Emerging Markets

Contrary to the widespread belief in the investment community, the global copper supply-demand balance is no longer in deficit. Red metal prices are set to decline by another 10-15% as the global copper market will shift to a larger surplus in the next six months.

The stock market’s pre-eminent growth sector is not US tech, it is French luxuries. No other sector can compare with French luxuries’ massive and sustained pricing power. The risk for French luxuries is not a China slowdown, the risk is that the structural increase in super-wealth comes to an end. If anything though, the coming disruption from generative AI will boost super-wealth. Ironically therefore, the best investment play on generative AI might be French luxuries.

Investors should underweight global equities and risk assets; overweight US stocks relative to global; and overweight defensive sectors versus cyclicals.

A global portfolio is likely to return only 5.3% a year over the next decade, compared to 6.7% in the past. Investors either need to lower their return expectations, or take more risk. Our total return methodology remains consistent with previous editions, with changes limited to the Alternatives section.

China removed checks and balances in its political system to deal with a very dangerous economic transition. The transition is going badly, yet investors cannot rely on checks and balances to correct or prevent policy mistakes. The Taiwanese election is a looming bellwether.

In part 2 of this series, we discuss mainstream EM equity valuations and present the results of our cross-country analysis. The goal is to identify overweights and underweights within an EM equity portfolio.