Fundamental Analysis

Global economic recovery gets underway

Recent developments have raised concerns that the UK
could be facing an upsurge in price inflation over the
coming years. Since early March, oil prices have doubled;
the economy has found a firmer footing; and broad
measures of inflation expectations have shifted higher.
The rise in some of the forward-looking inflation indicators
has occurred as the Bank of England has embarked on
an unprecedented loosening in UK monetary policy.
Having cut interest rates to a record low, the Bank has
turned to the unorthodox policy of quantitative easing (QE)
in an effort to stimulate lending and demand through
expanding money supply.

I often state that looking at broad measures of stock prices can be misleading. Instead of focusing on top-line numbers, we must dig deeper and attempt to uncover information that other investors have ignored. A recent example has been my focus on the lack of confirmation across many different indices.

Chinese stocks had a phenomenal week with the Hang Seng leading the charge, up 12.04% since the end of last week, at 17,389.87. Taiwan closely followed, powered by speculation of cross-strait M&A, the TAIEX index rose 9.87% to 6,583.87.

In the past week the major economic developments in China included comments on monetary policy by the PBOC, stats showing the CLSA PMI rising above 50 in April, estimates that new lending in April was over 600 billion yuan, and revelation that China passed the US as the top ranked trading partner with Brazil.