Now my themes on the current market actions in the ASEAN markets appear to be gradually gaining acceptance among a few perceptive observers.
While I call it arbitrages from policy divergences, they call it US dollar Carry Trade. Point is policy divergences of developed economies and emerging markets have incentivized cross-border capital flows that has helped pumped up asset prices (asset inflation).
Here is a terse excerpt from Howard Simons... (bold highlights mine/charts Minyanville.com)
``If it seems like the cheap dollar is propelling Thai stocks higher relative to US stocks, it is. Now let’s duplicate the exercise with another one of 1997’s chalk outlines on the pavement, the Philippines.
``The song remains the same: Filipino stocks have been feasting on cheap dollars; just borrow the USD, lend the PHP, rinse and repeat. The Philippines actually get a twofer for our policies as the stimulus increases demand for Filipino expatriate workers throughout the region; their remittances are one of the top sources of export earnings for the nation.”
Carry trade is seen from the perspective of foreign money flows INTO the ASEAN markets. Of course, NOT all trades are foreign based. In fact, foreign money account for less than half of the overall trade. This implies that the other important half is the domestic business cycle at play.
What this points to is that those who insist that this run up is about economic success or political endorsement or positive micro fundamental developments will one day get a RUDE awakening.
For now enjoy the party!
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