China, Lehman Squared?

Following up on the recent pick-up in volatility and risk-off around a potential default of China´s large and highly leveraged real estate developer Evergrande, in line with our objective of proactive communication and transparency, please find enclosed a summary of our views and portfolio positioning with particular focus on China insurance.

1. BIG PICTURE

Monetary and fiscal policies without limitsdo not solveproblems, but rather:

1)Delay Problems(kick the can down the road via debt),

2)Transfer Problems(via currency and trade wars),

3)Transform Problems(via inflation and inequality) and

4)Enlarge Problems(via systemic bubbles too big to fail).

1. CHINA AND MACRO VIEWS

China credit and real estate bubbles are a huge problem for China, and for the rest of the world.China´s imbalances are not new and have been accumulating for the past two decades due to a combination of well-known factors, such as global monetary and fiscal policies without limits discussed above, plus idiosyncratic problems such as central planning, currency controls, shadow banking, inflation, demographics, speculation, etc, which have created bubbles too big to fail. The damage, I am afraid, is already done.

Evergrande is not an isolated problem, but rather the tip of…