Back in August 2009, the International Monetary Fund (IMF) released a report stating that a global economic recovery had begun to finally take hold following the credit crisis. Since that time, global economies have continued to recover and stock markets across the world have rallied strongly. Since that report was released the S&P 500 is up nearly 30%, while the MSCI EAFE , a main global stock market index, is up more than 30%. Since the market hit bottom in March 2009, the S&P is up more than 60% while EAFE is up nearly 120%.
It has been an impressive run, but recent trends suggest growth is starting to slow in most markets. Just this week, the IMF released another report to suggest there are "considerable risks" that could derail the impressive recovery the world has seen: higher in , conflict in the Middle East, along with the earthquake and tsunami in Japan, the world's third largest , are making further growth more of an uphill battle.
Looking more closely at specific economies, a study performed by the investment research arm of JPMorgan and released in the Financial Times in late March detailed that only three global markets are still experiencing steady growth. All of the other markets are either seeing negative growth or at least a deceleration in current growth rates to suggest expansion could reverse course soon.
In other words, near-term sentiment is currently bearish in all but three global markets. And while a number of international markets, including the BRIC countries of Brazil, Russia, India and China, remain appealing over the long haul, this data suggest they could be entering a dry spell given inflation worries and the fact that more developed markets are finally awakening following the credit crisis.
Below is an overview of these three markets. After a brief look at each, I'll give my take on how investors can...
The United States was the first to see its housing bubble burst, and the ensuing financial crisis this created spread quickly throughout the rest of world. The market was slow to recover, but low interest rates and constant government assistance, including quantitative easing, appear to be working and encouraging higher business and consumer spending. The most recent employment report found that the fell to 8.8% and continues to fall from the double-digit levels it hit at the peak of the crisis.
The credit crisis was especially unkind to Germany, as the country lost its title as the largest exporter in the world to China. Its export market experienced the biggest drop in 60 years in 2009 as the economy shrank by 5%, as sales of cars, machine tools and other related industrial equipment plummeted. As in the U.S., Germany's economy was slow to respond but recently picked up speed and is seeing robust demand, both inside the country and overseas, for industrial and construction equipment and automobiles. A recent Bloomberg report detailed that the German economy picked up speed as 2010 came to a close, while the JPMorgan report stated Germany is now one of the only markets still experiencing higher growth trends.
Conditions in Japan have changed quickly due to the recent earthquake and devastating tsunami it unleashed on the eastern seaboard. Prior to this, Japan, along with Germany, experienced a slow response to the credit crisis but saw its fortunes improve along with its emphasis on exporting to other countries. Like Germany, Japan sends millions of autos and industrial equipment to markets around the world each year. The current disaster has put a continued recovery on hold, but the need to rebuild will mean a needed boost to the domestic economy, as an estimated $300 billion will be needed to address the damage the tsunami and current nuclear crisis are inflicting on the country.
Action to Take ---> The JPMorgan report focused on positive revisions in its report. Given its emphasis on publicly-traded firms, investing in a select handful of national bellwethers is perhaps the best approach to exploiting the opportunities in these markets. A focus on economically-sensitive industrial firms is a good bet because their earnings should rise considerably along with the economic upswing.
In the United States, industrial conglomerates General Electric (NYSE: GE) and United Technologies (NYSE: UTX) are solid investment candidates. German industrial leader Siemens NYSE: SI) is another sound bet in the industrial space. In Japan, Toyota (NYSE: TM) and Honda (NYSE: HMC) are seeing a near-term hit, given it is currently difficult to procure supplies after the earthquake, but they remain automotive leaders and will continue to export cars and trucks to the rest of the world.