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Insight - Making Sense of the Narrative


Recency bias might lead us to think that the weakness in October was all about Gaza, but there were clear signs of fragility already appearing in bond markets as the mark to market impacts of the bond bear market continue to lead to forced selling, particularly in Japan. The key to stability is for cash to move out along the bond curve in fixed income even though we would not expect cash rates to fall much. however, the narrative will likely turn to slowdown to support the bond narrative, and we suspect the cash pile destined for equities will go to high quality dividend yield stocks offering the prospect of quality compound real returns. We thus expect a flip in Asset Allocation - from Long Duration Equities and short duration bonds, to Long Duration Bonds and Short duration equities

With an upcoming Camp David meeting with US 'allies' in Asia and the BRICS meeting in South Africa, the narrative on China was always going to take a more negative tone. Investors need to recognise that while in the short term narrative managers may dominate, in the longer term cash flows count. China's troubles are not new, but nether are they anywhere near as bad as presented; exports are slowing, but still 40% up on pre Covid levels, while GDP growth is still 3x the US and 10x Europe. China offers both opportunities and threats, but what it doesn't offer is the opportunity to ignore it.

Almost nobody has heard of Wang Huning, but as the eminence gris of China, he has survived three Great Leaders, Ziang, Hu and now Xi and is the key driver of Chinese political philosophy. To understand him is to perhaps begin to understand today's China.