This podcast explores the risks and their impact on equity markets, with a focus on geopolitical risks, inflation, and a potential China slowdown. It discusses methods for identifying and pricing new risks in the market, and emphasizes the importance of assessing what risks are already factored into valuations. The chapter also highlights the current state of the global economy and geopolitical landscape, mentioning Taiwanese equities outperforming in the election season.
Geopolitical risks, sticky inflation, and a potential China slowdown are key concerns for investors in equity markets.
Analyzing spillover effects, valuations, and machine learning models helps determine the significance of priced-in risks.
Deep dives
Top Risks for Investors
The podcast discusses three key risks that investors should be concerned about. The first is geopolitical risks, including tensions in the Middle East and US-China tensions. The second risk is a higher for longer environment with sticky inflation, which could negatively impact equities. Lastly, there is a potential for a sharper China slowdown, with downside risks related to the housing market and its impact on consumption.
Determining What is Priced in the Markets
The podcast explores how to determine what risks are being priced in by the markets. The focus is on the impact of the risks on equity markets. Various approaches are used, including analyzing the spillover effects from China, the sensitivity of valuations to higher bond yields, and sophisticated methods like machine learning models. Understanding what is already priced in is crucial in assessing the significance of risks.
Pricing In and Unpriced Risks
The podcast highlights which risks are well priced in by equity markets and which are not. Higher bond yields are considered to be well priced, a China slowdown is seen as not well priced, and geopolitical risks have a mixed pricing. The podcast points out that Chinese companies with exposure to China have outperformed, suggesting underpricing of the China slowdown risk. Additionally, the performance of equities in the Middle East and Taiwan elections reveals varying levels of market pricing.