James Bevan: Portfolios and China’s role in secular stagnation
0The global economy looks to remain mired in what is now regularly described as ‘secular stagnation’.
By definition, it is likely to be the scenario for a long time with ‘secular’ meaning ‘over the long term’. We have neither boom nor bust. Instead we have lots of muddling along all around the world.
Ultra-easy monetary policy hasn’t worked to revive growth. That’s because money has been easy for a long time, resulting in too much debt weighing on incomes and spending.
Aging demographics, resulting from people living longer and fertility rates falling, are contributing to secular stagnation as well. Too much government income redistribution and regulation are also adversely affecting growth.
Even the fall in oil prices hasn’t been a growth driver, as was widely expected. Instead, it has depressed the global energy business, offsetting the stimulus to global consumer spending.
In terms of the latest global economic indicators, and kicking off with China, on a seasonally adjusted basis and in yuan, China’s exports edged up 2.1% month on month during April, but remain in the flat trend of the past three years.
They are up 4.3% year on year, but are just below levels posted two and three years ago. That’s certainly consistent with global secular stagnation. China’s slowdown has contributed to this sorry state of affairs, as the country’s non-petroleum imports are down 1.5% year on year, 6.5% over the past two years, and 18.1% versus three years ago.
Turning to Europe, German factory orders rose more than expected during March, by 1.9% month on month, but like China’s exports, German bookings also have been relatively flat over the past three years, rising just 5.6% over this period.
As for forward revenues, through the end of April, forward revenues (in local currencies) of the All Country World ex-US MSCI stock composite remains on a downtrend that started during the second half of 2014, which has accelerated during 2016. It is currently the lowest since early July 2011. Revenues are expected to grow 1.3% this year and 5.9% next year.
This really is an environment in which ‘quality growth’ should be the mainstay of risk asset portfolios.
James Bevan is chief investment officer of CCLA, specialist fund manager for charities and the public sector. CCLA launched The Public Sector Deposit Fund in 2011 to meet the needs of local authorities and other public sector organisations.
You can follow James on twitter @jamesbevan_ccla
*CCLA is a supporter of Room151
Photo: Will Clayton, Flickr.
