The Weekly Strategy Report (August 13, 2018)
- As the Chinese economy decelerates and downward pressure on the currency continues to mount, we evaluate potential spillovers to the rest of the world.
- We resist narratives of a hard landing for the Chinese economy, which has exhibited greater stability than expected. Policymakers have a lot of dry powder. Escalating U.S.-China trade tensions is a key risk, but our medium-term expectation is for a bilateral negotiated solution.
- While we are by no means structurally bearish on emerging market (EM) equity and debt, we are neutral at the moment as trade and dollar volatility filter through. We remain constructive on risk assets more generally, with a mild pro-risk tilt in portfolios, and with China featuring prominently on our watch list of concerns.
EXHIBIT 1: Chinese Fiscal policy has room to ease in h2
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