Business cycles drive global asset return differences

All business cycles are not aligned. There is a global business cycle and there are times the regional business cycles are synchronous, but that is not the norm. The disconnect across business cycles us the core opportunity for global macro investing. 

In a world where business cycles are not perfectly correlated, there will be disconnect with global equity indices and bonds. International diversification is just business cycle diversification. Local business cycles are not destiny, but asset classes and risk premia will be linked with the behavior of local and global economic growth. Of course, globalization has increased linages across markets so speeds of adjustments are faster, but flows are compensated for relative risks. 

A major shock like COVID will cause business cycle co-movement increase, but now we are seeing dislocations and growth differences. China was an early leader. The US provided extra stimulus. Other parts of the world playing catch-up. All of these differences provide ways to change and improve allocation decisions.