With frothy valuations, and greed at its maximum level earlier this year, the smallest span in the cogs was sure to set the market awry. The 25% slide in hot assets should not surprise you more than their formidable ascent since stocks hit rock bottom in Mar20, shouldn’t it?

What is so different now? Well, it’s not the ship stuck in the Suez canal, even though it is costing the global economy $10bn a day and further dents a supply chain already fragilized by US-China commercial war, and a global pandemic. No, it’s rather the good news that paradoxically hits the market. Vaccination rates ramp up, albeit unequally, and economy is on steroids following so many shoots of liquidity.

As we all know, the market prices forward expectations. Looking ahead, the scenario that plays out is economy bounces back, rates go up 2 years from now, therefore discount factor increases, which brings down equity valuations. In all fairness, there is probably a tiny bit of a climb down from retail investors not buying as much equity hand-over-fist as earlier in the year. Overall, the market is steady and volatility is even going down.

Is that all? Not quite, the darker story at play is the ever-more acrimonious discussions between US and China. Promise of Chinese companies delisting in the US, face fierce rhetoric of retaliation in the middle kingdom. China seized the opportunity of a US retreat from global affairs, to cash in on a rapidly expanding economy and affirm its power, and its cultural model abroad.

The stakes are high. Behind a very candid assumption of a mutually-beneficial approach, there is a real bifurcation of two blocks that are vying for the world supremacy. To hedge your bets here, you would probably consider adding onshore China exposure and Renminbi to your portfolio if you don’t want to get shipwrecked.

360 Advisory – Markets