Market Sea-Change Underway As Asia Repatriates Capital From The West | Louis Gave

Investors need to "follow the money"

While much of Wall Street's focus over past recent years has been on the Big US Tech stocks, aka the Magnificent 7, there are an increasing number of seismic developments happening internationally investors need to be aware of.

For example, emerging market stocks have positively trounced tech stocks since June.

And to name just a few others:

• China is now firing i's monetary and fiscal bazookas with gusto.

• India is now the world's fastest growing major economy & its stock market is booming.

• Japan just elected a new prime minister whose hawkish policies might end the yen/dollar carry trade.

• And of course, the escalation of hostilities in the MidEast threaten to inject a lot more uncertainty into geopolitical and global trade.

Which international trends are the most important for investors to track?

What are the biggest risks? And where are the biggest opportunities?

To better understand the situation from a non-US perspective, we're fortunate to welcome back to the program Louis Gave, Founding Partner and CEO at Gavekal.

He observes there's a sea-change underway in markets as Asian investors repatriate capital from the West, which is upending the dynamics of the current market rally.

To hear how he’s positioning for it, click here or on the video below:

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Adam’s Notes: Louis Gave (recorded 10.1.24)

EXECUTIVE SUMMARY:

• Both the US and China are expected to implement fiscal and monetary easing policies in 2024, with the US likely initiating more fiscal spending post-2024 elections, irrespective of whether Trump or Harris wins. The US Federal Reserve is also anticipated to continue its rate cuts. The combined liquidity boost from the world’s two largest economies is expected to create a conducive environment for global asset price growth. The ECB (European Central Bank) has also cut rates, signaling a broader international trend towards policy easing, which typically supports financial markets, particularly equities and commodities.

• China has implemented a major stimulus package, injecting 2 trillion Renminbi ($280 billion USD) into its economy. This unprecedented move is akin to Mario Draghi's 2012 “whatever it takes” moment for the Eurozone, aimed at revitalizing the market's confidence. Despite running monthly trade surpluses of around $80 billion, the largest in its history, China's growth has been stymied by a lack of domestic and international investor confidence. The new stimulus is expected to drive a significant capital inflow back into Chinese assets, triggering broader gains in emerging markets that are closely tied to China’s economic performance.

• Rising geopolitical risks in the Middle East, especially the escalation of conflicts involving Israel, have increased the potential for a spike in energy prices. The US Strategic Petroleum Reserve (SPR) is at a record low, and there are high short positions on oil, which could amplify price volatility if the situation worsens. Any significant disruption in oil supply could lead to a rapid increase in energy prices, triggering an inflationary spike that would undermine global growth prospects and complicate monetary policy decisions.

• The narrative around Chinese and other emerging market stocks has shifted dramatically from "Anything But China" (ABC) to "All-in Buy China" (ABC). Chinese stocks have started outperforming US equities for the first time in several years, and the Chinese government bond market has also outperformed US Treasuries year-to-date. This performance is not isolated, other emerging markets like Brazil, Chile, and Indonesia are also rallying. These markets, traditionally viewed as “uninvestable” by some, are now attracting capital due to