EM vs DM

Developed Economies Are Getting Worse

Today’s chart comes from the recently launched “Top 5 Charts Of The Week” report – which is our entry-level subscription service.

Q2 hedge fund letters, conference, scoops etc

The chart shows the OECD composite leading economic indicators, which I have aggregated for developed and emerging market countries (based on GDP weights).  There are a couple of clear and meaningful takeaways with this chart.

EM vs DM

First: emerging markets appear to be turning the corner.  They were the first to rollover, and it seems they are now also the first to see a rebound in the cyclical outlook.  This is a very important development for the global economic outlook and goes against the seemingly widespread pessimism – with the consensus apparently looking for a global recession.

Second: developed economies are getting worse.  This does go against the optimistic tone I sounded in the previous paragraph, however I would note, that at least in 2016 – emerging markets turned first and lead developed economies into recovery/re-acceleration.

There’s a few reasons why this makes sense: firstly emerging markets now account for the dominant share of world GDP; second, EM economies are typically more sensitive to the global cyclical pulse and shifts in financial conditions; thirdly, EM central banks are far from the zero-lower-bound, and hence have greater scope to stimulate their economies.

So with what on first glance looks like a fairly simple chart, there is a lot going on here, and I think this could even be contender for chart of the year.  But of course we will need to see how things unfold going into the second half.  I remain stubbornly optimistic on the global economic outlook and continue to preference over-weights to risk assets (albeit more opportunistically).

Again, if you’d like to subscribe to the Top 5 Charts report (where this chart came from), please click through and I will send you the latest report.


Callum Thomas

Head of Research at Topdown Charts Limited

Article by Topdown Charts

Saved Articles

The Life and Career of Charlie Munger

Charlie is more than just Warren Buffett’s friend and Berkshire Hathaway’s Vice Chairman – Buffett has actually credited him with redefining how he looks at investing. Now you can learn from Charlie firsthand via this incredible ebook and over a dozen other famous investor studies by signing up below:

  • Learn from the best and forever change your investing perspective
  • One incredible tidbit of knowledge after another in the page-turning masterpiece of a book
  • Discover the secrets to Charlie’s success and how to apply it to your investing
Never Miss A Story!
Subscribe to ValueWalk Newsletter. We respect your privacy.

Are you an intelligent investor?

ValueWalkPremium is a website and newsletter for smart investors like yourself. We focus on the latest hedge fund industry news much of which is not in the public domain and obtained via our sources.

We also have 10 years of resources on how to use this information to better your investment process.

Sign up for  today for only a few dollars a day and get a 3 day no obligation trial with a targeted 20% discount coupon code.

Cancel anytime during trial and you are never charged.

Limited time offer: For first 50 subscribers