Institutional investors have spent decades building increasingly sophisticated portfolios in pursuit of better outcomes. Each new asset class, strategy and manager has been added with the intention of improving returns, enhancing diversification or strengthening risk management.

However, has the pursuit of sophistication gone too far? In an era when simple public market portfolios can rival or outperform more complex structures, investors should consider whether every layer of complexity continues to earn its place and whether it remains purposeful. Investors need to strike the right balance between investment sophistication and governance efficiency and avoid the risk of building portfolios that are over-engineered and difficult to govern effectively.

The complexity arms race

Attend almost any investment conference and the spotlight is often on a large, sophisticated investor unveiling its latest portfolio innovation. Their success can make complex strategies appear both compelling and necessary. Yet what works for a sovereign wealth fund or large public pension plan may not translate seamlessly to a $1 billion pension plan with a lean investment team. The challenge is not access to sophisticated investments, but the capacity to govern them effectively.

To be clear, complexity is not inherently bad. Many of the most important innovations in institutional investing have delivered meaningful benefits. Liability-driven investing, for example, shifted the focus of pension investors beyond assets alone to the interaction between assets and liabilities. This helped sponsors better manage funded status risk and create greater stability in contribution requirements and pension expense.

Similarly, commercial real estate, infrastructure, private equity and private credit have expanded the institutional toolkit by offering attractive combinations of return potential, diversification, inflation protection and income generation. Advances in factor analysis and factor-based investing have also deepened investors’ understanding of the drivers of risk and return.

Complexity deserves a place in a portfolio when it solves a problem or creates a measurable advantage. The challenge arises when complexity becomes an objective in itself. At that point, investors must ask whether each additional layer is genuinely improving outcomes or merely adding cost, governance burden and operational demands. In other words, has sophistication enhanced the portfolio’s resilience or has the portfolio become a victim of the complexity arms race?

The law of diminishing diversification

Many large institutional portfolios now contain dozens, and for some of the largest investors, even a greater number of underlying strategies and managers. While each addition may appear justified on its own, the cumulative effect can be a portfolio that is increasingly difficult to understand, oversee, and govern. Exposures begin to overlap, risks become less transparent and decision-making becomes slower and more cumbersome. Rather than enhancing outcomes, resources are increasingly devoted to managing complexity itself.

There comes a point where each new strategy adds more complexity than meaningful diversification. What initially appears to strengthen the portfolio can instead increase governance demands, operational costs and oversight requirements. In some cases, investors may simply be layering multiple strategies that provide similar underlying exposures, creating the illusion of diversification while making the portfolio increasingly difficult to understand and manage.

Every layer of complexity carries a cost. Some costs are visible, such as management fees, operational expenses and oversight requirements. Others are less obvious but potentially more significant: slower decision-making, reduced transparency, behavioural biases and diminished accountability. While these governance costs are rarely measured, they may determine whether complexity enhances or detracts from long-term outcomes.

Portfolio construction is as much a governance exercise as it is an investment exercise. The most effective portfolios are not necessarily the most sophisticated, but those that align investment objectives with an organization’s ability to govern risk, monitor performance and make timely decisions.

Setting a governance budget

Just as investors establish risk budgets and allocate capital thoughtfully, they should also consider a governance budget. Every investment decision consumes governance time, attention and expertise. When complexity exceeds available capacity, the hidden costs can emerge in the form of delayed decisions, oversight challenges, and reduced organizational agility. As a result, the greatest cost of portfolio complexity is often the one that never appears on a fee report. It is therefore key to assess whether the governance capacity can support the portfolio strategy.

A useful exercise for committees is to assess whether their portfolio passes the following four tests:

1. Can the committee explain its sources of return and risk?
2. Can the strategy be implemented efficiently?
3. Can it be monitored and governed effectively?
4. Does each component serve a distinct purpose and role?

When the answer to any of these questions is uncertain, complexity may be adding more burden than benefit. In such cases, the goal should not be simplification for its own sake, but rather the pursuit of smart simplicity where every strategy must demonstrate a clear contribution and earn its place within the portfolio.

