THERE APPEARS TO be a correlation between countries defaulting on their debt and their prowess on the football field, says celebrated Harvard professor Kenneth Rogoff at the OCBC Global Treasury’s Economic and Business Forum today.

You just have to look at Latin America, says the 57-year-old former chief economist at the IMF, drawing much laughter from the audience. 

 

By the same token, with Spain holding the record for defaults over the past 200 years, don’t be surprise if it beats the Netherlands in the 2010 World Cup Finals early Monday morning.

 

What’s the outlook for the rest of the world though? Rogoff has good and bad news. The good news is he does not expect a repeat of the sub-prime crisis any time soon. “You tend to be vaccinated. The worst is over but it can happen again in 15 years,” he says. Neither does he anticipate a double dip. While Greece is still floundering, the US and Europe are unlikely to go into a recession again, he says.

 

Rogoff also reckons the “Japan syndrome” is unlikely to materialise in the US because of its easy monetary conditions. “The US Fed will keep interest rates low for a long time.” However, the indicators don’t look so good for the Eurozone. “There is a greater risk for Japan syndrome in Europe,” he says.

 

Although Rogoff expects economies to recover, he doesn’t expect the US housing market to find their feet. “If you’re a country in the epicentre of a crisis like the US and UK, housing prices don’t come back for a decade,” he says. “One in five Americans are going to lose their homes. Half the people will have mortgages that are worth more than their house.”

 

For stock market players, there is better news. “The amazing thing about equity is that they have come back to above pre-crisis levels two to three years after the crisis,” Rogoff says. Based on his 200-year data, he observes that the S&P falls around 56% from peak to trough in a period of 3.4 years before turning around.

 

Meanwhile, Sean Darby, head of equity strategy at Nomura Securities, says China’s A shares are inexpensive right now. That’s because Chinese government wants to bring property prices down by squeezing liquidity. And the expectation of property price deflation has left local investors holding cash, Darby says.

 

“Foreign investors can buy A shares at cheaper valuations than H shares in many instances,” he writes in a report dated July 9. “In our view, mainland equity markets, because of the closed capital account, afford international investors protection against external credit shocks. They are uncorrelated equity markets while also inexpensive in absolute terms. The earnings integer continues to rise.” The Shanghai Composite Index rose 55 points to close at 2,470.

 

The STI closed at 2,917, its highest level since May 4. The move also represents a break above a resistance and the 100-day moving average at 2,859. It is now above the 50-day moving average at 2,821 and the key 200-day moving average 2,809. Annual momentum has turned up and the market’s very long term two-year rate of change is breaking out into positive territory. The next resistance appears at 3,000. 

 

An interesting chart is that of DBS Group Holdings ($14.24). Prices are at the top of the a sideways range. The moving averages are bunched up between $14.28 (100-day), $14.22 (200-day) and $13.98 (50-day). A clear breakout would indicate an upside price objective of $15.40.