DeCoupling US and Global Markets?

Interesting follow up to to our weekend post on overseas markets dragging US markets along with them: Today’s WSJ looks at An Unrelated Story: U.S., Global Stock Markets Increasingly Take Separate Paths.

"The problem is that many analysts see economic and
corporate-profit growth slowing in the U.S., while still expanding in
much of Europe, Japan and the developing world. The U.S. economy has
expanded about 2% over the past year. In Europe and Japan, economies
are expanding at a 2.5% clip, according to Morgan Stanley. Growth in
much of the developing world is poised to continue expanding at a
faster pace than in the U.S.

The higher correlations earlier this decade reflected
the bursting of the tech-stock bubble, because it dragged down most
developed markets, says Leila Heckman of Heckman Global Advisors, a
unit of Bear Stearns Asset Management. In recent years, she says, the U.S. market tended to
be less correlated with Japan, Australia, New Zealand and Singapore
than it did with European shares…

Still, signs that economies around the world might be
decoupling from the U.S. are fueling hopes that stock-market
performances will diverge even further. While U.S. profit growth in the
first quarter is expected to be at the lowest level in five years, "the
rest of the world can continue to post solid growth even if U.S. growth
remains subpar," J.P. Morgan wrote in a recent report.

Foreign companies may depend less on the American
consumer than in the recent past. Morgan Stanley says U.S. exports
account for only about 2.9% of Japan’s gross domestic product, compared
with 4% of GDP in previous decades. Emerging markets, meanwhile, are
increasingly selling commodities and other goods to China and India,
lessening their historical dependence on the U.S. export market."

Intriguing concepts: Correlation fading, global capital flows morphing, economic power shifting. We do indeed live in interesting times.



An Unrelated Story: U.S., Global Stock Markets Increasingly Take Separate Paths
WSJ, April 23, 2007; Page C1

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