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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

<p>China remains the major driver at both a global and EM level, with most macro-economists still failing to grasp the scale of the moral hazard and capital account risks that are preventing the Chinese authorities from embarking upon an even greater stimulus effort than is currently in progress. Moreover, there are increasing signs that the deflationary trends in the industrial sector are increasing, with local government finances also coming under greater pressure. The equity market(s) appear cheap but are vulnerable to the impact of lower growth on the financial and industrial sectors and to growing political pressures.</p>

China remains the major driver at both a global and EM level, with most macro-economists still failing to grasp the scale of the moral hazard and capital account risks that are preventing the Chinese authorities from embarking upon an even greater stimulus effort than is currently in progress. Moreover, there are increasing signs that the deflationary trends in the industrial sector are increasing, with local government finances also coming under greater pressure. The equity market(s) appear cheap but are vulnerable to the impact of lower growth on the financial and industrial sectors and to growing political pressures.

China: Economy and Equity Market Under Pressure from Industrial Deflation and Political Pressures