Initially we were also pretty shocked that the Taiwan stock index fell by around -11%. We thought that it would be much more – mainly because the Trump Administration has made it very clear to China that
1. Rules no longer apply
2. China is seen (by the Trump White House and anyone who listens to them) as America’s number 1, comic villain enemy right now.[1]
We note that in recent weeks, Trump has tried to ‘declare peace’ on Iran, repeatedly touting how successful negotiations have been.
Unfortunately, Iranian spokespeople deny that any such negotiations have actually taken place.
Geopolitical conflict always entails a high risk of unintended outcomes.
Geopolitical conflict with psychologically damaged, mentally unstable central characters massively increases those risks.
In times of such uncertainty, safe havens attract a premium as everyone wants an investment comfort blanket.
As long-term advocates of gold within a balanced portfolio, we exited almost all gold holdings in portfolios late last year.
Not because we don’t like any more (we like any asset class that has better prospects for making gains rather than losses).
Not because we thought that gold couldn’t go up anymore.
But simply because gold had stopped behaving like gold.
It had become more of a speculative bet than a safe haven.
In the current crisis that is exactly how it has behaved:
The typically volatile, tech-heavy stock index, the NASDAQ Composite (turquoise) has fallen by 5.2% in March with some hefty swings along the way. Gold (blue line) has fallen -11.4% this month, being over -18% down at one stage, and often suffering its wildest down days on bad days for the NASDAQ.
Safe haven no more, gold has become highly volatile but also not a diversifier of capital market risk at this time.
Not so Dire Straits?
Before we bask too long in the plaudits for being right about having forecasted the downward direction of both stocks and gold, we have to admit that there are parts of the plot that haven’t gone to plan during the recent uncertainty.
We’ve long held that EuroZone Sovereign Bonds are neither useful nor ornamental – high risk, low reward. The orange line bears that out. We’ve not been much more optimistic about GILTS – the purple line vindicates that view. We believe that US Treasuries are inherently superior and while they have performed marginally better, they’re still in loss territory of almost -1% (the blue line).
While we’ve advocated patience, especially following the Japanese election, we’re ultimately positive on Yen and Japanese Government Bonds (JGBs) in the medium term. They have had a rotten March, although our longer-term views remain constructive so we’d see this (and to a slightly lesser extent US treasury weakness) as a buying opportunity.[2]
Fortunately, we did find room in larger client portfolios for just about the government securities that have proved to be a safe haven – Chinese ‘guvvies’ (the black line), which added over 2% for the month but demonstrated a resilience and stability that other ‘safe havens’ would do well to emulate.
This strength in CNY bonds may reflect Chinese economic performance prior to the US attack on Iran:
· Retail sales for the first two months of the year rose 2.8% from a year earlier.
-
Industrial output climbed 6.3%, also exceeding expectations for a 5% jump.
-
Investment in fixed assets, including property, advanced 1.8% year-on-year. .
Maybe the Chinese capital markets might also provide Taiwan’s light sleepers some comfort that whatever is happening geopolitically right now, China seems to be winning economically and therefore might not see any pressing need to change its peaceful policy towards Taiwan, although we wouldn’t be surprised to see more ‘military exercises’ take place in the Straits for maximum visual effect, especially as donkey Trump has had to postpone his planned summit with Fire Horse Xi (although a state visit from the big brother of Trump’s Epstein party buddy Andrew Saxe-Coburg-Gotha-Mountbatten-Windsor has been planned instead) , while Trump tries to extricate himself from the mess that he, or possibly Epstein’s erstwhile alleged employers, has created in the Middle East.
Don’t push too far your dreams are china in your hand
Don’t wish too hard because they may come true
And you can’t help them
You don’t know what you might have set upon yourself
China in your hand – T’Pau
[1] Around 80% of Iran’s oil exports were sold to China and together Iran and Venezuela, supplied around 1/3 of China’s crude, at prices heavily discounted to unsanctioned supply. This would clearly appear to be an economic strike at China, designed to disrupt China’s energy imports and drive-up Chinese costs and inflation. In addition, TSMC’s semiconductor manufacturing facility in Arizona has announced over the last year or so that it would be 3 times larger/more expensive than originally announced and while currently only producing the fairly standard 5 nm semiconductors, will be producing the much higher grade 3nm chips next year and 2 nm by 2029 and unspecified much higher technology ‘fabs’ beyond that. This is incredibly provocative. While we don’t believe that Chinese policymakers have deviated from their plans to ‘persuade’ Taiwan to submit to fuller Chinese sovereignty by voluntary means, Trump’s various global adventures should not make anyone in Taiwan sleep easier at night.
[2] Church House’s Jeremy Wharton wrote a typically insightful piece about how Trump incompetence has created bond market buying opportunities (Jeremy focused on the GILTS market):
“The Trump attack upon Iran swept away any forecasts of 2026 being a rerun of 2025.
There was no cunning plan as ever, if one at all, and despite comments to the contrary, his administration seemed surprised at the effect on stocks, bonds and energy prices.
Initially there was only a limited effect on indices which were coming off all time highs (probably part of his ‘thinking’) but as the conflict has escalated, volatility has increased and energy prices and sovereign yields have reached some uncomfortable levels. As this goes to press, we have just seen a classic TACO [Trump Always Chickens Out] moment as Trump backs away (for five days) from vowing to obliterate Iranian civilian infrastructure, possibly advised by his allies that this will lead to a failed state. It looks to be a while before this is over and even when it is the damage to Gulf energy infrastructure will take years to repair whether the Straits of Hormuz are open or not.
The Fed had no choice but to remain on hold and there were few changes to their statement. There was and there were few changes to their statement. There was support for looking through energy prices but the spikes in Treasury yields do not create an environment for cutting rates and the new Chairman will have a job convincing the FOMC to vote for the levels of cuts that Trump wants (except Miran).
The ECB remained on hold with a hawkish tone and retain their option to act either way (‘agile and vigilant’). This check in global stability comes at a time when growth was just beginning to become more established across the Euro area but the block as a whole remains exposed to the negative effect of energy price spikes and supply disruption.
The BoE scrapped any thoughts of rate cuts and remained on hold with a 9-0 decision and remain ‘ready to act’. They are in a fair pickle now as growth forecasts are halved and inflation expectations raised, not an environment to cut or hike. Market expectations aside they are likely to remain on hold for the rest of the year, as things stand.
Gilts yields saw a concerted move higher across the curve with the 30-year suffering a peak to trough move of over 50bp, a loss of near 8% in capital, the sharpest rise since Truss/Kwarteng. The two year saw a move of over a 100bp in yield (a 2% drop in capital) as the market moved to price in four rate hikes in 2026, this seems excessive……. Sterling spreads are back to where they were in the middle of last year and with the move in Gilts there are some cracking all-in yields on offer.”
For more information and to speak with our advisors, please contact us at info@mbmg-investment.com or call on +66 2 666 4878.
About the Author:
Paul Gambles is licensed by the Securities and Exchange Commission as both a Securities Fundamental Investment Analyst and an Investment Planner.
Disclaimers:
1. While every effort has been made to ensure that the information contained herein is correct, MBMG Investment Advisory cannot be held responsible for any errors that may occur. The views of the contributors may not necessarily reflect the house view of MBMG Investment Advisory. Views and opinions expressed herein may change with market conditions and should not be used in isolation.
2. Please ensure you understand the nature of the products, return conditions and risks before making any investment decision.
3. An investment is not a deposit; it carries investment risk. Investors are encouraged to make an investment only when investing in such an asset corresponds with their own objectives and only after they have acknowledged all risks and have been informed that the return may be more or less than the initial sum.