A recent report from Nomura’s fixed-income analyst Jim McCormick and Irena Sekulska qualifies for the most interesting thing we read all week…
In the report — which sports the very academic sounding title “Redefining the post-crisis investment paradigm” — the pair make the argument that the whole “Emerging Markets vs. Developed Markets” paradigm is a thing of the past.
To back that up they point out that post-crisis, developed countries like Germany and Australia have exhibited super-strong growth, whereas various emerging markets (particularly emerging Europe) have been weak. And then beyond that, other advanced economies (the UK and the US, notably) have seen disappointing recoveries.
DM vs. EM is a busted notion. What matters are two things: Linkages to China, and leverage.
Countries whose economies are closely linked somehow to China (exports, really) are doing great, and so are countries that are not overleveraged.
These two charts say it all.
The countries with the biggest positive difference between pre-and-post crisis growth are those with high linkages to China and those with low leverage. So immediately, you can see why the UK and US — both very leveraged, and exporting relatively little to China — have been such duds, and why Australia and Germany have been so hot.
Now you get, also, why everyone is so concerned with any little sign of Chinese slowing.