CC&L Financial Group Ltd.

Global six-month real narrow money momentum is estimated to have rebounded from a sharp December fall to reach a new high in January, based on monetary data covering three-quarters of the G7 plus E7 aggregate tracked here – see chart 1.

Chart 1

The December drop was the basis for an earlier forecast that a rise in global manufacturing PMI new orders would fizzle out in Q2, with a relapse into Q3. The January monetary news suggests that the current upswing will be sustained into H2 – chart 2.

Chart 2

Both G7 and E7 components contributed to the January rise in real money momentum, but the G7 series is estimated to have remained below a February 2025 peak, whereas E7 momentum reached a new high – chart 3.

Chart 3

The rebound in global real money growth has likely restored a positive differential with industrial output momentum, suggesting “excess” money support for markets – chart 4.

Chart 4

Previous posts noted that EM equities outperformed DM on average historically in months following positive readings of this differential and the E7 / G7 real money growth gap (allowing for reporting lags). The joint condition was in place in nine of the last 12 months. Chart 5 shows the performance of a monthly switching rule that prefers EM only when the joint condition is satisfied, otherwise reverting to DM. The latest news implies that the rule will continue to favour EM in March and, probably, April.

Chart 5

The historical Fed would be shifting to a tightening bias in response to recent economic news, according to a simple model.

To recap, the model classifies the Fed as being in tightening or easing mode depending on whether a probability estimate is above or below 0.5. The estimate is based on currently reported and lagged values of annual core PCE inflation, the unemployment rate and the ISM manufacturing delivery delays index. Despite the small number of inputs, the model does a satisfactory job of “explaining” the Fed’s past actions.

The model reading moved below 0.5 in August ahead of the September / October rate cuts, falling further in December, when the Fed delivered another reduction while signalling an expectation of additional moves in 2026 – see chart 1.

Chart 1

The reading, however, rebounded to around neutral in January and has climbed above 0.7 in February. The turnaround has been driven by a combination of a fall in the unemployment rate from 4.54% in November to 4.28% in January, a rebound in the ISM deliveries index from a November low and slightly firmer annual core PCE inflation (3.0% in December).

Additional data points for all three series will be available before the March FOMC meeting.

The January model shift is consistent with minutes of last month’s meeting, showing a strong consensus in favour of a hold with “several” participants viewing interest rate risks as two-sided.

The rapid repricing of global gaming equities year to date reflects a sharp narrative pivot in the market, hitting the stocks of portfolios holding Tencent, as well as other leading players such as Nintendo and Roblox. Only months ago, consensus held that AI would be an operational tailwind for game developers through cost reduction and faster content generation.

AI enhancing content production and experience

Source: Tencent Investor Relations 2026

Following new AI model releases such as Anthropic’s Claude Code and Google’s Project Genie, the prevailing fear is that AI will disrupt traditional game development entirely.

The question for investors is whether Tencent, as the world’s largest gaming company by revenue, is positioned to benefit from or be impaired by this shift.

AI as a development tool

Tencent’s core strength is scale – both financial scale and model training scale. In discussions with management late last year, they emphasised that AI is already deeply embedded in their workflow: procedural content generation, NPC behavioural modelling, art and animation tooling and faster iteration cycles. These capabilities are not theoretical; Tencent purchases more AI compute and silicon than nearly any other company in Asia, outside hyperscalers.

Small studios will indeed be empowered by AI, lowering entry barriers and enabling “one hit wonder” creators, much like YouTube transformed video production.

However, distribution, marketing and IP longevity remain durable moats. Tencent excels in all three. Owning evergreen franchises – over 80% of its portfolio – means that even if development costs fall, the value of recognised IP rises.

Source: Tencent Investor Relations 2026

AI makes content easier to create, but not easier to distribute at scale, monetise efficiently or ensure regulatory compliance – areas where Tencent’s ecosystem advantage is overwhelming.

Golden age of movie studios gives way to more atomised content creators – parallels?

Consider the shift from studio dominance in Hollywood to a more atomised creator economy. AI could indeed enable a long tail of nimble game creators, just as digital tools transformed music and film production. If so, Tencent’s role may shift toward that of a global distributor and platform – akin to Netflix in video or Spotify in music.

