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INVESTMENT: High Times Ahead Despite Geopolitical Risk
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High Times Ahead Despite Geopolitical Risk
By Anthony

BT 201711 INVESTMENT 01      过去的几个月内世界范围内发生了很多影响巨大的事件,如美国拉斯维加斯枪击案、朝鲜宣称成功试爆氢弹并无预警发射弹道飞弹、德国总理默克尔连任、我国顺利召开第十九届人民代表大会等等。无论是地缘政治问题还是国际间的交流,都对金融市场产生了不小的影响。再来看美国方面:虽然目前华尔街正处高位,但税收改革法案可能不会被予以通过。与此同时,美元相对于其他主要货币(包括日元、欧元、英镑和人民币)都有所削弱,趋势似乎不容乐观。

      让我们来看一组数据。美国道琼斯工业平均指数最近达到23000点,这也是道琼斯指数在不到一年的时间内连续四次上涨1000点。标准普尔500指数和纳斯达克指数也创下新高。金融分析师最近还宣称,包括爱尔兰、丹麦、瑞士和日本等其他几个国际股票市场火热甚至被显著高估。

      反观我国市场状况,随着“十九大”的召开,习主席的发言更加坚定了人民发展经济努力工作的决心,我国依然在尽力遏制熊市“蔓延”。相信在新任银行行长上任后将会有更为明确的方案出台。
BT 201711 INVESTMENT 02A number of unprecedented and rare events around the world in the past month have increased the uncertainty of global markets and also the ability of forecasters to clearly read economic and political tea leaves. While equity markets may suggest that high times are ahead, the sheer inability to calculate geopolitical risks into valuations remains a strong force to contend with. While Wall Street is enjoying all-time highs, K-Street is converging on Washington to elbow for positioning in a tax reform bill that will likely not pass, the likes of which would put into question US valuations. Interestingly enough, this is occurring while President Trump continues to threaten nuclear war with North Korea, a trend that is being ignored by markets. In China, leadership is now undergoing twice a decade political transition, thus creating conditions for policy clarity and convergence. While these two trends tend to be contradictory, it is still yet to be seen whether the financials will outweigh the politics or whether the opposite trend will hold.

BT 201711 INVESTMENT 03 Zhou Xiaochuan governor of the Peoples Bank of ChinaZhou Xiaochuan, governor of the People's Bank of China, said he is likely to retire soon

For the first time ever, the US Dow Industrial Average reached 23000 points recently. This is also the first time the Dow has gained 1000 points four times in a row in less than a year. The S&P 500 and the NASDAQ are also reaching record breaking highs on a weekly basis. Financial analysts using a variation of the P/E ratio, known as the Cape ratio, have also recently asserted several other international equity markets are hot or significantly overvalued including Ireland, Denmark, Switzerland, and Japan. The US is also at full employment with a flattening yield curve and the prospect of the appointment of a hawkish chair of the Federal Reserve, a move that would further flatten the yield curve. As has been mentioned previously, the politics of tax reform are simply not present in Washington, a prospect which began the so-called Trump Trade back earlier this year.
 

Furthermore, international markets are consistently sanguine with regard to the US saber rattling against North Korea in which President Donald Trump recently suggested that we are in the “calm before the storm” and that we will soon find out what that means. Former director of the CIA John Brennan put the risk of nuclear war on the Korean Peninsula to be at 25 percent. Despite this, it is difficult to price in nuclear war as we can just hope the “adult day care centre” in the White House as Senator Bob Corker put it can continue to run smoothly. Since Trump took office, the dollar has weakened relative to every major currency including the yen, euro, pound, and yuan.

BT 201711 INVESTMENT 04The 19th National Congress of the Communist Party of China

Meanwhile, investors are witnessing a rare event in China, the bi-centennial Party Congress, where President Xi Jinping is largely expected to have consolidated his power among the Chinese Communist Party’s upper echelon. President Xi has, for the most part, consolidated his power and will now have much more leeway in which way he wants to direct the economy. But despite his best efforts, Xi would be hard pressed to contain a bear market contagion when the US dives head first off the cliff. The question will be the US will be wearing a parachute or not. The fact that the new head of the People’s Bank of China as Governor Zhou Xiaochuan steps down will also usher in a fresh perspective on how to contain the recent speculation on the yuan and bond markets while maintaining sustainable capital flows.

BT 201710 INVESTMENT 05t is important to remember that it is not a matter if the US will enter a bear market of an 18 percent loss, but rather when. Equity growth is eventually contained by gravity. This is why heights are so scary; when you meet the full scale of the laws of physics, the prospect of harm on oneself can be sobering. So too should the correlation between US equity markets and their Chinese counterparts. Since the beginning of the year, Chinese equities have also enjoyed the lucrative prospect of tax cuts in the US which would increase capital flows in the Middle Kingdom from major US firms doing business there.
 

And while the Chinese economy’s fundamentals are strong, it won’t really matter in the event of a collapse of the confidence that people have in the world’s largest economy. Contrary to this assertion, look at China’s actions in mid-2015 and the beginning of 2016. Chinese capital markets are much more strongly positioned to weather a negative downturn in sentiment as opposed to Western markets. Nonetheless, circuit breakers and capital controls can only go so far.
 

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