Envestnet | PMC provides independent advisors, broker-dealers, and institutional investors with comprehensive manager research, portfolio consulting, and portfolio management to help improve client outcomes. Every month our Global Macro Team offers insights into the themes currently shaping the markets to help you quickly take note of recent trends that your clients may be inquiring about.

The hits keep coming – China’s crackdown on businesses expands

After hitting tutoring, e-commerce, and ride-hailing companies over the past few months, China is cracking down on its gaming industry. The Chinese government recently issued new regulations that minors are not allowed to play video games during weekdays (Monday through Thursday) and can only play a maximum of one hour each day (between 8 and 9pm) during weekends and holidays.1 Rumor has it that the next government crackdown is likely to be the short-term property rental business (similar to Airbnb in U.S.), as many citizens complain it is becoming the breeding ground for drugs and prostitution. Both are felonies in China.

After years of unbridled growth, consumption-related industries in China such as e-commerce and gaming have risen to prominence with unprecedented influence in Chinese society. This has apparently spooked the Chinese government, as it tends to favor manufacturing over consumption-related industries driven by the belief that the latter does not contribute to the common good of society.

Disruptions in container shipping adds to global supply chain crunch

The disruptions in container shipping continue to cause bottlenecks in the global supply chain. Issues, which began with the Suez Canal embargo in March 2021, accelerated with a one-month port shutdown in Yantian China in May.2 The disruptions continued in August as the Meishan terminal in China’s second-busiest port Ningbo Zhoushan shut down for two weeks after one worker tested positive for COVID-19.3 Apart from COVID outbreaks, hurricanes like In-Fa, which shut down Shanghai’s port, and Ida, which impacted Louisiana’s port, are also playing a role in slowing down cargo movement.

It may take a while for this congestion to ease, as Asian exports to Europe and U.S. for the year-end holiday season continue to be robust. On top of that, major ports around the globe are facing worker and truck driver shortages, which have increased the wait time of ships and containers to be unloaded and transported. All this has resulted in the continued rise in freight charges. It now costs close to $11,000 per container to ship goods from Shanghai to Los Angeles, a 220 percent increase from a year ago. The meteoric rise in freight charges may translate to higher costs for shoppers.4

Benchmark yields remain anchored due to growth concerns and central bank support

Despite above-average inflation in both the U.S. and Europe, developed market sovereign debt yields, with the exception of U.K. gilts, remained largely static in August. While growth and price increases are typically associated with upward pressure on benchmark yields, continued dovishness from the European Central Bank, a patient Federal Reserve, and worries about the Delta variant’s detrimental impact on future economic growth have limited any meaningful buoyancy in bond yields.5 Debt markets have also taken in stride recent comments from Fed Chair Jerome Powell, as well as other Fed policymakers, that indicate the U.S. central bank may begin tapering the pace of its bond-buying program, while keeping its policy rate target at 0.00-0.25 percent.6

Weakening active management performance

The first half of 2021 has seen favorable performance within domestic equity markets, with the Russell 3000 returning over 20 percent as of the end of August. Allocations toward value and small caps performed better year to date. Additionally, a record low allocation to cash has been beneficial to mutual fund performance. Despite the promising YTD returns, there are some warning signs as mutual funds’ relative performance have deteriorated. Q1 ended with 57 percent of large cap mutual funds outperforming their respective benchmark, while in Q2, 37 percent outperformed. Thus far into Q3 only 33 percent of funds have outperformed.7 While relative performance for small caps has fared better than large caps, small caps have also seen a similar trend of weakening relative performance. More recent periods have proven difficult for active management to outperform, so the question is whether or not active managers might snap back in the second half of 2021.

Inflation and consumer confidence

Consumer confidence has waned in recent weeks. As the Delta variant continues to surge across the country, there is concern that rising infections could derail the economic recovery. The concern might be misplaced, as Walmart, Target, and Lowe’s all raised their sales forecasts after beating expectations. The big box stores have reported that customers have been resilient and adopted safety procedures like mask wearing but are still sensitive to prices.8 Year-over-year consumer prices increased by 5.4 percent, largely driven by used cars prices, which increased 30 percent between April and June. The good news is that prices have begun to come back down, indicating that inflation may be transitory and ultimately vindicating the Federal Reserve to a small degree.9


  1. Keith Zhai, “China Limits Online Videogames to Three Hours a Week for Young People,” Wall Street Journal, August 31, 2021, https://www.wsj.com/articles/china-sets-new-rules-for-youth-no-more-videogames-during-the-school-week-11630325781
  2. Harry Dempsey, Chris Giles, and Primrose Riordan, “Shipping bottlenecks set to prolong supply chain turmoil,” Financial Times, August 16, 2021, https://www.ft.com/content/e1263950-1173-4832-a011-ada04df1e93c
  3. “China Reopens Terminal at World’s Third-Busiest Port,” Bloomberg News, August 25, 2021, https://www.bloomberg.com/news/articles/2021-08-25/china-reopens-terminal-at-second-busiest-port-after-shutdown?
  4. Cindy Wang and Enda Curran, “The World Economy’s Supply Chain Problem Keeps Getting Worse,” Bloomberg, August 25, 2021, https://www.bloomberg.com/news/articles/2021-08-25/the-world-economy-s-supply-chain-problem-keeps-getting-worse
  5. Jeanna Smialek and Madeleine Ngo, “Powell Signals Federal Reserve Could Slow Bond Purchases This Year,” New York Times, August 27, 2021, https://www.nytimes.com/2021/08/27/business/economy/powell-taper-bond-buying.html
  6. Kate Duguid, “US sets stage for first Treasury sales reduction in five years,” Financial Times, August 4, 2021, https://www.ft.com/content/01af0d56-572e-42cd-8375-1cc4e8d0cc58
  7. Cormac Conners, David J. Kostin, Ben Snider, Ryan Hammond, Lilly Calcagnini, Jenny Ma, “Mutual Fundamentals: Managers added quality to their portfolios amid a deteriorating stock picking environment,” Goldman Sachs Portfolio Strategy Research, August 23, 2021
  8. Matthew Rocco, Andrew Englecliffe-Johnson, and Steff Chavez, “US consumers flock to shops despite spread of Delta variant,” Financial Times, August 18, 2021, https://www.ft.com/content/4c92cae4-0210-4c76-9d95-507e4c1e8884
  9. “America’s inflation scare becomes less menacing,” The Economist, August 11, 2021, https://www.economist.com/finance-and-economics/americas-inflation-scare-becomes-less-menacing/21803514

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