Our whole story – and our best opportunities to make money in 2016 – come from understanding China. This whole bearish turn of events began in August with China’s sudden devaluation. This month’s letter shows you why a further devaluation is all but inevitable. And here’s the most important point: the markets already know that if China is going to devalue later and unleash further bouts of deflationary pressure on global trade, markets aren’t waiting for the fact.
They are reacting now. That’s the good news. The bad news is that the days of easy policy answers to produce more growth are over. Not just in the developed world with quantitative easing and negative interest rates, but in China. Especially in China. That’s the last point I want to make before I go into more detail. My research this month showed me that China’s growth – up until now – was predictable and impressive.
From here, it gets much harder. And from here, the growth doesn’t happen unless China liberalises it’s institutions as well. I know this point won’t be without controversy. But frankly, making the point is one of the reasons I’m so pleased to have my own newsletter now. China needs to make structural reforms to improve the quality of its regulation and the rule of law. Without those reforms, it won’t break through the “Great Wall” that limits growth.