But unlike movies, gaming economics rely heavily on ongoing monetisation: loot boxes, in-game economies, battle passes, skins and continuous seasonal content. Even if AI reduces production costs, developers with large user bases can simply retain the value by expanding monetisable content. Consumers rarely pay less – they typically pay more in more immersive and interactive environments. Tencent’s superior ability to drive retention and average revenue per user works in its favour.

Fear premium

Tencent today trades at ~16x PE with mid-teens EPS growth, and minimal risk to near-term earnings. This is historically inexpensive for a high-quality global IP and distribution engine. The derating reflects uncertainty over future industry economics – not current fundamentals.

The key debate is not whether Tencent gets disrupted this year (unlikely), but whether AI compresses long duration returns on capital for AAA studios globally.

Markets are trying to reprice the terminal value of moats like content creation and distribution.

Our view: Tencent is better positioned than most

AI will shift value around the gaming ecosystem. Some of that may move to consumers, some to new AI native studios and some to distributors. But scale matters. IP matters. Distribution matters. And Tencent is uniquely advantaged in all three.

The company may face multiple compression as investors debate the long-term competitive dynamics, but fundamentally, Tencent is more likely to be a beneficiary of AI than a casualty. The path will be volatile, but the structural advantages remain intact.

Trump’s trade doctrine: Opening the door to higher-return industrial champions

Last month, I spoke with Benefits and Pensions Monitor about the short-term noise generated by Trump tariff headlines. We explored whether investors should be looking through the noise based on the TACO (Trump Always Chickens Out) view that the US president will retreat in the face of market revolt.

My argument was that, while amusing, TACO risks obscuring the unmistakable direction of travel. US trade policy signals a shift to a multipolar world, defined by a US centric economic sphere and a China centric one, each with competing supply chains, industrial priorities and strategic alliances. Tariffs are signals of tectonic shifts in global trade.

Our view is that these shifts bring risks, but will also be a durable source of opportunity for EM investors.

When China is taken out of your supply chain, everyone makes money

Traditionally, sectors like shipbuilding, industrial machinery, energy logistics and specialty manufacturing have been deeply cyclical with limited pricing power. They lived and died by freight rates, commodity cycles and economic growth. But the combination of US reindustrialisation, reshoring and decoupling from China is transforming these industries.

Historically commoditised, price‑taking businesses are now at the heart of national security and industrial policy. Reindustrialisation and rebuilding supply chains have the potential to drive visibility, margins and returns on capital that would have been unthinkable a few years ago.

For example, the order books of Korean shipbuilders are increasingly less shaped by commercial shipping cycles, and increasingly by long‑cycle defence, LNG infrastructure and government‑aligned industrial programmes across the United States and its allies.

Major opportunities ahead for Korean shipbuilders in LNGC and naval vessels

Source: CLSA, Clarksons

US-China decoupling has effectively removed Chinese yards from security‑sensitive projects, structurally elevating demand for non‑Chinese capacity.

For countries aligned with US industrial and security priorities – Korea, Japan, India, parts of ASEAN – select industries have the potential to enjoy rerating as increasingly strategic rather than cyclical businesses.

This extends far beyond shipbuilding. We are seeing it in components for AI data centres, grid and power equipment, strategic metals, defence, electronics, energy infrastructure and advanced manufacturing.

These sectors are beginning to enjoy the boost of multi‑year, policy‑backed spending.

Many EM countries offer the scale, labour force depth and geopolitical neutrality that global supply chains now require. As the world bifurcates, EM manufacturers, suppliers and logistics operators are becoming essential nodes in both the US and China spheres. This creates a long pipeline of opportunities in markets that historically suffered from volatility and low returns.

In short, Trump’s trade doctrine accelerates a global realignment that raises the return potential of industries previously stuck in low‑margin cycles.

In today’s complex and rapidly changing environment, technical skills and intellectual horsepower, while important, are no longer enough to guarantee leadership success. The world is filled with highly technical, highly educated professionals. What ultimately differentiates exceptional leaders is emotional intelligence, which is the ability to recognize, understand and manage emotions, both your own and those of others.

At its core, emotional intelligence shapes how leaders make decisions, how they navigate conflict, how they build trust and, ultimately, how effectively they lead teams, organizations and boards.

