Growth Shock Is the Next Phase for Global Equity Markets

Still Too Early to Buy Emerging Equities Given the Deteriorating Outlook for China and India

Growing Risks of a Crisis of Confidence in Chinese Policy Settings

Global Equities: China, Technology and Politics to Dominate 2018

Cyclical Assets To Underperform From Here

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

Multiple Countries / Cross Asset Strategy

<p>As I suggested in the 2018 Outlook report published in December (<a href="https://www.smartkarma.com/insights/global-equities-china-technology-and-politics-to-dominate-2018" target="_blank" data-smartkarma-citation="insights:15961">Global Equities: China, Technology and Politics to Dominate 2018</a>), the escalation of tension between the US and China could represent a watershed moment for expectations of global growth and the future of emerging markets, as the post-1991 settlement which facilitated the globalisation of trade and investment flows and kick-started the peace dividend, begins to partially unravel. Against this backdrop, none of the major emerging equity markets offers a combination of attractive valuations together with good or improving sovereign and/or corporate governance factors. This leaves me once again clinging to those markets, such as Thailand, Mexico, Qatar, Taiwan, the Philippines and possibly India, which appear to have defensive qualities, including a relatively low exposure to the direct or indirect effects of the ‘Cold War II’, as the best way to generate relative outperformance.</p>

As I suggested in the 2018 Outlook report published in December (Global Equities: China, Technology and Politics to Dominate 2018), the escalation of tension between the US and China could represent a watershed moment for expectations of global growth and the future of emerging markets, as the post-1991 settlement which facilitated the globalisation of trade and investment flows and kick-started the peace dividend, begins to partially unravel. Against this backdrop, none of the major emerging equity markets offers a combination of attractive valuations together with good or improving sovereign and/or corporate governance factors. This leaves me once again clinging to those markets, such as Thailand, Mexico, Qatar, Taiwan, the Philippines and possibly India, which appear to have defensive qualities, including a relatively low exposure to the direct or indirect effects of the ‘Cold War II’, as the best way to generate relative outperformance.

Emerging Markets Have the Most to Lose from the New ‘Cool War’