Flight from the U.S. dollar is pumping up Asian stock markets

09/09/2009 11:58 pm EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

You don’t need to be Sherlock Holmes to know where the money is going.


It’s elementary.


Investors are taking money out of the United States, which they see as lagging the global economic recovery, and putting it into Asia, which they see as leading the global recovery.


One consequence? The U.S. dollar is falling against just about every currency in the world.


Another? Asian stock markets are soaring. Even in countries like Japan where the domestic economy seems to be lurching into yet another deep, deep pothole on the road to recovery.


In the morning hours of the September 10 trading session in Tokyo the MSCI Asia Pacific Index gained 1%. The index is up 64% in the last six months.


Think there might be some froth in those markets? Look at how little it takes to move a stock in China, Japan, or Hong Kong right now.


On September 10 Elpida Memory, Japan’s largest computer memory chip maker jumped almost 4% after U.S. chipmaker Texas Instruments (TXN) raised its forecasts for third-quarter sales. (Just by the by, Texas Instruments doesn’t make memory chips. It sold that division in 1998.)


China’s Li & Fung, the largest supplier of clothes and toys to Wal-Mart (WMT) and Target (TGT), climbed almost 4% on the Hong Kong stock exchange after reporting “pretty strong” re-orders from retailers.


I guess no one in Hong Kong is worried by reports that sales during the U.S. back-to-school shopping season have been dismal.


But then fundamentals don’t count for much in the face of the global cash flows of the magnitude that we’re seeing right now. The amount of cash flowing out of U.S. dollar assets such as Treasuries—the Treasury market is still the world’s most liquid by a long shot--is more than enough to power Asian stocks higher for quite a while.


 


 


 


 


 


 


 


 


 


You don’t need to be Sherlock Holmes to know where the money is going.


It’s elementary.


Investors are taking money out of the United States, which they see as lagging the global economic recovery, and putting it into Asia, which they see as leading the global recovery.


One consequence? The U.S. dollar is falling against just about every currency in the world.


Another? Asian stock markets are soaring. Even in countries like Japan where the domestic economy seems to be lurching into yet another deep, deep pothole on the road to recovery.


In the morning hours of the September 10 trading session in Tokyo the MSCI Asia Pacific Index gained 1%. The index is up 64% in the last six months.


Think there might be some froth in those markets? Look at how little it takes to move a stock in China, Japan, or Hong Kong right now.


On September 10 Elpida Memory, Japan’s largest computer memory chip maker jumped almost 4% after U.S. chipmaker Texas Instruments (TXN) raised its forecasts for third-quarter sales. (Just by the by, Texas Instruments doesn’t make memory chips. It sold that division in 1998.)


China’s Li & Fung, the largest supplier of clothes and toys to Wal-Mart (WMT) and Target (TGT), climbed almost 4% on the Hong Kong stock exchange after reporting “pretty strong” re-orders from retailers.


I guess no one in Hong Kong is worried by reports that sales during the U.S. back-to-school shopping season have been dismal.


But then fundamentals don’t count for much in the face of the global cash flows of the magnitude that we’re seeing right now. The amount of cash flowing out of U.S. dollar assets such as Treasuries—the Treasury market is still the world’s most liquid by a long shot--is more than enough to power Asian stocks higher for quite a while.

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