Smart simplicity

Smart simplicity is not a rejection of sophisticated investing. Rather, it is the recognition that complexity should be a deliberate choice, not a default outcome. Portfolios are best served where every strategy, manager and allocation can clearly demonstrate why it belongs and how it improves the portfolio as a whole. Smart simplicity is achieving desired outcomes using the fewest portfolio building blocks necessary.

Simpler portfolio structures encourage investors to focus on the decisions that matter most. Instead of spending governance time selecting between dozens of managers, committees can devote more attention to tasks such as strategic asset mix, risk budgeting and scenario analysis, which can often provide a higher return on governance effort than incremental manager selection decisions.

Every component of a portfolio should contribute meaningfully to total portfolio outcomes and justify the governance burden it creates. This principle is at the heart of the trending total portfolio approach (TPA) amongst the largest global investors, where investments are assessed according to their contribution to total portfolio objectives. While the full adoption of the TPA requires significant organizational change, its underlying discipline is universally applicable.

Investors can begin by periodically reassessing every strategy, manager and allocation with fresh eyes. If a holding would not be selected for inclusion in a newly constructed portfolio today, its continued presence deserves scrutiny. Complexity that cannot be justified through current merit may simply be a legacy of past decisions.

Considerations for smart simplicity

By reducing unnecessary complexity, rationalizing manager structures and aligning portfolio design with total fund objectives, investors can create portfolios that are easier to understand, easier to oversee and more effective.

However, embracing smart simplicity does not lessen fiduciary responsibility or diminish the importance of ongoing education. Effective oversight still requires continuous education, disciplined decision-making and a deep understanding of the risks and opportunities that shape long-term outcomes.

1. Consolidate similar exposures
   Over time, portfolios can accumulate layers of investments that appear different on the surface but rely on the same underlying economic drivers. This can occur across public and private markets, or through multiple active managers pursuing similar styles. A closer examination of the portfolio’s true sources of return may reveal that diversification is more limited than the number of mandates suggests, creating opportunities to simplify without sacrificing outcomes.

2. Reduce manager count
   More managers do not always create a better portfolio. In many cases, a streamlined roster can provide clearer insight into portfolio risks, strengthen manager accountability, simplify oversight and improve cost efficiency. Consolidating mandates can allow investors to focus on their highest-conviction relationships while maintaining broad market exposure. For example, separate US, international and emerging market mandates may be effectively managed through a smaller number of global equity mandates.

3. Focus on outcomes, not asset classes
   Institutional portfolios are often organized around asset classes. But when viewed through the lens of outcomes, such as growth, income, inflation protection and resilience, many different asset classes may be serving the same purpose. Infrastructure, real estate, inflation-linked bonds and private credit may all contribute to income generation and inflation protection.When portfolios are viewed through this outcome-oriented lens, investors often discover that multiple strategies are solving the same problem, creating opportunities to simplify without compromising results.

4. Adopt a complexity budget
   Just as investors operate within a risk budget, they should also consider establishing a complexity budget. Before introducing any new strategy, ask four critical questions:
   • What distinct value does it bring to the portfolio?
   • What existing allocation could it replace?
   • How will success be defined and measured?
   • Do we have the governance capacity to oversee it effectively?

   A complexity budget shifts the conversation from simply adding latest ideas to making deliberate, high-conviction choices, helping ensure portfolios evolve thoughtfully rather than accumulate layers of unnecessary complexity.

5. Prioritize understandability
   A useful governance rule of thumb is that committee members should be able to confidently articulate where returns are expected to come from, what risks are being taken and how the portfolio is likely to perform under different market conditions. When that becomes difficult, it may be a sign that complexity has overtaken clarity. The goal is not simplicity for its own sake, but a portfolio in which every component serves a distinct and understandable purpose. The result is often more efficient oversight, sharper conviction and a portfolio that is easier to defend when markets become challenging.

