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Insight - Making Sense of the Narrative


Short covering drove markets in January, then February saw some rebalancing flows before increased Geo-Political tension led to some tail risk hedging ahead of the March options expiry. Traders are thus waiting for direction, while asset allocators are looking at relative value trades and not buying into the macro pundits belief that everyone else is wrong. Longer term investors meanwhile may have stopped selling rallies, but they haven't really started buying dips. Finally, as long term investors start thinking about de-dollarisation in 'The Rest' of the world, we should consider moves to 're-dollarise' the West.

China's economic growth was despite, rather than because of, the Washington Consensus model for economic growth. Now, as the anti China rhetoric in the west heats up, China is openly rejecting this latest Washington Consensus, a narrative it sees as based around US Hegemony. In a series of blunt and forthright publications, China seeks not to change the opinion of the 1bn plus that live in the bloc broadly defined as NATO plus Korea and Japan (even if their views were ever published in the mainstream media), but rather the opinions of 'the rest' - the 6bn or so who live outside of the west. As investors, we should always try and examine as and when the consensus might be wrong and certainly with China, it pays to listen to what they say they will do, rather than western opinion of what the ought to do.

Back in November, we were excited to meet up with friends and colleagues from Toscafund in London, who were visiting Hong Kong as the restrictions were being finally lifted. We wrote this up as (Money in the banks), because we were particularly taken with the logic behind buying into the ideas in their flagship Toscafund long/short financials fund.

January started the year strong in markets as the mean reversion trades we suggested likely in our year ahead piece all seem to have happened, with markets in January producing pretty much the inverse of 2022...

Firstly, a Happy Chinese New Year to all our friends and colleagues in Asia, for as we pointed out in a post this time a year ago Chinese New Year is celebrated not only in Greater China but across much of Asia.