There was something almost re-assuring about Trump walking away empty-handed from the Kim-Vietnam summit, or the half-baked progress on China-US trade talks. It could have been worse, (i) disengaging the US completely from Asia, or (ii) escalating an already-damaging global commercial conflict.

Markets rejoiced, but don’t fall for it. We are in a typical late-cycle mood for the US and Europe, with slower growth (2.6% in 4Q18, 3.5% in 3Q18 and 4.2% 2Q18), and reduced expected earnings growth (from high teens in FY18 down to high single digit in FY19 for US corporates).

In such an environment, risk-return is typically less favourable for most asset classes, with max 5% expected for stocks and high yield (as per long-term average). Risk-return is more favourable for investment grade bonds (rated BBB or higher) and commodities.

For bonds (especially low BBB), the past credit binge has elevated corporate leverage everywhere, but higher cash generation still makes the boat float with no repeat 2007-type crisis ahead. For commodities, China is again the main catalyst as it currently replenishes its iron ore mills and copper reserves.

Whether the Chinese economy is really bottoming out is the Shakespearian question. On one hand, we saw great performance of onshore stocks, namely in property, smaller business confidence is half-way to good. On the other hand, sales manager sentiment and factory inflation are tepid.

Our view is that China is ahead in the downcycle, as seen with its stocks plummeting first and more sharply, so logically they should be the first out of the trough even before the US has even battled with its coming recession. This forms the mainstay of our overweight China/EM, underweight US allocation.