Global Liquidity...What A Year!

by Michael J. Howell31. December 2013 12:41
Latest Global Liquidity Index (GLI) hit a value of 59.8 at end- November 2013 ('normal' range 0- 100). Yet Developed market liquidity hit a whopping 76.7. EM liquidity slumped to only 19.2, dragging back the global total. There are two Worlds out there and the big event in 2013 was not the fear of Fed tapering but the reality of Chinese tapering. The strength of DM liquidity coes not from generous Central Banks but from a resurgent private industrial sector. This may be confirmed by the parallel leap in real interest rates to break their decade-long downtrend. Capex looks set to pick-up in 2014 giving economies an extra spur but in the process depleting the pool of financal liquidity. Given that the GLI is losing momentum, this combination of high but decelerating liquidity conditions moves us out of Calm and puts us into the Speculation phase of the cycle. This eponymous investment regime is associated with stronger cyclical growth, rising interest rates and outperformance from cyclical value sectors, like industrials. 2014 will be a profitable year, but it will also be a more volatile one.


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