10 Charts To Watch In 2020 (Q1 Update)

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10. China: I had to review the text below before drafting my updated views... remember the trade war? (back when life was simpler, and that was all we had to worry about!).  Anyway, the data to Feb shows a deepening of the property price slowdown in China, but China A-shares have also taken a bit of a setback as global growth and the domestic economic disruption have stymied this theme.  Thus far China has been - in contrast to the rest of the world - a very reluctant easer of monetary policy.  They seem very intently focused on not repeating the mistakes of the past of over-easing into the financial crisis in 2009.  The risk is they end up making a mistake of under-easing now, and that's something to be wary of here.  I think ultimately they get dragged into easing even if domestic activity rebounds as the virus shutdown passes, but rest of world demand fails to show up.  So for this one it's also back to the laboratory...

"China: last but not least, this chart shows Chinese property price growth vs China A-shares.  It’s a useful chart for China watchers and global investors in general, but it’s of particular interest now because property price growth is rolling over, and that could be good news for China A-shares. Because the marginal speculative investment dollar in China is basically trapped in the country, you tend to see this succession of chasing one hot asset after another.  Thus, we could start to see a rotation effect between property and stocks in China, and that (along with cheap valuations, easier monetary policy, better global growth, and a trade deal/truce) could drive a potentially explosive new bull market in China A-shares."

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Key Takeaways:

-Expect a DELAYED rebound in the global economy (which may end up sharper/bigger than initially expected), potentially still led by emerging markets (China in particular).

-Defensive assets are extremely (even more) expensive now, making them possibly sources of risk rather than hedges of risk. And growth assets look very attractive from a valuation standpoint.

-Commodities and inflation expectations have taken a major step back as the macro picture failed to evolve as expected, and while a few things need to go right, they look a lot better now.

-US dollar vol came back, remain medium-term bearish, but expect more false breakouts and vol.

-Double-down bullish global equities. Valuations - a common theme in this update - have moved to very rarely seen levels, and it's entirely possible that a 'generational opportunity' is in the works here.

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