Up at Yuan

Mark Luschini, Chief Investment Strategist

For some, investing in Chinese equities is a bridge too far. In the context of the discord and adversarial relationship that exists between the U.S. and China on many levels, that may be construed as a rational response. Plus, there are many options for investors seeking global diversification to consider when allocating capital, both here, and abroad, that can be accomplished without investing in Chinese equities.

However, consider that in many cases those investing in a variety of popular global and international mutual and exchange-traded funds may already be exposed to companies domiciled in China. Looking at several equity benchmarks against which these funds are often compared gives us an illustration of the exposure that often accompanies these investments. For instance, the MSCI All Country World Index, a broad proxy for a basket of developed and emerging market stocks, in which the U.S. has a huge weighting of almost 61%, allocates just over 2% to Chinese equities. Another common international benchmark that excludes the U.S. is known as the MSCI All Country World ex. U.S. Index and holds almost 6% in Chinese equities. Lastly, the grandaddy of emerging-market indices, the MSCI Emerging Markets Index, a proxy that excludes developed-market economies, holds just under 19% of its portfolio in Chinese companies. Meanwhile, some investors also choose to own individual China-domiciled stocks whose U.S.-based equivalents are similar to Amazon, Meta, or Alphabet, to name a few.

Energy Prices and Fixed Income Markets

Guy LeBas, Chief Fixed Income Strategist

March is unfortunately the month for writing about geopolitical stresses and fixed-income markets. Our last discussion on the topic came following the 2022 Russian invasion of Ukraine; this time around, it is US-led strikes on Iran. Leading up to these strikes, the bond markets have been chopping around in a narrow range for the better part of a year. In the days before the current conflict, the U.S. Treasury markets took on their traditional role as a safe-haven asset and a hedge against geopolitical stress. That hedge evaporated unusually quickly, underscoring the importance of energy prices in the global economy and bond markets.

Over the last several decades, the impact of conflict on the U.S. bond markets has been progressively reversing faster. On average, it has taken just nine days from the onset of hostilities until the bond markets sell-off and completely reverse their safe-haven rally. Fortunately, the instances of conflict remain too few to identify a clear trend, but it appears the pace of the bond market reversal has been accelerating. Moreover, bond markets are increasingly anticipating geopolitical tensions before they escalate into outright conflict—a classic buy-the-rumor, sell-the-news trade.

The Ides of March Came Early

Gregory M. Drahuschak, Market Strategist

The January issue of Investment Perspectives concluded that corporate earnings appeared on track to provide a solid base for stocks. Although the path was bumpy last month, earnings continued that track as the S&P 500 2026 estimate edged up to $312.32, with the Technology and Materials Sectors leading. The seven largest S&P 500 companies by capitalization reported earnings growth of 27.2% in the fourth quarter, up from 18.4% growth rate in the third quarter. This was the 10th time in the past 11 quarters that the top seven companies have reported earnings growth above 25%. However, the blended fourth-quarter earnings growth rate for the other 493 S&P 500 companies was 9.8%. Fourth-quarter earnings surprises were most notable in the Materials, Technology, Energy, and Communication Services Sectors.

As February ended, it was not earnings surprises but rather the 2:30 a.m. March 1 post on the Truth Social website announcing that the U.S. and Israel had begun a joint offensive targeting military infrastructure, command-and-control centers, and Iran’s leadership, which resulted in the death of Iran’s Supreme Leader, Ali Khamenei. Almost instantaneously, investors’ attention turned to the potential economic consequences and, of course, what this would do to the price of energy-related products. Initially, the price of West Texas Intermediate crude rose more than 8%. Reportedly, the U.S. initially had no plans to tap the strategic petroleum reserve, but OPEC+ agreed to a larger-than-expected oil production increase for April.

Continue to read full PDF