Understanding emotional intelligence

Emotional intelligence, or emotional quotient (EQ), refers to the capacity to tune into your emotions, understand how they influence your actions and channel them constructively. Unlike our intelligence quotient (IQ), which tends to be stable through lifetime, EQ is not fixed. It can be strengthened at any stage of life, making it one of the most powerful tools leaders can actively develop.

Leading EQ scholar Daniel Goleman describes emotional intelligence as the foundation of great leadership because, as he notes, “great leadership works through emotions.” Leaders who develop EQ unlock greater self-awareness, build stronger relationships and create cultures of trust, each of which is essential in high-stakes environments such as board governance.

The brain science behind EQ

EQ may feel abstract, but its foundation lies in neuroscience. All sensory inputs pass through the brain stem, then the limbic system, which is the emotional center of the brain, before finally reaching the prefrontal cortex, the rational part of the brain.

This sequence means we feel before we think. Emotions trigger physiological responses long before we consciously interpret what is happening. Recognizing this dynamic helps you to understand why strong emotional reactions can derail decision-making, and why learning to regulate those reactions is crucial for strong leadership and developing relationships.

Neuroscience also reveals that emotions are not hardwired. They are predictions our brain makes based on past experience. Just as we can learn a new skill, we can reshape our emotional responses by exposing ourselves to new experiences, practicing reflection and intentionally building healthier habits.

The four domains of emotional intelligence

Emotional intelligence consists of four interconnected domains. Together, they form a blueprint for stronger leadership:

1. Self-awareness

Self-awareness is the ability to recognize your emotions in real time and understand how they shape your perceptions, behaviour and impulses. It is the foundation of EQ since to manage how you react, you first need to recognize and name the emotion.

Physical cues often appear before conscious recognition, such as tightened muscles, racing heart, warm cheeks. In these situations, asking “What am I feeling?” activates the rational brain, which can give you greater control in managing the emotion.

Emotions are not obstacles; they are data to be interpreted. Anger, fear, happiness, surprise, sadness, and disgust each carry a message. Leaders who learn to interpret these signals make clearer, more thoughtful decisions.

2. Self-management

Once you can identify emotions, the goal is to manage them. Self-management means thinking before acting, especially in moments of stress, frustration or anxiety.

Several techniques help build this skill:

Label the emotion. Naming what you feel reduces its intensity by calming the emotional limbic system.
A.T. – Pause, Acknowledge, Think. This momentary slowdown re-engages the rational prefrontal cortex.
Even brief reflection helps the brain process experiences and adjust behaviour. At its simplest, reflection is about careful thought, providing the brain an opportunity to pause amid chaos and interpret what occurred.
A.I.T. – Why Am I Talking? This simple question encourages thoughtful contributions, especially in board settings. By choosing to speak up only when you genuinely have something valuable to say or original to contribute, will earn greater respect and influence among peers.

Changing emotional habits can feel awkward, like crossing your arms the “wrong way,” but with repetition, new patterns take hold. This is the essence of neuroplasticity, the brain’s ability to reshape itself through consistent practice.

3. Social awareness

Social awareness focuses on understanding the emotions and behaviours of others. Tools and approaches to enhance social awareness include:

Listening and observing. This implies not talking, not anticipating what others will say and not planning your response while they are speaking. While perhaps obvious in theory, many of us are guilty of not truly listening when someone is talking.
The ability to look beneath the surface and understand what someone may be feeling or experiencing.
Identifying emotions. This can be done by observing verbal tone and body language.
I.T.S. – Stay In Their Story. This technique is a reminder to resist the urge to jump in with your own experiences and instead keep the focus on the speaker.

Behaviour is like an iceberg where the visible part is only a fraction of what is really happening. By paying attention to what lies below the surface, leaders strengthen empathy and can create more meaningful human connections.

Social awareness also requires careful management of body language, since it can reveal how you are feeling, such as rolling your eyes or displaying signs of boredom. However, body language can be also be misleading. A person crossing their arms may not be disengaged, they might simply be cold or self-soothing.

It is also important to appreciate there are those whose neurological differences mean their behaviour and social interaction varies from what may be considered the “norm.” When neurodiversity and emotional intelligence intersect, the challenges can intensify, whereby neurodivergent individuals may be unfairly perceived due to little expression or different social-interaction style.

