Chen Zhao and Marko Papic discuss China's possible implosion, the strength of the US economy, outlook for markets, US household balance, savings rate, term premium, yield curve, and the consequences of misunderstanding China's policies.
China's oversaving and lack of private sector investment hinder its economic growth.
India's potential as a rising economic power is challenged by the caste system and lower savings rates.
Investments in the oil industry may be risky in the long term due to the declining relevance of fossil fuels.
Deep dives
China's Economy and Future Growth
China's economy is facing challenges due to oversaving and a lack of private sector investment. The country's macro and micro issues, such as a high savings rate and political control, are hindering growth. While China is making efforts to pump physical stimulus into the system, it may not be sustainable in the long term. The US-China relationship remains tense, and the US is actively trying to provoke China, posing a risk to the stability of the region. However, in the near term, China is unlikely to lose its cool. On the other hand, India is seen as a possible rising economic power, but it faces challenges such as the caste system and a lower savings rate. Long-term growth in India is expected to be steady and more balanced compared to China's hyper-growth period.
The Impact of China and India on Commodity Demand
China's relevance to commodity demand is diminishing, while India's potential is increasing. The correlation between China's credit growth and commodity demand is weakening, suggesting a break in the pattern. However, India still faces challenges, such as the caste system and lower savings rates, which could impact its growth potential. From a perspective of investment in China, it is important to be cautious and aware of potential risks. Meanwhile, the demand for metals remains steady due to a capex-driven cycle and healthy consumer balance sheets.
The Future of Oil and Energy Markets
The bullish view on energy, particularly oil, is uncertain due to potential economic recession and the shift towards cleaner energy sources. While there may be short-term profits in the oil industry, long-term investments are risky due to the declining relevance of fossil fuels. However, the demand for metals is expected to remain healthy, especially as global economies focus on capex and infrastructure investment. India may also play a role in the future demand for oil and energy.
Insights on the BRICS Summit and its Relevance
The BRICS Summit and its expansion to include more countries, such as Saudi Arabia and Iran, may not have significant relevance or impact. The group lacks a clear guiding principle, obligation, or purpose, and there are unresolved tensions between members, particularly between China and India. While the concept of the BRICS as an alternative alliance to the G7 has been suggested, its effectiveness in countering the West is uncertain. It is viewed by some as wishful thinking and a way to establish a political alliance, but it lacks substantial substance and cohesion.
Outlook on Geopolitical Considerations
Geopolitical dynamics between countries, such as the US and China, are influenced by domestic politics and economic interests. The US trend towards provoking China and framing geopolitical tensions as domestic issues can hinder diplomatic relations. The role of demographics, domestic policies, and economic stability play crucial roles in shaping geopolitical landscapes. The future trajectory of countries like China and India in the global economy and political arena is influenced by a variety of factors, including leadership, economic policies, and demographic changes.
Last year, Alpine Macro's chief global strategist Chen Zhao shared his global macro views with us, highlighting his optimism for the US economy and questioning Xi's policies for China. Reuniting with Clocktower Group’s chief strategist, Marko Papic, the pair will delve into China's possible implosion, the unexpected strength of the US economy, their outlook for markets, and the Ukrainian situation.
