China

Chinese stock prices have significantly decoupled from the country’s business cycle, with the full impact of US tariffs yet to be realized. The valuation-driven equity gains without a cyclical economic recovery will be vulnerable to a reversal.

Investors often ask us which industries the Chinese government is prioritizing for expansion. The assumption is that investing in sectors hand-picked authorities will produce solid investment returns. Yet, this assumption has not held over the past decade.

Euro area and Chinese interest rates must fall much further to prevent monetary policy from becoming ultra-restrictive. But Trump’s attempts to force unwarranted rate cuts from the Fed risks a vicious backlash from the bond vigilantes.

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.