Protectionism/Competitive devaluation
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.
Democrats are favored to win the election until recession materializes. But recession risks are high. Investors should adopt a defensive and conservative strategy in 2024 amid extreme US policy uncertainty.
President Biden is facing foreign challenges on three fronts and these challenges are coalescing around the critical states of the Midwest. Take risks off the table and stay defensive in 2024.
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.
Stocks perform worse in presidential election years than average years, especially in the first half of the year, and especially if the ruling party ends up falling from power. Investors should take risk off the table until the unemployment rate peaks.
In Section I, we discuss the implications of the banking crisis that emerged in March. We do not expect what happened in the US or Europe to morph into a full-blown meltdown of the financial system, but this month’s events will likely lead to a further tightening in bank lending standards, raising further the odds of a US recession over the coming year. We continue to recommend an underweight stance toward risky assets versus government bonds over the coming 6-12 months, and defensive positioning within a global equity portfolio. In Section II, we estimate the impact of recently-passed US legislation on US business investment over the structural horizon and conclude that it will indeed boost capex growth over the coming several years. Assets poised to benefit from this trend will likely underperform over the coming year but should be bottom-fished following the next recession.
The first legislative meeting of Xi Jinping’s third term suggests that Chinese policy is continuous and consistent with the previous ten years, which is negative for long-term productivity.
Is a Plaza Accord 2.0 necessary? If so, why? If not, what could stem the rise in the dollar, or will it continue to overshoot? In our view, there are fundamental reasons not to bet on a new accord, but that does not necessarily help with investment strategy.