Re-engineering through smart simplicity

Governance is often the hidden determinant of investment success. While institutional investors devote significant attention to performance, risk and costs, far fewer examine whether their governance model strengthens or constrains decision-making. Portfolio design should reflect not only investment opportunity but also governance capacity. A well-engineered portfolio is one that an organization can confidently understand, oversee and sustain through changing market environments.

Smart simplicity requires evaluating portfolios through two equally important lenses: investment efficiency and governance efficiency. The goal is not to eliminate complexity, but to ensure complexity earns its place. Strategies that meaningfully enhance outcomes and can be effectively governed deserve inclusion. Those that consume disproportionate attention, resources or oversight for limited benefit should be reconsidered. An optimal portfolio is not necessarily the most sophisticated, but the one that delivers its objectives with the greatest clarity, conviction and governance effectiveness.

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Chart 1

The global money numbers conceal a divergence between US strength and alarming real-terms contractions in Europe, Japan and Australia, with Chinese growth running at a modest level by its historical standards – chart 2. One implication is that the expected global slowdown will be led by the weak-money grouping, with the US and China showing resilience. Another is that the ECB and BoJ have already overtightened policy, while the US Fed may still be some way “behind the curve”.

Chart 2

The global real money slowdown was initially driven by an inflation boost from higher energy prices. Nominal money growth has fallen more recently, probably reflecting the initial impact of policy tightening – chart 3.

Chart 3

Six-month consumer price momentum will likely rebound in Q4, based on current commodity prices. US monetary exceptionalism, meanwhile, may be ending, with nominal money growth falling back in August. Global real money expansion, therefore, could slow further into year-end, in turn signalling darker economic prospects for mid-2027.

Chinese policy is an upside risk. A slowdown in exports as global growth cools could be the trigger for more substantive measures to boost domestic demand. Still, the full impact of any monetary pick-up probably wouldn’t land before mid-2027.

Eurozone narrow money weakness has been led by France and Italy – chart 4. Eurozone banks, meanwhile, have stopped buying French Treasuries. The French government’s 2027 deficit-reduction plan looks both insufficiently ambitious and unachievable ahead of the April / May presidential election. An economic / funding crisis may be brewing unless the ECB signals an earlier-than-expected end to policy restraint.

Chart 4

Global six-month real narrow money growth crossed below industrial output expansion in April, remaining lower in August. The change in “excess” money conditions has been reflected in upward pressure on bond yields and a stalling-out of equities, with the equal-weighted version of the MSCI World index recently falling below its end-February level.

The real money / output growth gap could remain at around its current level into year-end, with both components losing momentum. Historically, equity market performance has been correlated with the sign of the gap, with bond markets more sensitive to its rate of change. The suggested scenario, therefore, could be associated with a stabilisation of bond yields and disappointing equity returns.

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How does an investment manager’s ownership structure influence the way it builds its business and serves clients over the long term?

In a recent Benefits and Pensions Monitor article, Michael Walsh, President and Managing Director of Connor, Clark & Lunn Financial Group, discusses the firm’s private, employee- and partner-owned model and the role ownership plays in attracting and retaining investment talent, aligning incentives and supporting a long-term approach to business building.

“We’re in an intellectual capital business, and the way to win in an intellectual capital business is to get great people into the firm and for them to stick around over the long term and build businesses,” Michael says. “Someone who joins us has the potential to become an owner, and that’s intrinsically motivating.”

The article also explores CC&L Financial Group’s multi-affiliate structure, including how ownership supports the independence of its investment teams and creates incentives for long-term succession and continuity.

 
Read the full article

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The view here is that the rise is best understood as a symptom of a restrictive shift in global “excess” money conditions.

Conditions are defined to be accommodative or restrictive depending on whether the global stock of money is above or below the level required to support current economic activity. Any imbalance – and its rate of change – will have implications for asset prices.

Excess money can’t be observed directly. A flow-based proxy measure found to be informative historically is the difference between six-month rates of change of global real narrow money and industrial output.

In data since 1970, global equities performed strongly on average when this measure was positive (allowing for reporting lags), lagging cash returns when it was negative.