With the increased use of virtual environments for meetings, nonverbal cues are limited. Therefore, it is even more important to make intentional pauses and invitations for input in these types of meeting environments.

4. Relationship management

Relationship management is the ability to communicate effectively, navigate conflict, collaborate and build strong interpersonal connections.

Key behaviours that support strong relationships include:

Showing genuine interest in others
Giving full attention during discussions
Using eye contact to show engagement
Managing conflict calmly and constructively
Demonstrating consistency and reliability

For board members, relationship management has a direct impact on governance effectiveness. Positive interactions strengthen trust, while poor communication, avoidance or inconsistency erode it.

EQ and board governance

Boards operate in environments of high complexity, competing priorities and diverse personalities. Technical expertise is critical, but EQ is the glue that solidifies effective decision-making.

High EQ boards are able to:

Navigate difficult conversations with respect
Provide a safe environment so members speak openly
Make decisions based on clarity rather than emotion
Strengthen collaboration and avoid dysfunctional conflict
Maintain trust through consistent behaviour and accountability

Emotional intelligence elevates both individual leadership and collective board performance.

Trust as a currency of effective boards

Every interaction with colleagues or board members is a trust transaction, according to Pamela Barnum, a specialist on the topic of trust and relationships. Trust accumulates slowly, like compound interest for investments. But trust can also erode, like how a bad debt can adversely impact an investment.

A helpful metaphor is the trust ledger, where behaviours represent deposits or withdrawals:

Following through on commitments: deposit
Taking responsibility for mistakes: deposit
Missing deadlines without communicating: withdrawal
Withholding information: withdrawal
Supporting a colleague in a difficult moment: deposit

No board needs to be perfect. But every board needs a positive net balance to be effective. Healthy governance depends on identifying “trust leaks” early and addressing them with honesty and intention.

Invest in EQ

Emotional intelligence is not a luxury; it is a leadership imperative. It determines how effectively leaders understand themselves, connect with others, resolve conflict and build trust. Unlike IQ, EQ can be learned, practiced and strengthened at any stage of life.

For boards, EQ enhances governance, improves decision-making and creates a trust-filled environment required for healthy, high-performing leadership teams.

By investing in emotional intelligence, both individually and collectively, boards position themselves to govern with clarity, compassion and integrity.

Chile’s 2025 presidential election marked a meaningful political inflection, with markets interpreting the outcome as a shift toward a more pro-business, market-oriented policy framework focused on restoring economic growth and encouraging private investment. The incoming administration has emphasized fiscal discipline, regulatory clarity and the strategic importance of export-oriented sectors – particularly copper – in driving medium-term economic expansion.

For the mining sector, this shift points to clearer permitting processes, a more pragmatic stance toward private capital and improved project visibility, all of which are especially relevant for long-life assets requiring sustained investment. Against a backdrop of structurally rising global copper demand – driven by electrification, grid expansion and the energy infrastructure needed to support AI-related data centre growth – this political realignment strengthens the case for selective exposure to high-quality copper producers.

Capstone Copper Corp. (CS TSE) is well positioned to benefit from this environment, with approximately two-thirds of consolidated copper production generated in Chile, providing direct leverage to a more constructive domestic policy backdrop. The company is executing a district-scale growth strategy targeting a ~70% increase in annual copper production to approximately 400 ktpa, driven by long-life Chilean assets and capital-efficient brownfield expansions. Near-term growth is led by the Mantoverde Optimized expansion, expected to deliver an incremental ~20ktpa of copper with declining unit costs, while the fully permitted Santo Domingo project represents a transformational medium-term opportunity with a sanctioning decision expected in H2 2026. Supported by more than $1 billion in available liquidity and net leverage of approximately 0.9x EBITDA (TTM), Capstone is well positioned to translate a supportive policy environment into improved execution, cash flow growth and valuation upside.

Global copper demand is poised for significant growth over the coming decades, with BHP projecting a roughly 70% increase to more than 50 million tonnes annually by 2050, up from around 31 Mt as of 2021.

