As the United States sees its stock market come under pressure, and China sees its market break down from challenges both internal and external, we can look at history and understand – they are both in for a shock. The Dow, the S&P 500 and of course Nasdaq (note out platform has written and produced several videos on FAANGs), are all under increased pressure but from several fundamental and technical changes.
Global equity and bond markets are now moving from a liquidity driven world to a fundamental driven world. In short, the world is returning to some form of normality with regards to the underlying drivers and important market moving factors. However, this normality will be limited to Central Banks and traded markets as the geopolitical landscape is this – Geopolitical Recession is here and global pain will be inflicted no Exporters and Emerging Market economies alike.
Japan gets it. Japan has worked with its closest ally, the United States for over 70 years and the relationship only gets stronger. Right now as the trade war with China heats up, many tech and other firms are looking to produce components outside of China – Japan comes up as a prime replacement for production of high quality components. So the off-shoring that we saw in the 1980s and 1990s reverts to an on-shoring discussion.
Our view remains the same, US equity indices will drop 15 to 18 percent in this current sell-off and there will be massively dislocation and dispersion in stocks from New York, to London to Tokyo. In the US, several of the bellwether stocks are breaking down including Textron, Facebook, Amazon and Caterpillar. Japan will be the new Asian market of interest as it ushers in the Olympics in 2020 and new businesses set up here as it is the safe haven for overseas firms looking for a base in the region.