What Is Important?

by Michael J. Howell21. February 2013 11:34



We regularly monitor around 30 fund flow series for each of some 80 economies, monthly (and have done since the mid-1980s). These are available for clients to download from our website, and by using an Excel add-in. Which among these timeseries are the key pieces of liquidity data that investors need to focus on? Many have their own specific preferences, but here is our list of 13:



1.    Global Liquidity Cycle (GLI) is our 'headline' index published each month. This is a proven lead-indicator of prospects for risk assets. The series peaks during asset booms and troughs just ahead of banking crises. It leads the business and profit cycles by 12-15 months.


2.    US dollar area liquidity. This includes the liquidity cycles of those countries that use or shadow the US currency. It consistently and pro-cyclically leads the US Treasury 10-2 year yield curve by 3-6 months. More liquidity therefore raises the risk premium on government bonds and reduces the risk premia on other assets.


3.    Monetized US savings flows. This series defined as the difference between US private sector and Fed liquidity is an important lead indicator for the value of the US dollar. Greater Fed liquidity and fewer savings unambiguously weaken the US dollar around 6-12 months ahead.


4.    Emerging Market Liquidity Cycle. Like its developed economy counterpart this data series leads the reported earnings cycle of EM companies by around 18-24 months.


5.    Crossborder flows to EM. This important data series tracks the confidence of global capital and highlights the scale of inflows into EM securities. This is so often a lead indicator of EM outperformance.


6.    Central Bank policy indicators. In short, measures of 'effective' QE policies by the key Central Banks. We regularly compare the US Fed, the BoJ, the ECB, the SNB, the PBoC and the BoE.


7.    Investor exposure data showing the split between holdings of stocks and bonds. This balance sheet data which derive from the same sources as our flow data show actual holdings at each month-end. They are not investor sentiment surveys, but they serve as a robust measure of risk aversion.


8.    Investor exposure to EM against 'normal' benchmarks.


9.    Investor exposure to US dollar assets. This data is based on reported end-month balance sheet holdings of all US dollar financial assets. Shown as a normalised series as a proportion of all Worldwide financial wealth.


10.Ranking of liquidity conditions market-by-market each month.


11.Ranking of investors' exposure market-by-market each month.


12.Financial conditions (FCI) measures of short-term credit spreads across all 80 markets we monitor. This serves as a cross-check on our volume-based GLI.


13.World financial wealth (WFW) a US dollar aggregate of the value of all liquid asset holdings; listed stocks and listed government and corporate bonds across our databases.



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