Bullish on the macro global outlook
An investment professional from Dubai speaks to the CFA Society West Michigan.
Are investors too blinded by the crash in oil prices to notice green shoots of economic improvement around the world?
That’s the opinion of Jawad Mian, founder and managing editor of Stray Reflections, a publication in partnership with Mauldin Economics.
Mian said investors need to get away from “short-term thinking,” and he predicts there will be an increase in consumer spending coming in 2015.
A resident of Dubai, Mian spoke to the CFA Society West Michigan earlier this month. Raised in the UAE, he began his career in Canada and most recently managed $250 million in proprietary risk capital across global markets for a Middle Eastern entity. He is a Chartered Financial Analyst and a Chartered Market Technician, a professional designation that confirms proficiency in technical analysis of the financial markets.
“We believe the deflation scare of 2014 will lead to a global economic surprise in 2015 and beyond,” said Mian. “There are green shoots of economic improvement around the world, which augurs well for the inflation outlook, but most investors remain too blinded by the oil crash to even notice them.”
He said he and his cohorts at Mauldin Economics suspect deflation expectations may completely change, with the market slowly recognizing there is “another economic equilibrium that is very far from the current state.” They see evidence that core inflation in major economic blocs will stabilize a few months from now.
Budget plans for the world’s major economies in 2015 show that, for the first time since 2009, fiscal policy won’t be a drag, according to Mian.
“We view the gradual move toward greater fiscal expenditure as a paradigm shift that will upset deflation expectations,” and the developed world will see growth estimates were “overly subdued.”
The U.S. dollar is close to peaking in global currency trading, according to Mian.
“Policy divergence has become the key macro theme for global investors, and, as the Fed normalizes monetary policy in advance of other nations, it is believed the U.S. dollar will rally significantly higher from here. However, over an extended period of time, rising interest rates are not necessarily accompanied by a rising foreign exchange value of the dollar.”
“In our view,” he said, “the U.S. dollar is already in an overshooting phase. Unless we see a disorderly dismantling of the Eurozone, a major war, or a financial crisis leading to another global recession, it is difficult for us to imagine the U.S. dollar trade much higher over the medium-term. If we are correct in our thinking, this will have far-reaching consequences for the global macro investor, leading to major shifts in asset allocation and capital flows.”
Mian believes the risk of a major deflationary bust in Europe, “while not exaggerated, is likely to recede,” and economic growth will surprise investors over the next couple of years.
“Yields should also rise,” he added.
Based on relative monetary policy settings and valuations, Mian and his partners at Mauldin believe global equity market leadership might tend to shift to Europe and Asia. U.S. stocks are currently at 60-year highs versus European stocks.
“We believe China’s equity market, down 40 percent from its 2007 high, has also finally entered a new, more bullish long-term phase.”
“The same can be said for Japan,” he added.
“The pervasive gloom over China is overdone,” he said, noting there are government reforms underway there, and the government is correctly working to cool down its economic growth. The government wants more of the Chinese people participating in its bull market.
“There is going to be a slowdown, and it’s a sign of success, not failure” in China, he said.
The fear of a breakup of the European Union is receding, too, he said, and “Greece is not ruined.” Rather, he predicts the coming end of fiscal austerity in Europe.
Among his conclusions at his talk to the CFA Society West Michigan, Mian said he expects a “price reset” in 2015 — facilitated by an equity market correction — that may end the fears of deflation, “and set the macro stage for the next several years.”