Global Economist, Andrew Hunt has identified ten critical themes that are likely to shape the global economic landscape in the coming years. In partnership with InvestSense, these themes will be explored in depth to assess the challenges and opportunities of the next few years.

The decision to address these themes now comes from the recognition that many long-standing economic issues are reaching a critical point. As InvestSense approaches its 10-year anniversary, this presents a valuable opportunity to look forward to what lies ahead.

In this week's video, Andrew Hunt and InvestSense Director Jonathan Ramsay discuss the first two key themes: "China's Minsky Moment" and "Asia's Broken Model."

Theme 1: "China's Minsky Moment" 

China's Minsky Moment refers to the end of the country's 20-year credit boom. Hunt argues that China's economy has reached a tipping point, and its authorities may be ill-equipped to handle the fallout. This theme holds significant global implications, given China's role as a major growth engine in recent decades. The corporate austerity measures and the potential for repatriation of capital echo Japan's economic struggles in the mid-1990s.

Investment Implications:

Near-Term

- Continue to short China growth, as this theme is now more important globally than during the 1990s China growth slump.

- Real yields and the Chinese currency may rise as cash flow-negative companies seek funding, with this dynamic persisting until the PBoC eases.

- Global inflation is being suppressed by export price deflation, and demand for commodities remains weak.

‍Medium-Term

- Expect lower yields and an eventual decline in the Chinese Yuan.

- Perhaps the silver lining for investors in cheap but growing Chinese equities will be a more market tolerant Chinese Government

Long-Term

- Expect increased geopolitical tensions and reduced capital flows from China, possibly leading to repatriation.

- Decreased financial flows to expatriate Chinese communities abroad.

Theme 2: Asia’s Broken Model 

Asia's Broken Model highlights the challenges facing the Northeast Asian Development Model, which has relied heavily on capital expenditure, export volume maximisation, and financial repression. Hunt argues that this model is no longer sustainable and requires economic and political reforms for the region to adapt to the changing global landscape. Rising savings in the West and China’s economic downturn are existential threats to this model.‍

Investment Implications:

Near-Term

- Underweight Asia, recognising near-term deflation and growth disappointment.

- Expect weak regional currencies.

Medium-Term

- Prioritise reform-oriented countries over those clinging to the old model.

- Ultimately though these changes should be good news for equity owners and we might look back and see the rise of shareholder capitalism in Japan as the start of something in the region.

Long-Term

- Potentially favour South Asia as reforms take hold and growth prospects improve.

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Upcoming Themes

In the coming weeks, InvestSense and Hunt Economics will explore the remaining eight themes, including:

1. The QE Addiction & The Non-Bank Credit Boom:
Examining the growing reliance on quantitative easing and hidden leverage in the non-bank financial sector.

2. The Future Isn't What It Was & Geopolitics:
Analysing the shift in consumer borrowing attitudes and the evolving nature of global conflicts in the post-pandemic world.

3. Eurozone Competitiveness & Japan's Euthanasia of Savers:
Discussing the widening competitiveness gap within the Eurozone and Japan's economic challenges, including inflation's "euthanasia" of savers.

4. The Anglo Property Reset & Productivity:
Addressing the need for a correction in property prices and the critical role of productivity growth in solving global economic problems.

Last week, Hunt expressed confidence while discussing the Federal Reserve's recent 50 basis point rate cut, even though the decision had not been officially announced at the time. This confidence highlights a growing sense that the global economy is weakening faster than markets anticipate, with China's struggles at the heart of the issue. That's why our thematic journey began in Asia, and next week we will explore the potential impact on the highly leveraged U.S. financial sector and the likely monetary response.