Previous posts (e.g. here) have demonstrated that global “excess” narrow money growth is predictive of equity market performance relative to cash. There is also evidence that country / regional monetary trends provide useful information for forecasting relative equity market performance.
The first chart shows six-month real narrow money growth rates in major developed economies, with Eurozone countries aggregated into “core” (Germany, France, Benelux and Austria) and “periphery” (Italy, Spain and the “bailout three”). The chart is cut off in June 2012. Switzerland then topped the ranking, with the US and core Euroland joint second, followed by the UK, Japan and peripheral Euroland.
The second chart shows year-to-date equity market performance, currency-adjusted and expressed relative to the World index. Core Euroland is the best performer followed by Switzerland, the US, the UK, Japan and peripheral Euroland. The rank correlation coefficient between performance and mid-year real money growth is 0.92.
The third chart updates the first to show the latest real money growth rates. The US has regained top spot, followed by Switzerland and core Euroland. Japan has overtaken the UK, while peripheral Euroland, though less bad than at mid-year, remains at the bottom of the ranking. This suggests adding US and Japanese equity market exposure, partly at the expense of the UK, while moderating negative bets on the periphery.
