Clocktower Group’s Post

Is it time to reexamine China?   In February 2024, we published our thoughts to our clients right after the leadership change of the CSRC (the stock market regulator) on Lunar New Year’s Eve, it is rare to see a leadership change and a strong signal of the shift of Xi’s priorities. Since then, the MSCI China Index was up nearly 20% from the bottom, the Chinese market has technically entered a bull market that few investors thought possible just some months ago. Last week, we hosted a small allocator dinner in San Francisco where we kicked off with the singular question – is China un-investable? One attendee asked if that is still even a question. Yet, there are many nuanced questions at this time: - Are investors all of a sudden changing from “can’t have it” to “can’t miss it”? - What drove the latest market rally and subsequent about-face in investor sentiment? - Who is actually buying Chinese equities right now? (offshore markets significantly outperformed the onshore markets) - Last but not the least, how long will it last this time? With these questions on our mind, we wrote a short piece to summarize and elaborate on our observations from the intel we collected from global allocators, global fund managers, local fund managers, and prime brokers. In short, we concluded that it’s less about the China self-recovery but more about the alternatives (e.g., Japan, India, etc.) are self-deteriorating. Interested in reading the piece? Reach out to irteam@clocktowergroup.com

Last week, Wei Liu had the honor of speaking at the Canada Alpha-Generation Symposium, hosted by MFA and Citi.   During the panel-discussion focused on global fundamental equities, Wei shared a key insight: in his view, the greatest risk facing Japan and India right now is if Beijing makes a decisive pivot to boost domestic demand and rejuvenate its own capital markets. We believe a move like that may incentivize the return of global capital to China.

This morning, Clocktower Chief Strategist Marko Papic sat down with CNBC's Becky Quick, Joe Kernen, and Andrew Ross Sorkin on Squawk Box to talk China, the Middle East, and oil. https://lnkd.in/g2hYapqf

Big congratulations to the Clocktower Technology Ventures portfolio companies who were included in this year's GGV Capital U.S. #FintechInnovation50!

We’re honored that our Chief Strategist, Marko Papic, was selected as one of Business Insider’s 13 “Oracles of Wall Street” for his prediction that the US economy would avoid a recession in 2023.   Interested in learning more about our research? Leave your details here (https://lnkd.in/gRi8ZcxG) and we'll be in touch.   https://lnkd.in/eSy9CuGh

From our Chief Strategist Marko Papic... Geopolitics has not mattered ONE BIT in 2023. That will change in 2024. Given asset performance throughout 2024, it would be simple to conclude that geopolitics did not matter for the markets. For example, since the invasion of Ukraine in 2022, the German DAX has reached all-time highs, while oil prices have collapsed. Meanwhile, Israel’s war against Hamas has had no impact on any markets anywhere whatsoever! In 2024, the US election will matter for investors. But not because of what will happen after the election, but rather for how American establishment elites react ahead of it. For the first time since the nineteenth century, the US could see more than two viable candidates run for president. The electoral math could be exceedingly complicated. As such, despite wars in Ukraine, Israel, and other spots around the world (Guyana!), the greatest “geo-macro” issue of 2024 will be the Fed’s highly politicized reaction function to the upcoming US election. This is the macro story of 2024, the capture of the Fed by the political risk of the upcoming general election. By that logic, equity markets could cheerlead the laggard Fed, even if the USD and bonds do not. To read all about this thesis – and our strategy team’s other macro forecasts for 2024 – please leave us your details here (https://lnkd.in/gRi8ZcxG) and we'll be in touch soon.

We just wrapped up our recent China client trip, covering six major cities – Shanghai, Hangzhou, Beijing, Fuzhou, Xiamen, and Ningde – and meeting with a wide range of onshore policymakers, local allocators, academics, fund managers, and corporate CEOs. A few things we noticed while on-the-ground: - On the geopolitical front the most encouraging message we consistently heard during the trip was that China certainly does not want to decouple from the US. A senior policymaker even told us that President Xi made a statement at the recent Central Financial Work Conference that “the US wants to decouple from us, but we will do the exact opposite to prevent the decoupling.” This statement is significant, indicating that Beijing may go to great lengths to stabilize the bilateral relations over the course of 2024. - Emerging investment themes surrounding Chinese companies’ global expansion efforts and additional ideas surrounding lessons learned from Japan’s lost decade. Also, many onshore managers are embracing high dividend yield strategies due to China’s macro malaise and the global high rate environment. - From an economic perspective, in the near-term, Beijing has adopted a data dependent approach in terms of providing support to the economy. Most policymakers we spoke with assured us that there will be more stimulus measures if the economy further weakens. A senior policymaker even said that there will be more issuance of central government bonds similar to the recent one trillion issuance if the economic condition warrants. However, onshore fund managers are generally concerned about this approach as it suggests that Beijing will continue to stay behind the market curve, which would only hurt, rather than boost, investor confidence. Over the medium to long-term, Beijing remains firmly committed to achieving China’s economic transformation, which requires shifting resources from the old-economy industries (real estate and property) to innovation-oriented sectors such as advanced manufacturing and green technologies. Please reach out to irteam@clocktowergroup.com if you’re interested in more insights from our trip. Steve Drobny Wei Liu Kaiwen Wang Qianqi Liao Sherry Wei

Our Clocktower Technology Ventures team just made their annual pilgrimage to Money20/20. Check out their reflections from the event, including what thematics continue to dominate fintech mindshare and how capital markets dynamics continue to evolve.