Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

<h2>Many foreign policy experts still underestimate the significance of Putin’s pivot to China</h2>The most significant development in Russia’s foreign policy over recent years beyond the borders of the former Soviet Union, has been the development of a much closer political relationship with China contrary to the expectations of most observers.Historically, Russian leaders have tended to look towards the West and to operate a largely independent foreign policy based on Russia’s perceived self-interest, taking each issue on its own merits. This attempt to play a balancing role now seems to have ended following the breakdown in the relationship with the West, resulting in Putin’s pivot towards China, which might have occurred at the worst possible time from a geopolitical and economic perspective.

Many foreign policy experts still underestimate the significance of Putin’s pivot to ChinaThe most significant development in Russia’s foreign policy over recent years beyond the borders of the former Soviet Union, has been the development of a much closer political relationship with China contrary to the expectations of most observers.Historically, Russian leaders have tended to look towards the West and to operate a largely independent foreign policy based on Russia’s perceived self-interest, taking each issue on its own merits. This attempt to play a balancing role now seems to have ended following the breakdown in the relationship with the West, resulting in Putin’s pivot towards China, which might have occurred at the worst possible time from a geopolitical and economic perspective.

China and Russia; an Axis of Authoritarianism

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Macroeconomics

<ul>
<li>
No evidence of major monetary easing by China</li>
<li>PBoC (People’s Bank) actually withdrawing cash from money markets</li>
<li>Broader liquidity measures show at best flat-lining
</li>
<li>Tightness likely a deliberate precautionary policy during China-US trade talks</li>
<li>Consequently, more Chinese easing will likely come in second-half of 2019</li>
</ul>



No evidence of major monetary easing by China
PBoC (People’s Bank) actually withdrawing cash from money markets
Broader liquidity measures show at best flat-lining

Tightness likely a deliberate precautionary policy during China-US trade talks
Consequently, more Chinese easing will likely come in second-half of 2019


The Chinese onshore and offshore equity markets have been outstanding performers over Q1, due to; i) rising hopes of a trade settlement with the US; ii) expectations of easier monetary policy from the Fed in response to the weakness in the global economy partly emanating from China and iii) the increased representation of Chinese onshore debt and equity securities in the most widely followed global indices.
However, the Chinese authorities are both unwilling and unable to tackle the underlying causes of financial fragility in the local government and industrial sectors, by imposing a hard budget constraint that would trigger a series of potentially systemic crises. The inflows of cash from overseas are therefore merely helping Beijing to kick the proverbial can further down the road in the absence of significant structural reforms.
Chinese equities listed offshore ranked 11th cheapest out of 48 global markets at the end of March down from 5th at the start of January, according to the Ecstrat sector-adjusted valuation table, based on a median stock rather than a market cap weighted methodology. I remain underweight for structural reasons despite the very strong buying momentum from both domestic and foreign investors.

The Chinese onshore and offshore equity markets have been outstanding performers over Q1, due to; i) rising hopes of a trade settlement with the US; ii) expectations of easier monetary policy from the Fed in response to the weakness in the global economy partly emanating from China and iii) the increased representation of Chinese onshore debt and equity securities in the most widely followed global indices.
However, the Chinese authorities are both unwilling and unable to tackle the underlying causes of financial fragility in the local government and industrial sectors, by imposing a hard budget constraint that would trigger a series of potentially systemic crises. The inflows of cash from overseas are therefore merely helping Beijing to kick the proverbial can further down the road in the absence of significant structural reforms.
Chinese equities listed offshore ranked 11th cheapest out of 48 global markets at the end of March down from 5th at the start of January, according to the Ecstrat sector-adjusted valuation table, based on a median stock rather than a market cap weighted methodology. I remain underweight for structural reasons despite the very strong buying momentum from both domestic and foreign investors.

China - Not Out of the Woods by Any Means

FX Strategist

Greg Gibbs

Fundamental analysis of topical themes in FX

Amplifying Global FX Capital

Amplifying Global FX Capital was founded in 2015 and is fully owned by Greg Gibbs. It is a registered company both in Australia and Colorado, USA and is a licensed in Australia to provide financial services.

We are producing a regular trading view orientated macroeconomic analysis of topical themes in global financial markets, with a particular focus on foreign exchange. We invite you to view an “executive summary” of these reports in “AmpGFX Reports” under our “Research” menu.

These reports are drawn from the analysis of Greg Gibbs and inform the capital management he undertakes on behalf of the company. The trading performance is posted periodically on our website. We aim to build our company into both a research and capital management business. We are currently in the planning phase for managing capital for wholesale customers.

Greg Gibbs has spent his working life of more than 26 years in financial markets, beginning in 1989 at the Reserve Bank of Australia, after completing a Bachelor of Economics Degree (Honours) at the Australian National University. He has been a CFA Charterholder since 2005. He has worked in Sydney, Singapore, New York and London for major global banks and presented on foreign exchange markets to major financial institutions and companies around the world, and maintained a high profile in the financial media.

Before Amplifying Global FX Capital, Greg was the Head of Asia Pacific Market Strategy at the Royal Bank of Scotland based Singapore. He now resides in Breckenridge Colorado.

FX & Rates

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a disruption in global trade that may relate to US tariff policy. Services PMIs, on the other hand, are relatively stable and have recovered recently, and may help the global economy avoid a recession.  India’s PMIs have been relatively strong and may account for solid Indian currency and equity market performance.  The slump in the global manufacturing PMI is at odds with stronger global equities and commodity prices this year.  The market appears to be building confidence that the US-China trade dispute will be resolved, and the Chinese stimulus and a patient Fed will combine to revive manufacturing PMIs is coming months.

Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

<ul>
<li>Widely held view that Chinese eased ‘massively’ in January 2019 – it did NOT</li>
<li>According to latest daily Open Market Operations little change through February</li>
<li>Liquidity matters hugely (China contributes around one-fifth of Global Liquidity)</li>
<li>We still expect PBoC easing over coming weeks and continue to favour Chinese markets</li>
</ul>


Widely held view that Chinese eased ‘massively’ in January 2019 – it did NOT
According to latest daily Open Market Operations little change through February
Liquidity matters hugely (China contributes around one-fifth of Global Liquidity)
We still expect PBoC easing over coming weeks and continue to favour Chinese markets


’Fake News’ Threatens China’s Rally

China

The Chinese renminbi (yuan) is the official currency of The People's Republic of China. 

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China and Russia; an Axis of Authoritarianism

Many foreign policy experts still underestimate the significance of Putin’s pivot to ChinaThe most significant development in Russia’s foreign...

John-Paul Smith

Why Is China Destroying Liquidity?

No evidence of major monetary easing by China PBoC (People’s Bank) actually withdrawing cash from money markets Broader liquidity measures show...

Michael J. Howell

China - Not Out of the Woods by Any Means

The Chinese onshore and offshore equity markets have been outstanding performers over Q1, due to; i) rising hopes of a trade settlement with the...

John-Paul Smith

Global Manufacturing PMI Slump at Odds with Equity and Commodity Price Rebound

The slump in the global manufacturing PMIs that is broad-based in major economies and alarming in Japan, Korea and Taiwan, appears to reflect a...

Greg Gibbs

’Fake News’ Threatens China’s Rally

Widely held view that Chinese eased ‘massively’ in January 2019 – it did NOT According to latest daily Open Market Operations little change...

Michael J. Howell

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