All posts in category: Fiscal policy (2)

China on the Brink

Friday, August 18th, 2023

Who is exposed in Europe and the US

We don’t know if there will be Lehman moment in China, but we are fairly confident that there is a major discontinuity coming soon: either a collapse of consumer and financial confidence or a series of stimulus measures, which will kick the can further down the road – a bit like the Eurozone crisis of 2011-12. We can’t forecast the outcome, but we can work out which companies and sectors in the US and Europe have the greatest revenue exposure. In general, more European companies have a modest 5% exposure to China, but if we take the threshold of concern as 10% of sales, the US has more exposure than Europe. The big exposure is US Technology where 65% of market capitalisation has more than 10% of sales in China, Hong Kong or Taiwan.

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Low Hurdle

Wednesday, January 11th, 2017

Excess volatility set to stay near historical lows

Many analysts cite a possible break in the regime of low volatility as a potential threat to the performance US Equities. They are right, but they only have half the story. A rise in equity volatility only matters if it is NOT accompanied by a rise in Treasury volatility. If it is, there is no change to the hurdle rate which determines the risk-efficiency of equities relative to bonds.

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