Trouble is brewing in the Middle Kingdom. Saturday former President Hu Jintao was publicly removed from the closing session of the Communist Party congress (https://bit.ly/3z5AOQ9). In a country where every detail of the political process is carefully scripted, there is no way such an episode carried out on live television was not deliberate. Namely, Xi staged the public humiliation of his predecessor as a way to send a very strong signal to his adversaries. The message is that any adversary to his rule will be eliminated no matter how senior or powerful. Such an extreme move in a country where the Confucian respect of the elders is paramount, points to the possibility that the opposition to Xi could be far more widespread than previously thought.

#chinaeconomy has been suffering of late largely because of the government’s policy rather than exogenous causes. The situation is dramatically exemplified by the performance of Chinese equity, down 44% over the last 12 months; the worst performer among major stock markets (see chart). The forced deleveraging of the critical property market, the attack on the technology sector and the targeting of key large private companies, all contributed to dampen economic growth at a time when the global economy is already slowing. The zero-covid policy added insult to injury and further contributed to depress economic growth. While after the congress we should expect a wave of stimulus, it is hard to imagine Chinese economic growth reaching escape velocity any time soon.

Global investors better take notice that regardless of portfolio composition, we all have exposure to #china . First off, a weaker China will not be able to contribute to the global economy as much as they did in the past. More importantly, should elusive economic growth breed more discontent, China’s leaders may opt for external conflict as a way to foster national cohesion. That would mean making a move on Taiwan. The repercussions of such a move on the global economy would be substantial and far reaching.

As we have entered a phase of deglobalization, sovereign risk should be at the front and center of portfolio management. Self-custodial stores of value become a critical hedge and jurisdiction arbitrage may be the only option to preserve property. As these options are only useful if deployed way ahead of any crisis, complacency and recency bias are investors’ own key challenges.

Disclosure: Hold all assets mentioned. Not investment advice. Do your own research. Twitter:@pietroventani for more timely comments and updates.