China

Beijing’s supply-side push faces steeper hurdles than in 2016. With limited demand support and tighter constraints on cutting capacity, today’s reforms are unlikely to pack the same punch.

In this chartbook, we look at the balance of payments across DM and EM countries. The US does not fare well, but neither do a few other countries.

Upward pressure on Japan’s real bond yield justifies overweighting the yen and underweighting overvalued tech. Plus: two new tactical trades are long JPY/EUR and short platinum.

Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.

This report analyzes China’s persistent deflation, which is rooted in supply-side forces. Consumption support will be slow and incremental, keeping deflationary pressures elevated for the next 6–12 months.

Investors should modestly underweight equities in their portfolios and look to turn more aggressively defensive once the whites of the recession’s eyes are visible. We think that will happen within the next few months.