After the Blogger's black-out on Friday, I am back with old issues. There was a post back last November featuring the economists at Societe Generale on China driving the global manufacturing cycle. Now last Friday, but this time at Nomura, macro strategists have been trying to gauge the importance of China's growth:
While difficult to measure, we would argue China's growth has been one of a few core drivers of financial trends since the start of its recovery in early 2009. Figures 1 & 2 look at the performance of equities and currencies since the start of 2002. Each chart divides the world between those markets fundamentally linked to China and those not. These universes are then weighted by the size of imports to China as a percent of GDP. While it is difficult to gauge from these charts how important China's growth has been in driving the extent of the market recovery, its importance in driving relative trends should be pretty clear. In equity markets, countries fundamentally linked to China have outperformed other markets by nearly two-thirds over the course of the recovery. During the previous seven years, the performance between the two groups was practically indistinguishable. We have seen a similar trend in currencies. Since the beginning of the recovery, real effective exchange rates of countries linked to China have outperformed those of other countries substantially – although, unlike the equity performance, the FX outperformance of China-linked countries has simply gone some way in closing a valuation gap.
Click on charts to enlarge, courtesy of Nomura.
Well, at the end of day it is difficult to measure ...