Watch: Shifting Currents – 2025 in review with Kishore Mahbubani

Asia remained the primary engine of global growth in 2025, with China described as advancing a higher-quality development model while playing a stabilizing role in international affairs. The piece frames the year of high-level engagement between China and the U.S. as opening questions about the next phase of bilateral relations and highlights Professor Kishore Mahbubani’s view that Asia’s continued growth and global prosperity depend on cooperation rather than rivalry — a constructive narrative but one that contains no immediate market-moving policy or data announcements.

Analysis

Market structure: Stabilizing China-U.S. engagement and Asia-led growth favors Asian exporters, industrials, renewables and commodity producers. Expect 6–18 month incremental demand for copper, aluminum and semiconductor capital equipment (+5–15% incremental demand vs baseline if Chinese CAPEX rebounds), while defense exporters and pure-play onshore safe-haven trades could see relative underperformance.

Risk assessment: Key tail risks are a geopolitical shock (Taiwan Strait incident) or fresh Chinese regulatory clampdowns; assign 5–10% probability over 12 months with >20% downside in China equities in each shock. Near-term (days) volatility will track headlines; medium-term (3–9 months) depends on onshore CAPEX flows and FX stability; long-term (2–5 years) is structural: supply-chain reorientation toward Asia and higher commodity intensity.

Trade implications: Favor cyclicals tied to Chinese investment (materials, industrial machinery, renewables) and carry in CNY-denominated credit if yields remain +150–250bp vs US 10y. Use relative-value: long Asia ex-Japan equities vs short US defensive growth to express rotation; implement options to buy downside protection for 1–3 months around major diplomatic summits.

Contrarian angles: Consensus still prices structural decoupling; that's likely overstated — a partial reconciliation would re-rate onshore names by 10–30%. Risks include policy missteps (credit tightening) that could invert the trade; watch China onshore credit impulse and FX reserves weekly for early reversal signals.

Key Decisions for Investors

• Establish a 2–3% tactical long in AAXJ (iShares MSCI All Country Asia ex-Japan) or MCHI (iShares MSCI China) over 3–9 months to capture Asia-driven demand; set a stop-loss at -12% and trim if AAXJ/MCHI outperforms SPY by >15% in 60 days.
• Allocate 1–2% to copper exposure via COPX (Global X Copper Miners ETF) or JJC (copper futures proxy) for 6–12 months; take profits if LME copper > $9,000/ton (+~20% from current levels) or if China industrial production growth falls below 3% YoY for two consecutive months.
• Buy 3–6 month 25-delta call spreads on KWEB or MCHI (size 0.5–1% portfolio) to express asymmetric upside in Chinese tech while capping premium; unwind if implied vol rises >40% or after major US-China summit outcomes are negative.
• Establish a 1–2% position long CNY via CYB (WisdomTree Chinese Yuan ETF) for 3–6 months to capture potential appreciation; exit if USDCNH de-pegs and moves >3% in 7 days or if PBOC FX reserves drop >2% month-on-month.
• Pair trade: go long AAXJ (2%) and short SPY (1%) to express Asia overweight vs US; rebalance if relative performance gap closes (AAXJ/SPY ratio down 8%) or if US 10y yield falls >40bp within 30 days indicating global risk rally.