Copper demand projected to grow ~70% through to 2050…
(Copper demand by key theme, Mt)

Source: “BHP Insights: how copper will shape our future,” BHP

This surge is driven by a combination of traditional economic expansion, as developing economies electrify and improve living standards, and newer demand sources tied to the energy transition and digitalization. Technologies such as electric vehicles, renewable power infrastructure and data centres – all of which are copper-intensive – are central to this trend, fueling higher material requirements even as substitution and efficiency improvements evolve.

…an average of 2% per year*
(Copper demand by end-use sector, indexed to 2021)

Source: “BHP Insights: how copper will shape our future,” BHP

These dynamics favour producers with scalable assets, permitted growth projects and balance sheet flexibility. In this context, Capstone Copper is well positioned to benefit from supportive domestic policy and increased demand for copper, with an opportunity to increase valuation and sustain cash flow through disciplined execution.

US demand deposits surged by 17% between October and December. A previous post argued that this was likely to reflect a reporting change, rather than a flow of money between accounts. The Fed’s Public Affairs office has confirmed this interpretation in response to a query:

“The large swings in demand deposits and other liquid deposits in November and December 2025 on the H.6 were due to a reclassification of deposits.”

The reclassification has not affected the official M1 and M2 aggregates, which include both deposit categories. It has, however, distorted the M1A measure tracked here – comprising currency in circulation and demand deposits – as well as narrow money indicators constructed by other analysts.

The procedure adopted here has been to “correct” the M1A numbers by assuming that growth of demand deposits in November and December would have equalled that of total liquid deposits in the absence of the distortion. Chart 1 compares annual growth rates of the unadjusted and adjusted series.

Chart 1

Claims have been circulating that US narrow money growth surged into end-2025, feeding narratives of excess liquidity and dollar debasement. Such claims appear not to account for the deposit data distortion and should be discounted.

CC&L Investment Management’s TJ Sutter offers insightful perspective in this Benefits and Pensions Monitor article on how investors can navigate today’s challenging fixed income environment.

“People are a little bit scarred from 2022. They don’t see duration as that bastion of portfolio resiliency that it used to be,” said TJ Sutter, portfolio manager and head of the fixed income team at CC&L Investment Management, noting a rethink of strategy by institutional investors. “People are looking at it in a more creative way,” he said, adding that they also want short credit indexes, hedged duration, and uncorrelated return streams.

TJ also comments on the role of investment managers in the fixed income space:

“The median manager in fixed income outperforms the market, which is unlike equities. And so what that tells me is there’s evidence of skill in the fixed income market,” he said, adding too often, investors fixate on headline yields without examining what’s actually generating those returns.

Read the full article

MENA equity markets ended the fourth quarter of 2025 with a return of -4.3%, as measured by the S&P Pan Arab Composite (TR) Net Index, compared with a 4.3% gain for the MSCI Emerging Markets Index over the same period. For the year-to-date period ending December 31, MENA markets returned 4.1%, versus 30.6% for emerging markets (EM).

The region’s long US dollar and long oil exposure, combined with its under-representation in the AI theme, resulted in meaningful underperformance relative to MSCI EM Index in 2025. As regional specialists, we are not required to make allocation trade-offs between MENA and other EMs; however, we acknowledge that the bar for regional outperformance will remain high. The outlook for 2026 suggests a continuation of a weaker US dollar, lower oil prices and sustained capital flows toward AI-linked assets.

From our vantage point, we see a healthy opportunity set developing for the strategy as we enter 2026, driven by the following factors:

Following last year’s underperformance, MENA equity markets lost valuation premium relative to EM, and expectations heading into 2026 have been reset lower. As a result, valuation risk is limited, and we are seeing opportunities to select high-quality stocks that were caught up in broad market corrections – opportunities that have been scarce in recent years.
The region’s socioeconomic reform agenda remains one of the strongest structural investment themes across EM. These reforms should support non-linear profit pool growth in select industries, including financial services, technology, energy, infrastructure and real estate.
The recalibration of ambitious giga-projects in Saudi Arabia signals a more pragmatic approach to capital spending and resource allocation. This shift enhances policy credibility, which we view as essential for building investor confidence and ensuring sustainable public finances.
Capital market relevance continues to be a priority for regional governments. We believe this should translate into a broadly supportive market environment, characterized by investor-friendly policies and improved market investability.
Return dispersion across MENA markets – a theme we have discussed previously – remains pronounced. In 2025, the performance gap between Kuwait (the best-performing market) and Saudi Arabia (the weakest) reached a striking 34%. We continue to see sufficient idiosyncratic country-level drivers and market dynamics for dispersion to persist in 2026 and beyond. In addition, smaller markets such as Egypt, Oman and Morocco are experiencing a resurgence, positioning the strategy well to capitalize on these developments.

