Rising in the West Setting in the East

Rising in the West Setting in the East.

Europe’s plans for further stimulus has had a dramatic effect over the last two days in both the West and the Far East.

We saw last week, record rises in the Japanese stock market as the Bank of Japan confirm huge economic stimulus of $800bn+.

Yesterday, Mario Draghi, head of the European Central Bank (ECB), the equivalent of the Bank of England in Europe, confirmed that interest rates stayed at an all-time low of just 0.05%pa and the that ECB is working on the structure to introduce huge economic stimulus.

This drove European markets up yesterday, with the German stock market (DAX) up 1.6%. France, UK and North American markets rose. Although, as expected the Euro fell on the news that major stimulus is due soon.

What this highlights, is something that we are always ‘banging the drum’ on with clients is the subject of correlated v non-correlated markets.

In the West: The major trading partners are USA and Europe including UK. If USA sneezes, Europe catches a cold and vice versa. Yet, as the Far East, their major trade partners are likewise each other e.g. China and Japan.

In the Far East: The same applies, in Japan has the jitters, China suffers but the West does not necessarily.

The is the principle of correlated v non-correlated i.e. markets that are not directly related due to trade links.

When thinking about balancing your investment portfolio always look at how your balance is between the East and the West, when one rises, the other may fall offering you a balanced portfolio.

Today, yet again all western markets are up. So if you took a ‘photograph’ of the globe, with stock market figures, it would green arrows up (West) and red arrows pointing down (East).

Expect more volatility as investors try to second guess what Europe’s stimulus plans including improved credit plans for Greece will be. Germany ,may just be the biggest benefactor, although we expect inflation to start to creep back into Europe as well as the UK.