Government bond markets appear to be more sensitive to changes in excess money than its level. Chart 1 shows a coincident relationship between the six-month change in US 10-year Treasury yields and the equivalent change in the proxy measure, plotted inverted – chart 1.

Chart 1

Global real money growth moved from above to below industrial output expansion between February and August, i.e. the proxy measure switched from positive to negative – chart 2. An associated shift in its six-month rate of change aligns with the pick-up in yields – chart 1.

Chart 2

How might excess money conditions develop from here? Monetary trends are difficult to forecast but policy tightening and a near-term inflation boost from higher energy costs suggest a further decline in real money growth.

Upbeat September PMI results support optimism about near-term industrial output prospects but slower real money growth may be reflected in a loss of momentum towards year-end, allowing for a normal lag.

A reasonable expectation, therefore, is that the real money / output growth gap will remain negative but stop widening soon. The six-month change in the proxy measure, in other words, could return to zero, in turn implying a stabilisation of bond yields.

A still-negative gap would, however, suggest downside risk for equities.

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Chart 1

Real money momentum peaked in February and has led global manufacturing PMI new orders by seven months at the last three turning points, suggesting a PMI peak around now – chart 2.

Chart 2

As previously discussed, global real money momentum has been supported by a pick-up in the US, in contrast to weakness in Europe and Japan. US six-month momentum pulled back in August, although this reflected an unfavourable base effect rather than a soft current-month change. The Eurozone and Japan, meanwhile, moved deeper into contraction – chart 3. (UK data will be released next week.)

Chart 3

Monetary trends support last week’s decisions to hike by the Fed and hold by the BoE but argue that ECB / BoJ tightening has been misguided and will result in unnecessary economic weakness.

Will global real money momentum fall further? Higher rates and the Fed’s suspension of securities purchases suggest slower nominal growth, while energy price strength will drive a near-term rebound in CPI momentum – chart 4.

Chart 4

August industrial output data are still patchy but global six-month momentum is likely to have remained above that of real narrow money, suggesting deficient liquidity for markets – chart 5. Bond markets have so far borne the brunt of this squeeze but a PMI reversal could transfer pressure onto equities.

Chart 5

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CC&L One is pleased to welcome Maxime Carrier as Head of Investment Solutions. Based in Montréal, Maxime joins the firm in a newly created role that reflects the continued growth of our business and our commitment to helping institutional investors navigate increasingly complex investment challenges. Today, CC&L One has grown to more than $3.2 billion in assets under management and today serves a diverse range of institutional investors, including pension plans, insurance companies, foundations, health and welfare plans and Indigenous trusts.

The creation of the Head of Investment Solutions role marks an important next step in our evolution. As institutional investors face increasingly sophisticated portfolio, liability and governance considerations, the role is designed to strengthen our ability to deliver customized investment solutions that begin with clients’ objectives and draw on the broad range of capabilities available across Connor, Clark & Lunn Financial Group.

In his role, Maxime will lead the development of customized institutional investment solutions, working closely with clients, consultants, our Institutional Sales team and investment affiliates across the firm. His responsibilities will span strategic asset allocation, portfolio construction, fixed income and multi-credit solutions, asset-liability management, economic scenario analysis, investment governance and risk oversight. Maxime brings extensive experience in institutional investing, fixed income solutions and asset-liability management, most recently serving as Senior Portfolio Manager, Fixed Income Solutions at Fiera Capital, and previously holding senior roles at TD Asset Management.

Maxime’s expertise will further enhance CC&L One’s ability to connect clients’ objectives with investment capabilities from across the CC&LFG affiliate network. By combining customized portfolio construction with specialized expertise across public and private markets, we seek to provide institutional investors with integrated solutions that support their long-term objectives. We are excited to welcome Maxime to the team and look forward to the contributions he will make as CC&L One continues to grow.

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TORONTO, Sept. 18, 2026 /CNW/ – Connor, Clark & Lunn Funds Inc. (“CC&L Funds” or the “Manager”) announced today its intention to terminate the CC&L Diversified Income Fund (the “Fund”). The termination is scheduled to take effect on or about November 18, 2026 (the “Termination Date”).