Entering 2026, the portfolio’s largest country overweights are Qatar and Egypt, where we favour the combination of attractive valuations, low investor positioning and visible growth. In Egypt, growth is already evident, while in Qatar we expect momentum to build later in the year as the country approaches its LNG windfall in 2027.

Conversely, we are underweight Kuwait and the UAE, having reduced exposure to financials in both markets due to valuation considerations and, in Kuwait’s case, lower confidence in policy support. In the UAE, we remain committed to our view that late-cycle opportunities in infrastructure and energy will outperform more cyclical segments such as financials and real estate, while acknowledging that this positioning did not perform as expected in 2025. In Saudi Arabia, the strategy remains modestly underweight; however, we retain strong bottom-up conviction in select opportunities across financial services, insurance and industrials.

We look forward to updating you on the strategy in our next letter.

A January post noted the possibility that global six-month real narrow money momentum had crossed below industrial output growth in December, suggesting less favourable monetary conditions for markets. Recent dramatic sell-offs in some speculative assets could reflect such a shift.

The suggestion is still tentative: additional – but not yet complete – December data indicate that the two series converged rather than intersected – see chart 1.

Chart 1

Will a cross-over be confirmed soon? Monetary prospects are uncertain but stronger January manufacturing PMI results suggest a rise in six-month industrial output momentum in early 2026.

In data since 1970, global equities outperformed US dollar cash significantly on average in months following a positive reading of the gap between real money and output momentum (by 12.0% annualised). (The calculation allows for reporting lags.)

By contrast, negative gaps were associated with average underperformance in the following month (of 5.5%).

Needless to say, these averages conceal frequent “misses” in both directions.

The six-month real money / output momentum gap was positive in most months in 2025. It was, however, negative in 2023 and much of 2024, when equities rallied strongly.

As previously discussed, the six-month gap was a misleading guide to “excess” money over this period because of a large monetary overhang from the money growth surge in 2020-21.

A simple way of illustrating this overhang is to compare five-year growth rates of real money and industrial output. Real money growth was still much higher in 2023 – chart 2.

Chart 2

The five-year gap turned negative last year. It last closed in the early stages of the GFC bear market.

Back then, the six-month gap had been negative for more than a year. The closing of the five-year gap was followed by an acceleration of the market decline.

With the five-year gap already negative, a negative shift in the six-month gap could be reflected in more immediate market weakness than in 2007-08.

Global manufacturing PMI new orders recovered strongly in January following a November / December relapse. Both the fall and revival had been signalled by money trends: global six-month real narrow money momentum declined sharply in April / May 2025 but rebounded into November. The seven-month interval between a (revised) May low in real money momentum and the December PMI trough matches the lead time at the prior two turning points – see chart 1.

Chart 1

The rise in real narrow money momentum into November suggests that the PMI upswing will extend into Q2. As foreshadowed in a previous post, however, real money momentum declined sharply in December, retracing most of its May-November gain. Accordingly, the manufacturing bounce is expected to fizzle out in Q2, with renewed weakness into Q3.

Real narrow money momentum has slowed across most major economies, though to varying degrees. China and India have contributed most to the global decline, although the Indian number remains strong – chart 2.

Chart 2

The US series shown incorporates an adjustment for a suggested distortion to demand deposit data affecting the M1A measure used here. However, substituting the official M1 measure – unaffected by the mooted distortion – for M1A would give the same current reading.

Eurozone momentum remains above the US level while the UK has recovered from significant weakness in mid-2025, suggesting improving relative economic prospects. Still, both series have stalled at modest levels, cautioning against optimism.

Japanese real narrow money contraction continues to flag a policy mistake, while a faster decline in Brazil argues for urgent rate cuts. (The Brazil manufacturing PMI was the weakest in the global stable in January.)

Elsewhere, prior strength in Australian real narrow money momentum is consistent with recent upbeat economic news but a slowdown since September suggests that prospects were cooling before this week’s rate hike.