The China syndrome
WHAT is in store for economies and markets in 2018? Around this time of year, a large number of analysts and fund managers are giving their views. Among the most interesting and thoughtful approaches can be found at Absolute Strategy Research (ASR), an independent group founded by David Bowers and Ian Harnett.
ASR adds extra depth to its analysis by contrasting its own views with those of the consensus. To do so, the group polled 229 asset allocators, managing around $6trn of assets, for their views on the outlook for economies and markets. They found a groundswell of optimism; the probability of equities being higher by the end of 2018 was 61%, and that shares will beat bonds is 70%. The allocators think there is only a 27% chance of a global recession. And they are not worried about the prospect of the Federal Reserve pushing up interest rates.
There are some disconnects within the consensus view. The first is that investors expect volatility (as measured by the Vix) to rise next year. Usually, equities struggle in…
