Here is one explanation why so many analysts have been bullish on U.S. equities this year versus emerging markets. U.S. economic data improved more than expected in early 2012 to a much greater degree than did the data for Asia Pacific (ex Japan) countries.

Fig. 1. Citi Economic Surprise Index, U.S. and Asia Pacific ex Japan. Source: Citigroup, Bloomberg, Deutsche Bank

The economic surprise indexes for both regions fell in the middle part of the year, but have recovered nicely in recent months. One thing that this long-term chart reveals is that the U.S. series seems to be the more volatile of the two.

I have been reviewing 2013 outlook reports from the major sell-side firms, and where they differ over U.S. versus Asia Pacific and emerging market exposure, it generally seems to hinge on the expected fiscal cliff result and the question of whether data from China will continue to be strong.