GeoMacro
A blend of geopolitics and macro, synthesizing the new and old macro to generate alpha and identify the beta through probability-weighted market views.
Great Power Rivalry is taking another leg up as Russia and China further align their geopolitical interests. Investors should stay long USD-CNY, favor defensives over cyclicals, and markets like North America and DM Europe that have less exposure to geopolitical risk.
Two developments this week reinforce our key views for 2023. First, Russia’s threat to reduce oil production by 500,000 barrels per day, while escalating the war in Ukraine, confirms that geopolitical risk will rebound and new oil supply shocks are likely. Second, China’s credit numbers for January confirm that the country is trying to stabilize the economy but also that stabilization will not come quickly. Moreover, stimulus does not resolve structural problems over the long run. We remain defensively positioned overall and underweight Chinese assets.
Biden’s State of the Union address will mostly be blocked by a gridlocked Congress. The one point of agreement, big spending, spells trouble over the long run, even if a technical default is avoided this fall.
The risk-on rally is challenging our annual forecast so we are cutting some losses. But we still think central banks and geopolitics will combine to reverse the rally later this year.
President Biden’s political capital has fallen as he enters a challenging year that will include a domestic faceoff with the House Republicans and foreign crises stemming from China, Russia, and Iran. Stay defensive and prefer bonds over equities.
Remain cautious and defensive overall. Stay long DM Europe over EM Europe. Look for EM opportunities in Southeast Asia and Latin America over Greater China.
