It has become increasingly popular to turn bullish on Emerging Markets (EM). I am not a believer.

The biggest EM market is China. But the most important driver of China’s economy, the M2 monetary aggregate, has turned down again.

Already with each passing quarter, the Chinese economy is generating less GDP for every dollar of M2. And now, M2 growth is decelerating sharply.

There’s no big recovery ahead for China. Just more drift and struggle.

Meanwhile after rising relentlessly since 2010, the US inventory to sales ratio for various sectors like retail, wholesale and manufacturing have begun to fall, starting from Apr 2016.

It has become increasingly popular to turn bullish on Emerging Markets (EM). I am not a believer.

The biggest EM market is China. But the most important driver of China’s economy, the M2 monetary aggregate, has turned down again.

Already with each passing quarter, the Chinese economy is generating less GDP for every dollar of M2. And now, M2 growth is decelerating sharply.

There’s no big recovery ahead for China. Just more drift and struggle.

Meanwhile after rising relentlessly since 2010, the US inventory to sales ratio for various sectors like retail, wholesale and manufacturing have begun to fall, starting from Apr 2016.

David Fuller's view

This is further evidence that stock markets are borrowing from the future by floating higher on a cushion of liquidity, which the current economic data and corporate profits do not support.  Stock markets can be lead indicators but if the fundamentals do not catch up reasonably soon, investors will start to wonder if they have run off a cliff.  We can expect more anxious calls for fiscal spending. 

Here is Bernard Tan’s report.