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

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<h2>Shift to more State-Guided Governance Regime driven by need to revive growth but equities remain expensive.</h2>
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<p>Many commentators worry that the second Modi administration will move India towards a more authoritarian political and economic system, whereas the reality is that India will remain a truly hybrid governance regime, with the recent increase in fiscal monetary activism intended to inject some momentum into the stumbling economy, whilst the structural issues in the financial sector are slowly resolved.</p>
<p>The bad news however, is that the majority of the internal and external growth drivers remain strongly negative, whilst Indian equities are the most highly valued of any major global market. Having downgraded India in June 2018 from the overweight stance I’d been advocating since 2011 to a neutral position within an EM equity portfolio, I see no reason to upgrade for the time being, even though India has the singular advantage of being less exposed to the ongoing China growth slowdown than most of its EM peers. My overweight positions within emerging Asia remain concentrated in ASEAN, namely Thailand, Indonesia and the Philippines, along with Taiwan, whilst China and Korea are underweight.</p>


Shift to more State-Guided Governance Regime driven by need to revive growth but equities remain expensive.


Many commentators worry that the second Modi administration will move India towards a more authoritarian political and economic system, whereas the reality is that India will remain a truly hybrid governance regime, with the recent increase in fiscal monetary activism intended to inject some momentum into the stumbling economy, whilst the structural issues in the financial sector are slowly resolved.
The bad news however, is that the majority of the internal and external growth drivers remain strongly negative, whilst Indian equities are the most highly valued of any major global market. Having downgraded India in June 2018 from the overweight stance I’d been advocating since 2011 to a neutral position within an EM equity portfolio, I see no reason to upgrade for the time being, even though India has the singular advantage of being less exposed to the ongoing China growth slowdown than most of its EM peers. My overweight positions within emerging Asia remain concentrated in ASEAN, namely Thailand, Indonesia and the Philippines, along with Taiwan, whilst China and Korea are underweight.

India Update (Neutral)