CoreMacro

Special Report

Outside semiconductor stocks, EM/China profitability has been well below both their US peers and the levels that prevailed during the EM structural bull market in the 2000s. Over a 3- to 5-year horizon, EM/China relative equity performance versus global will be range-bound.

Special Report

China does not produce too much. It spends too little. The only viable way for China to reduce investment without raising unemployment is by lowering national savings. Doing so is likely to be politically challenging, however. This suggests that China will suffer from subpar growth and deflationary pressures for the foreseeable future.

Global equities have reached extremes on multiple measures, none of which are reliable timing tools. But imbalances in economics and investing can build for far longer than rational analysis would predict - and usually unravel much faster than investors expect.

As a short-term (0-3 months) trade, go long an equal-weighted basket of Chinese Investable and A-shares / short the KOSPI. This is a bet on mean reversion. We do not recommend that medium- and long-term investors implement this strategy.

We continue to overweight Mexican stocks, local bonds, sovereign credit, and currency within their respective EM portfolios. Also, stay long Mexican equities / short the S&P500.

Korea’s recent equity market tantrum is a warning signal for global risk assets. We are booking profits on the long Asian semiconductor stocks / short US hyperscalers trade and downgrading Korea from overweight to neutral in an EM equity portfolio.

AI is transformative, yet tech stocks may not produce positive returns. Market cycles have not disappeared. Greed and fear will still produce large share price fluctuations. Meanwhile, US inflation is the key near-term risk. Global non-tech capex aspirations also look overstated.

South Africa’s ambitious reform agenda will take time to bear fruit. Meanwhile, the country faces a stagflationary squeeze as inflation rises while growth slows. South African stocks, bonds, and currency are all vulnerable.

Rising volatility in Korean markets captures a late-cycle surge in which euphoria and drawdown risk are rising together. While KOSPI momentum remains intact, the bigger opportunity may be emerging in the increasingly mispriced KRW, which could rally meaningfully as portfolio flow headwinds fade.

Special Report

The magnitude of US tech/AI capital spending already rivals past bubble thresholds, threatening hyperscalers’ future returns on capital. There are echoes of previous market tops. Our preferred overlay strategy for equity portfolios remains long semiconductor producers / short hyperscalers.