Emerging Markets
The 20<sup>th</sup> Communist Party Congress concluded on Sunday with President Xi Jinping cementing his third term in office. We are maintaining our cautious stance on Chinese stocks and the exchange rate. The lack of a significant shift away from current macro and regulatory policies means that China’s economic recovery and stock performance remain at risk.
There has been an unprecedented divergence between global and Chinese thermal coal ("coal") prices since the Russia-Ukraine war commenced in February 2022. Such a wide price gap is unsustainable. This price convergence will continue, with international prices falling faster than Chinese ones.
Favor US and Southeast Asian stocks over global stocks. Stay underweight China, Hong Kong, and Taiwan.
A country’s external balance remains one of the key pillars of the longer-term trend for the exchange rate. In this week’s report, we look at the developments in global basic balances, and their implications for currency strategy.
The G7’s attempt to insert itself in the oil-price-formation process performed by global trading markets will distort markets and the signals driving production, consumption and investment. The G7 will need a face-saving off-ramp to ditch this planner-based proposal. We expect Brent prices to move toward our expectations of $105/bbl in 4Q22 and $118/bbl in 2023, and remain long the XOP ETF.