Asia-US Stock Market Decoupling?

Here is Bespoke’s comment on the correlation of Asia and the US which has been seen by many as “diverging” (bold emphasis mine)

we highlight the number of times over rolling 50 trading day periods that the S&P 500 has gone in the opposite direction of the S&P Asia 50 Index. Historically, the average number of trading days that the US has gone in the opposite direction of Asia over a 50-day period is 22. That means that the US trades in the same direction as the Asian markets on a daily basis about 56% of the time. As shown in the chart, this indicator does fluctuate from low levels of correlation to high levels of correlation, and we just ended a period where the two were trading in tandem with each other more often than not. Over the last 50 days, however, the two have gone in the opposite direction 22 times, which is right inline with the historical average.

My observations:

1. This only shows that there is still a meaningful correlation (56%) between the actions of Asian stock markets and the US markets.

2. This only validates our view that Asia has outperformed more than decoupled with the US.

3. Decoupling is a theme that has yet to be “proven”.

4. Globalization means more integration in many aspects of life-trade, finance, investment, labor, knowledge and even culture and etc...

In short, the underlying trend of globalization is more of convergence. Thus decoupling runs to the contrary.

While there remains to be many aspects that can construed as “local” (regulations, political framework, political trends, taxes, compliance costs, and etc...), financial markets are likely to show signs of greater degree of correlation than in the past where globalization had been less of a factor.

5. Decoupling is a misplaced focus. The crux of the matter is to determine the main drivers of the current and future economic growth of the world.

Fact is, there is more than just Asia or the US, there is the entire Emerging market spectrum and also Europe.

So it would be rather faulty to “tunnel” on to just two variables when life is dynamic, complex and multifaceted.