The Intelligence Report – 5 June 2019
Hopes and concerns are wrestling for investor attention; while wait-and-see might be the sensible approach, our asset allocation team argues portfolios can still be robust despite all the volatility. Also in the “let’s keep it in perspective” department, don’t expect renminbi policy to swing to competitive devaluation; US company debt: less of a burden than it seems. Finally, and perhaps most worryingly, we highlight the need to tackle deforestation for the sake of world sustainability.
|Cautiously constructive despite trade war risk|
|As the rhetoric swells again in the arm-wrestling between the US and China over trade, and arguably global power, investors should keep an open mind about opportunities to add to market risk at better valuations.|
|Renewed renminbi jitters – Keep calm and carry on!|
|Cares and concerns may cloud sentiment on the renminbi, but these should not be mistaken for an – actually non-existent – devaluation policy or overshadow the supportive forces.|
|US corporate debt: Not such a burden|
|Could rising US company indebtedness and falling debt quality foreshadow recession? In all likelihood, no: coverage ratios are still quite healthy, and interest costs should stay low as long as interest rates remain where they are.|
|Preserving world forests: A crucial sustainable development aim
Working towards no deforestation contributes to the UN’s Sustainable Development Goals and is increasingly recognised as imperative for investors and society as a whole.
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We see the medium-term backdrop as mainly supportive, but we also believe a tactical approach to risky assets is warranted. We are looking to buy dips in equities given the prevailing support from goldilocks.
We know what we are, but know not what we may be - William Shakespeare Summary China could avoid falling into the middle-income trap if it could break the economic constraints of population, capital and productivity on growth. But can it realistically do that and what will it look like in the post-middle-income environment? Consumption-led growth and industrial upgrading will be two of the key emerging themes for China’s structural change story in the next 30 years when President Xi Jinping’s “Chinese Dream” is supposed to yield some tangible results. The structural switch from quantity to quality growth has just begun. The ultimate question is who will benefit from China’s transition to a high-income, high-tech and consumption-led economy from being the world’s factory?
The uncertainty around the Sino-US trade requires robust multi-asset portfolios.We detail our approach. Elsewhere we explore the opportunities the boom in life sciences is creating in listed real estate and explain how we assess the strength of business models and corporate governance in a world where cyber-security risks abound. The Intelligence Report will take a summer break for the next month. Happy holidays to all our readers!