A just-published report updated our investment strategy and examined some of the possible economic surprises ahead that might impact the DM rate-hiking cycle and widespread hopes for a bond bull market. One significant source of economic weakness in the past year has been the downturn in global trade, and the related weakness in manufacturing activity, and it is here where a surprise is brewing.
No other indicator has historically provided a more timely and accurate signal on the health of the global economy than the bellwether exports of Korea and Taiwan. This is because of the diversified nature of their exports. Recent data have been unambiguously positive, as exports of both countries troughed earlier this year and are primed to expand on a year-over-year basis. Critically, the revival is not just a reflection of the budding turnaround in semiconductor demand: the upturn is broad-based in terms of products and geography.
The recovery of Korean and Taiwanese exports portends a reversal in one of the major areas of global economic weakness, namely trade. In contrast with widespread pessimism towards global prospects, we expect the global economy to gradually firm ahead. Bond-bulls beware!