Value with a Catalyst
Macro Perspectives
With a split Congress we should expect Capitol Hill to be noisy, but with little-to-no action. The latter is what matters. No action in DC is a positive for the economy and markets, following the reckless, and inflationary policy making of the past two years.
Ignore the noise.
The catalyst for global markets and economies continues to be interest rates.
We should see a much slower rate-of-change in interest rates in the U.S., relative to last year (maybe zero rate of change). With that, we should expect the interest rate differential between the U.S. and much of the rest of the world to narrow (as other major central banks play catch up to the Fed's moves of the past year).
A faster rate of change in foreign interest rates, relative to the U.S., means money will move out of the dollar (weaker dollar).
For those searching the world for value, with a catalyst, it can be found in emerging markets;
Undervalued: China, Brazil, Mexico, Colombia.
Overvalued: India, Taiwan.
If history is our guide, this is likely where we will see the best stock market performance in the world over the next few years.
NB: The Gryning Portfolio, and its members, have been Bullish China and Bearish India since October 2022. A pair trade we put on is shown below:
As of October of last year, Morgan Stanley says the decline in the MSCI Emerging Markets index had exceeded the decline in the previous 10 bear markets, including the 1997 Asian Financial Crisis. Stocks in Hong Kong have already jumped nearly 50% since (October).
And now we have a catalyst in China for the Asia trade, with the Chinese government scrapping its zero covid policy, AND stimulating (both fiscal and monetary).
