Cautionary Country and Region Economic Conditions

What’s Inside:

  • Purchasing Managers’ index for selected countries and regions
  • Long-term PMI trend lines
  • World Bank GDP growth forecasts by country and region
  • Valuation metrics for ETF proxies for selected countries and regions
  • 3-Year monthly return chars with trend lines for proxy ETFs

Purchasing Managers’ Index

The PMI (Purchasing Managers’ Indexes) around the world forecast weak growth to negative growth in manufacturing, and weak to moderate growth in services over the near term; with the composite of manufacturing and services forecasting weak growth. 

PMI is based on a monthly survey of businesses to gauge current conditions and trend.  It is a short-term coincident indicator with short-term forecasting utility.  Once plotted in a long-term chart, the PMI may have intermediate-term trend forecasting utility.

The index centers around 50 and ranges from 0 to 100.  Values above 50 indicate growth and values below 50 indicate contraction.

In the table above, pink shaded cells show contraction; and bold red values indicate the current index value is lower than the prior monthly value.

United States manufacturing is hovering just above the growth flat line, as does services.

The Eurozone is in clear manufacturing contraction, but with moderate services growth.

China manufacturing is barely growing after slightly contracting.  Its services are in mild growth.

Japan manufacturing is in contraction, and services are growing modestly.

Germany is in strong manufacturing contraction, and services are growing moderately.

United Kingdom is in manufacturing contraction, and services are barely growing.

World and United States PMI Trend Lines

This world composite PMI trend line shows the world slowing.

This USA manufacturing PMI trend line shows the USA slowing and at the lowest rate of manufacturing growth since 2013

This USA services PMI shows the USA slowing.

These trend line charts are from Trading Economics.

World Bank GDP Growth Forecasts

The World Bank sees GDP growth slowing (not declining but growing more slowly) in 2020 compared to 2019 in the United States, Euro Area, Japan and China.

It sees GDP growth increasing in Brazil, Mexico and India.

China and India have the highest expected 2020 growth rate among the listed countries at 6.0% and 7.5% respectively.  That compares to expected GDP growth in the United States of 1.6%; Euro Area 1.3% and Japan 0.6%.

This chart looks at the year-over-year GDP growth rate of the selected countries and regions.

This chart compares the GDP growth rate of the selected countries and regions each year.  China and India have been the clear growth leaders.

Comparative Metrics of Proxy ETFs for the Countries and Regions

It is important to preface this information with a note that the GDP growth rate of each country or region has different correlations to the performance of the stocks listed there.

For example, a country whose broad stock market has a high percentage of globally diversified listed stocks (e.g Switzerland or the Netherlands) may correlate more with the World GDP growth rate than the local country GDP growth rate; while a country whose broad index has mostly local operators (e.g. Vietnam) may correlate more with the local GDP growth rate.

The economy and the stock market are two different things at any given moment, but ultimately they tend to relate to each other over the long-run.

The Euro Area and Mexico have the highest current dividend yield among the selected countries and regions; while Brazil and Mexico have the highest cash flow yield (cash flow divided by price).  However, when normalized relative to the debt level of US stocks, Japan, China and Mexico have the highest cash flow yields.

Mexico and the United States have the highest expected earnings growth rate over the next 12 months. 

Looking backwards three years, the United States and Japan have the lowest level of price volatility.

Proxy ETF Trends

These charts show the monthly total return and the 10-month moving average (equivalent to the 200-day average) of proxy ETFs for the selected countries and regions.

The USA is in a long-term up trend.  Brazil has been in an up trend for about a year.  World stocks and Euro Area stocks are beginning to form an intermediate up trend line.  

Japan has made a serious break above its trend line, which has itself has not yet turned up.

India’s trend line is slightly positive, but the price is below the trend line.

China has just begun to turn up the tip of the trend line.

Mexico’s trend line is still pointing down, but the price is slightly above “trying” to reverse the trend direction. 

Symbols Explored in this Note:

VT, VTI, EZU, EWJ, MCHI, EWZ, EWW, INDA

 

 

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