(pictured: Olga Bitel)
The “financialisation” of commodities over the past 10 years, especially energy, has led to a high correlation between the performance of banking stocks and the oil price. As the oil price tumbled, so did banking stocks. But nothing has fundamentally changed about the world to cause the global market selloff of the past two months.
Olga Bitel, economist at William Blair & Co, the Chicago-based global manager, told a Centre for Investor Education conference in Australia last week that the recent profound selloff was not due to any worsening outlook for global growth.
In an interview after the conference, she said: “The [positive] trends are still with us. In the US, most of the deceleration is due to energy. Manufacturing is stable… Retail sales in Europe are the highest they’ve been in a decade… Because of the massive changes in Japan it’s hard to see any short-term trends there. But the developed markets are doing quite well.”
With developing markets, activity is still “hovering around contraction” but the trend had been up since the second-half of last year, Bitel said. “So we are quite comfortable about the near-term growth prospects. There is no new information to have motivated the sell-off.”
With the banks and oil, she pointed out that the number of contracts for crude oil futures on US exchanges had quadrupled in the past 10 years, due to increasing activity by fund managers, hedge funds and derivatives traders. Some of the sell-off had been due to the hedges in energy.
William Blair is also reasonably comfortable with China’s prospects, as the slowdown there enters its fifth year.
“There are nuances with the GDP number,” Bitel said. “And growth is still double or triple the growth of developed markets.”
She said that there were two economies going on in China, reflecting its continued transition from a manufacturing to a more-services orientated economy. As an example was the growth in cinema attendance, which was growing fast enough to generate gains an aggregated level. This was an industry which virtually did not exist 10 years ago.
And the best place to look for that transformation was Australia, where we have had to react also. Australia’s services exports eclipsed metals and minerals last year for the first time since 2009. Agriculture was also benefitting with agriproduct exports doubling over the past five years, helped by China’s expanding middle class and increasing consumption of protein, including dairy. There was a similar pattern in education exports, Bitel said.