US stock mkt has gone up for the last 7 sessions. This is indeed good news for the investors. My view is that this is largely due to increased liquidity. Another proof of increased liquidity is emerging markets. As the financial crisis threatened the US economy, the investors sold their holdings across the world and flocked back to the US. Now that the monetary policy is easing, the money is flowing back to the emerging economies.
In principle, US is a leaky economy, i.e. if there is too much liquidity and PE is high, the money will exit US shores and go to rest of the world in search of better returns. In the 60s,70s and 80s, the world was relatively closed. But with globalization, capital is flowing to developing economies in search of above average returns.
It is my view that US mkt is saturated and therefore there will not be too much upside to stocks in the US. In the coming years, the spending in US will be fueled by growth of investments outside of US. Just like the housing and stock bubbles, US money will now stoke bubbles in emerging economies and fuel internal consumption backed by gains in these economies.
The interest rates in the US will remain depressed for years to come as these investments will bear fruits only some time down the road.
The same happened in Japan in the 90's when interest rates were depressed to 0 and capital was available cheap. The east asian economies swelled due to capital inflows from Japan. Investors could borrow cheap from Japan and then lead at higher rates in countries like Thailand, Korea, Mylasia etc. Only this time the amount of money will be bigger and will create bubbles in developing countries across the world.
The good news is that Indian stock market will receive a lot of money from US investors, at least in the short run.
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