Geopolitics

The market will eventually be forced to react to rising odds of a sharp US national policy reversal. Investors should overweight government bonds and defensive equity sectors.

Taiwan’s election will lead to serious Chinese military and economic pressure but not full-scale war. War is a long-term concern. Investors should short TWD-USD.

We share the edited transcript of a webinar we participated in discussing global trade, trade wars and tariffs, as well as de-risking strategies.

In this brief Insight we examine the expanding Middle East conflict and update the situation in the Taiwan Strait on the eve of elections. The Houthis are a distraction and China is not likely to invade Taiwan in the near term, but both situations support our overweight of US equities relative to global. Global growth is likely to slow while commodities are likely to see at least minor supply shocks.

The expectation that China is best placed to win the global EV race presumes the persistence of the status quo. Reality, however, may differ as the sector looks set to be hit by a range of changes. If nonlinearity were to emerge in the global auto sector, as it often does, then the EV transition could end up spawning a very unexpected list of winners and losers.

The market’s pricing of a soft landing means that geopolitical risks are becoming more, not less, relevant in 2024. US domestic divisions will invite challenges as foreign powers rightly fear that US policy will turn more hawkish after the election.

The Republican Party’s odds of winning the 2024 election will benefit, if anything, from state courts’ attempts to exclude President Trump from primary or general election ballots. Higher odds of a change of ruling party will increase stock and bond market volatility.

Oil prices will rise tactically due to supply risks. Recent developments indicate escalation of the conflict with Iran in the Middle East and confirm our expectation of energy supply disruptions and oil price spikes in the short run.