chart of the Day - changes
"(Come on, come on)
That's just the way it is (Changes)
Things'll never be the same
That's just the way it is (That's the way it is, what?)
Aww, yeah-yeah" - Tupac
Yesterday I led with a Biggie Smalls lyric. I felt I needed to use a Tupac lyric today to stay balanced. I don't want to get caught up in the East Coast/West Coast thing.
Yesterday, I also spoke about US money supply. Today I want to compare it to China's money supply. After all I don't want to get caught up in the western economy/eastern economy thing either.
Today you can see the white line which is the difference between the Chinese M2 growth and the US M2 growth. We can see how this line went deeply negative when the US M2 shot up to historic levels in early 2021.
It stayed below zero until we neared the end of 2022 and continues to rise now as US M2 growth has gone negative but China's M2 growth is the fastest we have seen since 2016.
2016-2017 was the last time we saw EM stocks outperforming the developed market stocks. Since that time it has been a relentless march lower. However, is a change in the relative money growths sending investors any sort of signal?
The relative rates of M2 growth can signal to us the relative rates of economic growth. As a result, it would not be surprising the equities in EM start to outperform.
In fact, looking specifically at FXI vs. SPY instead of the broader MXEF vs MXWO, the pattern looks exactly the same but the impact may be more direct.
What else may surprise investors if this relative M2 growth leads to relative economic success? Perhaps the orange line or the Bloomberg Commodity Index. There have been those staying long commodities looking for the China re-opening trade.
There are clearly disconnects here that could present opportunities. They could also be traps. I am sympathetic to the argument that the big Chinese tech platforms may be uninvestable. They are focused on issues beyond shareholders after all.
That is why I looked at EM vs. Developed in general instead of China vs. US specifically. I feel there is more to latch onto in the South Korea, Taiwan, India, Brazil part of the trade, that could also benefit from faster Chinese growth.
Otherwise, in the China specific trade, you might feel, as Tupac says, It's just me against the world.
"It's just me against the world, baby
I got nothin' to lose
It's just me against the world
Stuck in the game
Me against the world, baby"
#markets #investing #economy #stocks #commodities #china