By Jan van Eck, CEO of VanEck via Iris.xyz

“Don’t fight the Fed” is an old investing mantra, suggesting that investments should align with the Federal Reserve’s monetary policies instead of against them. After assessing the impact of the People’s Bank of China’s (PBOC’s) deleveraging efforts and the potential impact ahead of its stimulative policies, we believe a key theme for 2019 will be “Don’t fight the PBOC.”

What Went Wrong With Chinese Equities in 2018

Before looking at 2019, let’s start by reflecting on 2018. The big surprise was the underperformance of Chinese equities. With both good corporate profitability growth and a good economy, why did Chinese equities fall so much?

The answer may lie with what central banks are doing. In China, I think stocks fell as a result of the deleveraging in its economy that started a year or two earlier. While there is a lot of time spent talking about short-term things like trade tensions and politics, my view is that we should really look at liquidity—that is, what central banks are doing to the markets.

In China, this deleveraging should have signaled something. Starting this summer, however, the PBOC cut short-term rates by 200 basis points. It was stimulative. It usually takes about six to twelve months to kick in, so in either the first or second quarter next year, I think we can expect a boost to Chinese assets and the country’s economic growth.

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