Safe Havens in the Current Deflationary Environment

Heading into the last week of June, global markets seem far from correlated for the first time in many moons. Asian stocks staged strong rallies to close the week, led by the Shanghai Index gaining over 4% in trading June 23-24. The weekly gain for the index was slightly higher, during which Japan and Hong Kong's bourses added 3% and 1%, respectively.

Ben Bernanke's affirmation that deflation is not a current concern and no form of QE3 will be implemented halted rallying U.S. stock markets mid-week. After four consecutive days of gains, the Dow Jones (DIA) reversed from green to red following the Fed Chairman's June 22 press conference and has continued falling in each session since.

While losses have hit U.S. exchanges, they continue to be mitigated by QE2. Retail investors are hardly panicking as the S&P 500 (SPY) has yet to lose 1% in a trading day since the end of market stimulus was announced by Bernanke. Many traders argue timely institutional purchases along with speculation on Greek debt resolution constitutes a temporary stick save that kept June 23 from being catastrophic and bought markets precious time at current levels.

Momentum in the U.S. economy remains horrible from housing to employment and wages, as depicted by recent data and visible social trends. Consumer spending, highly dependent on prosperity, is teetering on the edge of a cliff with no positive catalyst in sight. Mild declines in gasoline prices are no boon alongside declining real income.

The USD is currently strengthening, U.S. stocks are weakening and QE2 is still underway. Only when support concludes in the coming week will genuine market forces take over. If current downward momentum continues, there's no telling how much damage stocks will take, especially if a genuine panic, a la 2008, ensues.

Safe havens in the current deflationary environment include King Dollar (UUP), the Swiss Franc (FXF) and China's Yuan (CYB). The world reserve currency continues to represent the largest economy on Earth and is still required for a majority of international transactions among all constituents. The Swissie has been the lead performer during the latest deflationary wave, currently trading at an all-time high against the Euro. High end manufacturing, along with an independent culture shunning debt and welfare make Switzerland the go to model for sustainable economic efficiency. Massive currency and commodity reserves have afforded China's stimulus efforts over recent years, rather than mounting debt as in developed economies. The purchasing power of the Yuan in terms of labor exceeds all other currencies on a global scale.

Investors seeking growth should be focused on China. Chinese stocks (FXI) appear to have recently bottomed, offering more attractive valuations and exposure to an unindebted consumer base. For an individual Chinese stock offering high dividend yield, low debt, growth and leadership in an attractive sector I recommend China Mobile (CHL). It performed extremely well in recent sessions while a vast majority of stocks suffered losses.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.