More Green Shoots in Global Trade

A couple months ago, we highlighted a nascent uptick in global trade-an encouraging development, unnoticed by the many fearing weak trade volumes and mounting protectionism in recent years were here to stay. Since then, trade data have stayed largely positive, and the rebound has spread further-an incremental economic tailwind, and nice news for global stocks.

The biggest news came from Korea, where trade soared in November. Exports and imports rose 2.5% y/y and 9.3% y/y, respectively, leading to a 5.5% y/y rise in total trade (exports plus imports)-Korea's best trade month in more than two years.^[i]

Exhibit 1: Korean Total Trade

Source: FactSet, as of 12/21/2016. December 2012 - November 2016.

The trend here is far from a sustained upturn-it's choppy at best, with two increases in the last four months. But choppy is a distinct improvement over the 19 straight negative reads shown above. Korea is arriving late to the global trade recovery party, but this is a noteworthy start, and a sign the world's strongest developed economies are starting to pull other nations along.

Meanwhile in Taiwan, the rebound in export orders reaccelerated in November, rising 7.0% y/y after October's pause and beating expectations for a 5.8% rise.^[ii] It's the fourth straight gain after a similarly long weak stretch as Korea's.

Exhibit 2: Taiwan Export Orders

Source: FactSet, as of 12/21/2016. December 2012 - November 2016.

High-tech components are a large subset of Taiwanese trade, making export orders a key barometer for global tech demand. They didn't disappoint either: Orders for electrical machinery products topped 20% y/y growth for the fourth straight month, and orders for electronic products rose 10.1%-the third double digit rise in four months.^[iii] Both categories spent most of 2015 in the red, but now demand is picking up, which should be good news for Tech stocks worldwide.

Trade isn't a leading indicator, so we won't argue any of this is inherently predictive for stocks. But markets move on the gap between sentiment and reality, and sentiment toward trade is decidedly in the dumps. As investors start catching on to the recovery and adjusting their expectations higher, their growing confidence should filter through to stock returns-just one more area where falling uncertainty seems poised to benefit equity investors.