China

Aggressive monetary tightening has always led to recession, although the timing is uncertain. The effects of high interest rates are starting to be felt. Investors should stay risk off and buy government bonds as a safe haven investment with carry.

The bear market in US bonds will likely end with a bang rather than a whimper. Even during the secular US bond bull market of 1982-2021, cyclical bond bear markets ended only after an eruption of financial turmoil. It would be strange if this current ascent in bond yields ended without significant casualties in the global financial system.

In this Strategy Outlook, we present the major investment themes and views we see playing out for the rest of 2023 and beyond.

China’s oil demand growth will moderate to a still robust 4%-6% in the next six-to-nine months. We recommend that investors in China’s onshore and offshore stock indexes overweight energy producers.

US fiscal, monetary, and foreign policies are unlikely to deliver any dovish surprises for investors in Q4, due to the impending government shutdown, persistent inflation, and instability among OPEC+ and China.

The global downturn will be shallower than it was in 2008 and in 2020 but will last for longer. The primary reason for a more prolonged downturn is that policymakers in the US, Europe, and China will be reluctant to proactively and aggressively stimulate. The combination of rising oil prices, an appreciating US dollar, and mounting US bond yields constitutes a triple whammy for US share prices.