Lighten up, people. The situation is not as bad as you think.
So says market bull Goldman Sachs Asset Management Chairman Jim O'Neill (left) in a "Markets and Moods" viewpoint written last Friday just before the U.S. Labor Department released its June jobs report. While acknowledging that the mood has been grim and the market bearish, much of that mood has centered on a sense of hopelessness about Europe, "with the risk on/risk off mentality seemingly suggesting that it is impossible to differentiate markets as an investor," O'Neill writes.
Money manager Gary Shilling begs to differ, saying that until U.S. and European consumers recover, he'll continue to be a market bear.
And yet, O'Neill notes, prior to the U.S. jobs report the S&P was up 8.75%, the DAX German stock index was up more than 10%, the Nikkei was up 6.7% and the Chinese Hang Seng index was up 7.4%.
"Even India is up over 13%. Yes, Italy and Spain are down year to date, but not everyone else's markets are," writes O'Neill, who made his fame as the man who coined the term "BRIC," in reference to the economies of Brazil, Russia, India and China. "A superficial conclusion might be that markets, as wrong as they sometimes can be, yet again, are more on the ball than many that talk about them."
O'Neill says he's particularly intrigued to see the Indian equity market as the strongest of the BRIC country markets, "despite the fact that many people, me included, would have more concerns about the Indian economy and policy than the other BRIC countries."
He suggests that India is outperforming because oil prices have dropped, the markets are expecting a major shift in policies to finally endorse foreign direct investment and, not least important, global investors may simply have become too gloomy about India.
O'Neill on China vs. India
Looking at China vs. India, O'Neill asserts that the debate is unfairly weighted to favor China.
"It is true that they both share the fact they have more than 1 billion people. But other than that, there are huge differences," O'Neill writes. "China's economy was around $7.3 trillion by the end of 2011 and India's was around $1.7 trillion. As a result, Chinese citizens are on average around three times wealthier than their Indian counterparts."
"That's the big difference that I have with his view," said Shilling (left). "Because when he talks about growth of the BRICs and developing countries in general, and why they aren't appreciated in the stock markets, I think the real reason is that those countries are export driven, and the buyers of those exports, which are Europe and the U.S. consumers, are no longer there."
