The US Treasury’s recent – and ongoing – dash for cash highlights the economy’s enormous fiscal challenges. To quote Bloomberg: “The barrage of fresh Treasury bills poised to hit the market over the next few months is merely a prelude of what’s yet to come: a wave of longer-term debt sales that’s seen driving bond yields even higher. Sales of government notes and bonds are set to begin rising in August, with net new issuance estimated to top USD 1 trillion in 2023 and nearly double next year to fund a widening deficit.” On top of that, according to calculations by asset manager Horizon Kinetics and as quoted by gold fund manager Incrementum, the US will have to refinance around half of its national debt of more than USD 35 trillion by 2025. That’s a lot of debt maturities to digest in two years. In this article, our Senior Advisor Say Boon Lim cautions that even if Fed rates stabilise, the longer-term outlook for US Treasury yields would likely remain risky as persistent deficits drive up debt relative to GDP, in turn driving interest payments as a percentage of GDP up “vertically”. Indeed, the Congressional Budget Office is warning of the “risk of a fiscal crisis”.

As China’s post reopening recovery has taken a slower pace than the high hopes of the markets, there have been concerns that China’s economic growth will be lower for longer resembling Japan’s "Lost Decade". However it is important to note China and its people do have a solid track record of resilience, and there are several structural features of China that differentiates it from other emerging markets or Japan in its growth trajectory. In this article, our Senior Advisor Say Boon Lim shares 12 interesting charts to review in the context of China’s relatively high economic resilience (as measured by the Swiss Re Institute’s Resilience Index), comparing with MSCI Emerging Markets ex-China’s key constituents namely India, Brazil, South Korea, Taiwan, and Saudi Arabia. Economic resilience being a product a policy stability and prudence, are pointing to an undervalued opportunity in Chinese equities and the appeal of Chinese government bonds for its stable yield at a time when other countries’ government rates and bond yields are surging.

Some traders borrow the expression “the postman always rings twice” from the title of that 1981 movie. It is to make the point that markets often give investors a few opportunities to get in or get out. We believe the first time the “postman” rang already for a downtrend when the S&P 500 hit an intra-day high of 4195 in early February but it failed to sustain above the 50.0% Fibonacci retracement of the decline from January 2022 to October 2022. In this article, our Senior Advisor Say Boon Lim discusses the valuations and earning forecasts for US markets, and the “postman” may just have rung a second time when the S&P 500 was once again testing its 78.6% Fibonacci retracement resistance.

Banking failures in the US, the recent epic takeover of Credit Suisse and the wipe out of its AT1, speak volumes about the stage of the cycle in Developed Markets. In particular, they warn against underestimating the risks at this stage of the asset and economic cycles. The Fed now risks a return to 1970-1985 if it loses its nerve on rates, and it is going into battle with very little – rates are lower than at previous cyclical bottoms and inflation is higher. In this article, our Senior Advisor Say Boon Lim shares his reflections on the US cycle, inflations, rates and asset markets, and while US asset market outlook is worrying, why China is increasingly becoming a safe haven trade for investors.

China markets witnessed strong rally since Oct 2022 trough upon China reopening and covid policy pivot, and we start to see investor flows rotating from offshore to A-shares which are expected to outperform with a longer run for rally. Where are we in China’s reopening trajectory? Who are the policy supported sector leaders well placed to outperform? These are the common questions frequently asked by our clients. In this article, we discuss the 10 most frequently asked questions that came up in our recent conversations with investors and allocators, and share more color about pockets of opportunities as China reopening evolves into the second act for economic growth recovery.

Big, long-term trends could drive Developed Market bond yields much higher than the cyclical peaks that the market is currently pricing in. There are cycles and there are secular trends. If the super cycle of rates and yields has turned – off deep negative inflation-adjusted levels – then the lesser cycles could mean- revert a lot higher around long-term uptrends. And we are at this juncture at the moment, as the negative yielding bonds have literally disappeared - the global stock of negative yielding bonds had gone from a peak of US$18.4 trillion late in 2020 to zero recently. What are the true implications behind this abrupt turn of tides? In this article, our Senior Advisor Say Boon Lim discusses the big drivers for potentially much higher rates and yields for this year, and areas we are spending a lot more time monitoring, as the longer-term outlook could be far worse than just a mean reversion in nominal rates and yields as we may also be in the midst of a secular mean reversion in real government bond yields and corporate credit yields.

In a discordant world, there are no overarching investment themes. The different parts of the world are marching to different drums – their economies and markets are driven by different cycles, different prior policy choices and factors beyond their control. The US economy and market are paying back for the extreme policy stimulus of 2020-2021. Europeans are paying back for the same, with the added pain of a war outside their control. Japan is battling a chronic ailment – extreme debt – made acute by sharply higher cost of US funds. China is at the bottom of its policy cycle, at the beginning of a path out of COVID health controls.

Yield curve steepening – which has been accelerating in recent weeks as the market contemplates a whopper of a stimulus package under a possible Biden White House – is likely to continue regardless of the winner on November 3.