Book Bits: 12 July 2025

Should the World Fear China?
Zhou Bo
Summary via publisher (Hurst)
For Washington, China is a strategic competitor: the only country with both the will to reshape the world order and, increasingly, the means to do so. For Europe, the People’s Republic of China (PRC) is a ‘partner for cooperation, an economic competitor and a systemic rival’. For NATO, it is a ‘decisive enabler’ of Russia’s war against Ukraine. Yet Beijing’s image is far more positive in the Global South, of which the PRC considers itself a part. Zhou Bo’s essays unpack China’s own view of its role today. The author is a senior fellow at Tsinghua University’s Center for International Security and Strategy and a retired senior colonel in the People’s Liberation Army. China is operating not only in a world becoming less Western, but—more importantly—a West becoming less Western; and the key to its outlook lies in Africa, the Middle East and the Indo-Pacific as much as in Europe and the White House. Are Moscow and Beijing really so closely aligned? Where are Sino-Indian relations headed? Is China a new Cold War foe for the West? Or will economic ties inevitably bring the two powers closer together?

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Research Review | 11 July 2025 | Risk Factors

Factoring in the Low-Volatility Factor
Amar Soebhag (Erasmus University Rotterdam), et al.
June 2025
Low-volatility stocks have historically delivered higher risk-adjusted returns than their high-volatility peers. Despite extensive evidence and widespread adoption in the investment industry, the so-called low-volatility factor is absent from standard asset pricing models. This paradox is attributable to asymmetry in factor legs and real-life investment frictions. A low-volatility factor substantially improves performance of factor models once accounting for these dimensions in various in-sample and out-of-sample exercises, across different low-risk measures and across methodological choices. We advocate integrating the low-volatility factor into asset pricing models, accounting for the asymmetry and frictions.

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Momentum Is Still 2025’s Top Performer For Equity Risk Factors

In a dizzying year of economic news, along with numerous twists and turns in financial markets, the performance leadership for the momentum factor stands out as a hardy perennial year to date. This equity risk factor continues to outperform the rest of the field, as well as the broad US stock market, based on a set of ETFs for year-to-date trading through yesterday’s close (July 9).

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Macro Briefing: 10 July 2025

Global financial markets are becoming “desensitized” to President Donald Trump’s tariff decisions, advised CGS International Securities Group Chief Executive Carol Fong. “Look what happened in the last two days when the tariff (deadline) lapsed, the market didn’t react badly and I think the market itself has been a bit desensitised”. In the US, shares traded up on Wednesday and the S&P 500 Index closed just below a record high that was reached earlier in the week.

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Economic and Financial Predictions: Betting Markets | 09 July 2025

There are numerous ways to predict economic and market outcomes, each with its own set of pros and cons. One of the more recent arrivals in the realm of trying to divine the future is the rise of prediction markets — platforms where individuals can wager on the outcome of future events and track the estimates in real time. The future’s still uncertain and no one has a crystal ball, but monitoring the estimated probabilities for various macro events offers another source of analytics, if only to compare with the implied probabilities from the usual suspects. On that basis, here’s the first installment for what will be a periodic review of wagers for several economic and financial expectations. The sources for this update: Polymarket and Kalshi. Meanwhile, one thing that hasn’t changed for predictions from any source: Caveat emptor! Note, too, that the predictions shown below reflect a moment in time (earlier today). For the latest updates, click on the links.

US recession in 2025?

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Macro Briefing: 9 July 2025

The recent decline in the US economic growth rate below the level of the interest paid on the national debt is a warning sign, writes Jared Bernstein, who was chair of President Biden’s Council of Economic Advisers. “The interest rate our country pays on its debt has increased sharply, driven in part by government spending during the pandemic and by higher inflation. It’s shot up so much that it is now equal to our growth rate. That’s a potential game changer for debt sustainability.”

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Bond Market Will Struggle To Price In Conflicting Risk Factors

The week ahead will provide early clues for two very different risk factors looming for the bond market.

On the one hand, the on-again/off-again risk of tariffs is lurking – a development that could create new economic headwinds that soften growth and, in theory, lower interest rates as investors seek safe havens and the Federal Reserve eases its policy stance to provide stimulus. But tariffs could also lift inflation, perhaps persuading the Fed to keep rates higher for longer if not raise rates. Deciding which aspect of the tariff effect will dominate is tricky for several reasons, including ongoing ambiguity about when or if tariffs will change and uncertainty about the macro price tag associated wiht raising import costs.

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