Elections
US financial instability reinforces our bearish investment outlook by weighing on economic growth and corporate earnings while also increasing US policy uncertainty and geopolitical risk.
Investors in Europe and the American West are already starting to think about the implications of the 2024 election, given that sticky inflation and tighter monetary policy keep the risk of recession elevated.
The first legislative meeting of Xi Jinping’s third term suggests that Chinese policy is continuous and consistent with the previous ten years, which is negative for long-term productivity.
Investors should avoid / stay underweight Turkish stocks and local currency bonds versus their respective EM benchmarks. Stay underweight Turkish sovereign credit.
Great Power Rivalry is taking another leg up as Russia and China further align their geopolitical interests. Investors should stay long USD-CNY, favor defensives over cyclicals, and markets like North America and DM Europe that have less exposure to geopolitical risk.
Biden’s State of the Union address will mostly be blocked by a gridlocked Congress. The one point of agreement, big spending, spells trouble over the long run, even if a technical default is avoided this fall.
President Biden’s political capital has fallen as he enters a challenging year that will include a domestic faceoff with the House Republicans and foreign crises stemming from China, Russia, and Iran. Stay defensive and prefer bonds over equities.
In this Special Report, BCA Strategist Ritika Mankar highlights that India may prove to be a sanctuary of safety in what promises to be a volatile 2023. Indian equity outperformance could continue, as India ends up offering relatively high growth at a time when EMs at large must contend with the effects of declining exports, high global interest rates, and exhausted fiscal stimulation capabilities.
Remain cautious and defensive overall. Stay long DM Europe over EM Europe. Look for EM opportunities in Southeast Asia and Latin America over Greater China.
Investors should stay defensive on recession risks until they subside meaningfully.