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Decoupling

Discussion in 'The Economy' started by lorrimer, 8th Jul, 2009.

  1. lorrimer

    lorrimer Well-Known Member

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    The recent economic data coming out of the US, China and Australia would seem to indicate that a decoupling with the US is beginning to take place with today's consumer sentiment figures again surprising greatly to the upside.
    However as yet the Australian stock market has failed to reflect this and seems intent on performing even worse than the US, whereas the Chinese market is booming.
    Does anyone have a theory as to why this should be occurring and will investors start to find value in the Aussie market anytime soon?
     
  2. Tropo

    Tropo Well-Known Member

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    Decoupling: Theory vs. reality

    Decoupling holds that European and Asian economies, especially emerging ones, have broadened and deepened to the point that they no longer depend on the United States for growth, leaving them insulated from a severe slowdown there, even a fully fledged recession.
    Faith in the concept has generated strong outperformance for stocks outside the United States - until now......
    more...http://www.nytimes.com/2008/01/27/business/worldbusiness/27iht-26delink.9520541.html
    ...Mish's Global Economic Trend Analysis: Global Decoupling Myth Shattered In Equity Selloff
    ...Decoupling: The Myth and The Mystery | Ten Seconds Into The Future | A look at investments, hedge funds, economics, finance and the irrational economic human being |
     
  3. lorrimer

    lorrimer Well-Known Member

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    Since that first article was published the Chinese market has risen by some 60% and there seems to be no correlation now between the US and Chinese markets which head in opposite directions on most days. So a decoupling is currently occurring with these markets.
    My concern with the Aussie market is that unless it finally finds it's own feet, we are going to be dragged down by the US for many years to come, despite our economy actually being in a far better state and being closely aligned to the major growth area of the world, Asia.
     
  4. Tropo

    Tropo Well-Known Member

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    Well, perhaps in this exceptionally globalized world the “leaders” are trying to keep everyone on an even level (China is about to get cold).
    We produce almost nothing as a nation so to find ‘own feet’ as you said, is rather painful exercise.
    I guess that second and third article (links attach above) may give you some answers.
     
  5. lorrimer

    lorrimer Well-Known Member

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    And how much industry does the US or the UK have left? I think Australia is an incredibly innovative country with vast natural reserves that will continue to be in great demand for years to come. Whereas most 1st world countries are literally choking as a result of huge population increases, Australia still has a tremendous capacity to grow. To say we produce almost nothing is simply not true, in fact Australia could quite easily become completely self sufficient.
     
  6. Tropo

    Tropo Well-Known Member

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    I do not necessarily agree or disagree with you, but I would be careful to compare US, UK industry with OZ.
    Sure...resources are the only reason we are still above sea level. How long demand will last, only time will tell.
    To become completely self sufficient country sounds like another dream to me...but maybe you know what I do not know.
     
  7. Chris C

    Chris C Well-Known Member

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    Nothing is truly decoupled in a globalised world with large volumes of trade, and the idea that the rest of the exporting world isn't going to feel the pinch when the worlds biggest consumers realises its bankrupt is kidding themselves.

    China isn't booming - its treading water. China's growth story is a export based, and unfortunately for their boom to continue it will require them to look inwards because the western world is all tapped out of funds.

    This way always going to happen, you can't have 3 - 4 billion Asians trying to produce everything with less than a billion westerners trying to buy it all off them.

    At the end of the day it doesn't matter where you live around the world you want a fair days pay for a fair days work, so I think it is reasonably to expect that the Asian growth story will probably be fairly subdued until they all start looking toward domestic market growth. It will eventually happen, it just won't happen over night.

    When things start looking up for Australia I'm sure investors will move back into Australian shares, but the reality is Australia's future at this stage isn't looking super bright (or at least it is no where near as bright as it was).

    I think Australia over the 10 - 20 year time frame is as good as any investment in the western countries. That said I still plan to having a big chunck of my money in emerging markets (when I get back in the market) - because to me it doesn't make sense to say I'm going to invest in Australia because it will be holding the tail of the Chinese growth story when you could be riding on the back of the Chinese bull by investing directly into China.

    The other important thing that I think is holding most stock markets back is still the notion that you don't want to be in the market for the next 10 - 20 years when you don't know how the next 2 - 3 are going to play out. Whilst things are looking a lot clearer and I'm sure the fog will lift off the horizon more over the next couple of months. I think the reality is most people are seeing a very slow couple of years coming up with very limited upside potential whilst there is still a lot of downside at this stage.

    Our domestic business valuations aren't based on US events unless those events have some material ramifications for our business. However in this globalised world it would seem that what is good for the US is good for Asia which is good for Australia. Also given that the Australia system is setup very similar to the US when the US is having systemic problems, it normally means that our system is valnerable to the same problems.

    I think we as Australians like to think we are innovative and hard workers - unfortunately I think we often confuse dumb luck with genius and we as a nation rest on our laurels way too much, but that's just my two aussie cents.

    In a world that probably has about 2 - 3 billion too many people in it, I sincerely hope we don't look to "grow" the worlds population anymore. We really are one of the lucky countries to be so vast yet not have it destroyed by the need to sustain billions of people.

    LMAO! *looks around office to find something that is Australian made*

    We are about 30 million people, 20 years, and a 70% cut in the minimum wage away from being "self sufficient"!

    As a nation we basically sell dirt, with a side of education and a sprinkle of agricultural products - other than that we make nothing.