Global Market Commentary

April 13, 2015

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The China Bull Rages

China’s domestic stock markets in Shanghai and Shenzhen have put on strong rallies since the middle of 2014. Recently, the China rally shifted into high gear. We believe this outperformance is being driven by the desire of the Chinese government to draw domestic investors into stocks and away from real estate and wealth management products which finance real estate speculation, where the government is engineering a deleveraging. This support for stock markets dovetails with the government’s navigation of China’s shift from industrial- to more consumer-led growth. We also believe that Chinese stocks are cheap on a fundamental basis compared to their own history as well as to developed-market stocks, and show superior earnings growth and attractive dividends. For all these reasons, we think the China bull has further to run. We like the mainland markets, and we like Hong Kong as well.

Will Greece leave the Euro — and if it does, what will it mean for global markets?

Despite the assurances of Finance Minister Yanis Varoufakis, the specter of a Greek Euro exit is again in the air. We think that European commitment to the Euro project runs deep, and is rooted the desire to avoid any repeat of Europe’s tragic 20th-century experience of war and despotism. Powerful actors will work hard to prevent a “Grexit,” since such an event would threaten the sense that membership in the EU is irrevocable. If Grexit does come to pass against the wishes of Greece and its creditors, though, the consequences would be sharp but brief — and both Greece and the remaining members of the EU could be better off in the long run. The lasting overhang would be a fear about the potential departure of other European laggards — such as Portgual, Spain, Italy, and even France.

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