Global Macro Strategy

Callum Henderson

Macroeconomics

* The CNY is becoming a basket currency and greater basket currency flexibility is likely this year* The PBoC monetary policy report stated that two-way flexibility of the CNY will increase* This appears to be in line with calls from former PBoC advisers for a basket currency with wide bands* Reduced Fed hike expectations take some pressure off CNY vs. USD, allowing it to weaken vs. EUR, JPY* CNY basket flexibility and band widening is likely by Q3, before SDR implementation in OctoberIn my…

* The CNY is becoming a basket currency and greater basket currency flexibility is likely this year* The PBoC monetary policy report stated that two-way flexibility of the CNY will increase* This appears to be in line with calls from former PBoC advisers for a basket currency with wide bands* Reduced Fed hike expectations take some pressure off CNY vs. USD, allowing it to weaken vs. EUR, JPY* CNY basket flexibility and band widening is likely by Q3, before SDR implementation in OctoberIn my…

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

In January’s ‘Government and Markets’ report, we used the themes in the 2016 GEM overview and China outlooks to introduce our intra-GEM country weightings.We provide more detail on each of these countries in the full version of this report, focusing on the economic, financial and structural governance issues that we believe will be the most important market drivers over the course of this year and beyond.

In January’s ‘Government and Markets’ report, we used the themes in the 2016 GEM overview and China outlooks to introduce our intra-GEM country weightings.We provide more detail on each of these countries in the full version of this report, focusing on the economic, financial and structural governance issues that we believe will be the most important market drivers over the course of this year and beyond.

Governance, Valuations and the Crisis of State Capitalism

* CNY remains under pressure given the economic slowdown, concerns about debt and capital outflows* China's FX reserves look more than enough, but true adequacy depends on the nature of the FX regime* China can go forward or back on the FX regime; loosening controls on foreign flows sends a bold message* Expect greater flexibility of the CNY basket and wider bands, sooner rather than later, ahead of SDR* CNY will be a basket currency not a basket case and short-term weakness against the USD will not last

* CNY remains under pressure given the economic slowdown, concerns about debt and capital outflows* China's FX reserves look more than enough, but true adequacy depends on the nature of the FX regime* China can go forward or back on the FX regime; loosening controls on foreign flows sends a bold message* Expect greater flexibility of the CNY basket and wider bands, sooner rather than later, ahead of SDR* CNY will be a basket currency not a basket case and short-term weakness against the USD will not last

Asia Calling: CNY - A Basket Currency, Not a Basket Case

<ul><li>Falling Chinese asset markets have resulted in growing fears that China's economy is in a 'hard landing'</li><li>Policymaker actions may have exacerbated concerns, but a careful study of the data suggests all is not lost</li><li>Chinese manufacturing is facing a major downturn, but services are still strong; a twin-speed economy</li><li>Commodity exporters to China face a secular decline in demand, but service exporters should prosper</li><li>Our rebalancing, your problem - EM faces greater challenges from China's rebalancing than China itself</li><li>Short-term risks of a hard landing have been reduced, but medium-term risks continue to increase</li></ul>

Falling Chinese asset markets have resulted in growing fears that China's economy is in a 'hard landing'Policymaker actions may have exacerbated concerns, but a careful study of the data suggests all is not lostChinese manufacturing is facing a major downturn, but services are still strong; a twin-speed economyCommodity exporters to China face a secular decline in demand, but service exporters should prosperOur rebalancing, your problem - EM faces greater challenges from China's rebalancing than China itselfShort-term risks of a hard landing have been reduced, but medium-term risks continue to increase

Asia Calling: China's Great Rebalancing - Why the Consensus Is Wrong

Our bearish outlook for 2016 predicated on the rising risk of a “sudden stop” for China and uncontrolled FX depreciation across EM is unfortunately starting to play out; although markets currently feel very oversold and could rally sharply over the short term, we believe that there is further downside for EM equities in absolute and relative terms over the remainder of the year.

Our bearish outlook for 2016 predicated on the rising risk of a “sudden stop” for China and uncontrolled FX depreciation across EM is unfortunately starting to play out; although markets currently feel very oversold and could rally sharply over the short term, we believe that there is further downside for EM equities in absolute and relative terms over the remainder of the year.

China

SAIC Motor Corporation Ltd., through joint ventures, manufactures and markets automobiles and related parts and accessories.

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SAIC Motor (600104 CH)

CNY Band Widening Likely by Q3

* The CNY is becoming a basket currency and greater basket currency flexibility is likely this year* The PBoC monetary policy report stated that...

Callum Henderson

Governance, Valuations and the Crisis of State Capitalism

In January’s ‘Government and Markets’ report, we used the themes in the 2016 GEM overview and China outlooks to introduce our intra-GEM country...

John-Paul Smith

Asia Calling: CNY - A Basket Currency, Not a Basket Case

* CNY remains under pressure given the economic slowdown, concerns about debt and capital outflows* China's FX reserves look more than enough, but...

Callum Henderson

Asia Calling: China's Great Rebalancing - Why the Consensus Is Wrong

Falling Chinese asset markets have resulted in growing fears that China's economy is in a 'hard landing' Policymaker actions may have exacerbated...

Callum Henderson

China and the EM Ugly Contest

Our bearish outlook for 2016 predicated on the rising risk of a “sudden stop” for China and uncontrolled FX depreciation across EM is unfortunately...

John-Paul Smith

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52-week Range

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