CoreMacro

China’s extremely high savings rate is the real culprit behind its current economic woes. The authorities have been slow to stimulate the economy, and the risks of “Japanification” have increased. For now, the fact that China is exporting deflation is not such a bad thing. However, if global recession risks were to flare up again, a lethargic Chinese economy would be a cause for concern. Chinese stocks are quite cheap but lack a clear catalyst to move higher. Favor EM markets where earnings and sales estimates have been moving up lately.

Collapsed complexity, plus the unwinding of favourable base effects and favourable seasonal adjustments to the inflation and jobs numbers, all pose a danger to the Goldilocks market.

Special Report

Some investors have thrown in the towel on investing in Chinese equities, instead deploying capital in EM ex-China – or at least contemplating doing so. This report examines the merits of investing in EM ex-China stocks and concludes that EM – whether including or excluding China - will continue underperforming DM equities.

Special Report

The trajectory of China’s infrastructure investment in 2023H2 will be like what occurred in 2021H2. Growth will likely drop from the current nominal 10% to 0-2% in the next six months. China will continue promoting environmentally friendly infrastructure projects that may prevent a contraction in infrastructure investment in 2023H2.

The latest round of earnings calls from the systemically important banks suggested that the expansion is still intact. Households are still flush and still spending and consumer and business delinquencies remain remarkably low.

The ECB’s tone has changed decisively. Intransigent forward guidance is gone; data dependency is in. What does this transition mean for the path of European interest rates and the euro?

The US is not out of the woods when it comes to inflation, which means that it is too early to conclude that the Fed can stop raising rates. Any further increase in inflation risk would prompt us to turn more cautious on stocks.

Foreign debt inflows into Philippines will be falling in coming months. Book profits on domestic bonds; and go short the peso.

Special Report

We recommend a small structural exposure to cryptocurrencies and blockchain tokens, given their incipient real-world uses as well as their proven hedging qualities against the debasement of fiat money and in banking crises. In this Special Report, we rank the major blockchains on five factors – developer activity, adoption, decentralization, scalability, and security – from which we arrive at our top five blockchains.

Stay cautious on Chinese stocks. Equity investors should use any rebound in onshore stock prices to downgrade A-shares from overweight to neutral within global and EM equity portfolios. Remain underweight Chinese investable/offshore stocks. Onshore bond yields will drop to all-time lows. Continue receiving 10-year swap rates. The currency will continue depreciating versus the US dollar in the coming months.