One occasional comment I get from readers is: 'Liked that column yesterday. Didn't like the charts. Can never figure them out.'
Well, I like the charts. Finance is all about asset values and returns on capital and these are numeric arguments. They are best displayed in numeric form, which means charts and tables. If you want words alone go to the library and look up Shakespeare. In finance a picture tells 1,000 words.
I shall grant you, however, that on this occasion I need a few words to explain the chart. Here is the idea: Markets go up when there is money available to go into them and down when there is not. What, in that case, do the figures on money supply in Asian countries say that markets should now be doing? It is a simple idea. Here come the complexities. First of all we shall take China and Japan out of this exercise, China because the numbers are suspect and Japan because the numbers are so big they would swamp the rest of the sample and Japan has recently been playing silly games with its money supply anyway.
We shall use the narrow M1 measure of the money supply in local currencies, take their year over year growth rates weighted by size of stock market capitalisation in each country and, to get a measure of real money growth, we shall also subtract the inflation rate of each country from its M1 growth rate.
This gives us the blue line in the chart, reading off the left hand scale. In May, the last month for which figures were available from all countries, our sample's average M1 growth rate after deducting inflation was 16 per cent, which is a high figure. The average since 1990 is not even 5 per cent.
Then we take the average performance of stock markets in our sample, weight it by market capitalisation again and calculate a year over year growth rate. This gives us the red line reading off the right hand scale.