Warning For Markets: There Is No Quantitative Easing...QT Re-Engaged!

Global Head of Research, Smartkarma

Mark Artherton

Global Head of Research

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.

Macroeconomics

<p>A lot of chatter has built around the ability of the PBoC to use a QE style intervention to take the bad loans out of the Chinese banking system.  Whilst this is technically possible, the requirement to have a capitalised central bank and the increased cost to central government of such a bailout would make it an unlikely course of action in our opinion.</p><p>We run through the QE process and highlight the issues that Chinese authorities would have to contend with.  Additionally we take a look at the half way house that Chinese monetary policy has found itself in, which we believe to be one of the root causes for investor concern.  We suggest that the PBoC is already undertaking a Chinese style QE.</p>

A lot of chatter has built around the ability of the PBoC to use a QE style intervention to take the bad loans out of the Chinese banking system.  Whilst this is technically possible, the requirement to have a capitalised central bank and the increased cost to central government of such a bailout would make it an unlikely course of action in our opinion.We run through the QE process and highlight the issues that Chinese authorities would have to contend with.  Additionally we take a look at the half way house that Chinese monetary policy has found itself in, which we believe to be one of the root causes for investor concern.  We suggest that the PBoC is already undertaking a Chinese style QE.

Chinese Style QE