The decision to terminate the Fund was made after careful consideration of various factors and is part of the Manager’s ongoing effort to ensure its product lineup remains aligned with investor preferences and needs and meets long-term goals.

Effective September 21, 2026, units of the Fund will no longer be available for purchase. Existing unitholders may redeem or switch their units of the Fund for settlement on or prior to the close of business on November 17, 2026. After that time, any remaining unitholders will have their units automatically redeemed at the net asset value per unit as of the Termination Date.

The Manager intends to wind down the Fund in an orderly manner. In the period leading up to the Termination Date, the Fund’s portfolio holdings will be progressively liquidated and, as a result, the Fund may hold increasing levels of cash and cash equivalents. Consequently, the Fund may not remain fully invested in accordance with its investment objectives and investment strategies during the wind-down period, and this may affect the Fund’s performance.

A notice with further information regarding the termination of the Fund will be sent shortly to unitholders of the Fund. Unitholders are encouraged to speak with their Financial Advisors to discuss the Fund’s termination and their available investment options.

About Connor, Clark & Lunn Funds Inc.

CC&L Funds partners with leading Canadian financial institutions and their investment advisors to deliver unique institutional investment strategies to individual investors through a select offering of funds, alternative investments and separately managed accounts.

By limiting the offering to a focused group of investment solutions, CC&L Funds is able to deliver unique and differentiated strategies designed to enhance traditional investor portfolios. For more information, please visit www.cclfundsinc.com.

Caution Concerning Forward-Looking Information

Certain statements in this press release may contain forward-looking statements or forward-looking information that are predictive in nature and may include words such as “expects”, “anticipates”, “intends”, “plans”, believes”, “estimates”, and similar forward-looking expressions or negative versions thereof. All information other than statements of historical fact may be forward-looking information. All forward-looking information in this press release is qualified by these cautionary statements. Forward-looking information in this press release includes, but is not limited to, statements with respect to management’s beliefs, plans, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, or expectations, including, but not limited to, the proposed termination of the Fund and the anticipated process for such termination. Such forward-looking information reflects management’s beliefs and is based on information currently available. Such forward-looking statements are based on current expectations and projections about future general economic, political, and other relevant market factors, and assumes there will be no changes to applicable tax or other laws or regulations. Although the Manager believes that the expectations reflected in such forward-looking information are reasonable, expectations and projections about future events are inherently subject to, among other things, risks and uncertainties, some of which may be unforeseeable and, accordingly, may prove to be incorrect at a future date. Forward-looking statements are not guarantees of future performance, and actual events could differ materially from those expressed or implied in any forward-looking statements. A number of important factors can contribute to these differences, including, but not limited to, general economic, political, and market factors in Canada and internationally, global equity and capital markets, business competition, and catastrophic events. You should avoid placing any undue reliance on forward-looking statements. The forward-looking information contained in this press release is presented as of the preparation date of this press release and should not be relied upon as representing the Manager’s views as of any date subsequent to the date of this press release. The Manager disclaims any and all responsibility to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as specifically required by law.

This communication is intended for informational purposes only and does not constitute an offer to sell or the solicitation of an offer to purchase any funds and/or investment products managed or advised by the Manager or any of its affiliates, and is not, and should not be construed as, investment, tax, legal, or accounting advice, and should not be relied upon in that regard. Commissions, fees, and expenses all may be associated with investments in funds and/or other investment products managed or advised by the Manager or any of its affiliates. Please read a fund’s offering memorandum or prospectus, as applicable, which contains detailed information, and speak to an advisor before investing. Funds are not guaranteed, their values change frequently, and investors may experience a gain or loss. Past performance may not be repeated.

For further information, please contact: Lisa Wilson, Manager, Product & Client Service, Connor, Clark & Lunn Funds Inc., 416-864-3120, Lwilson@cclgroup.com

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“We can’t ignore the fact that there are emerging-market-type risks in some of the actions the US has been taking.” This is former Morgan Stanley Chief Economist Ellen Zetner’s take on how policy uncertainty and fiscal trajectory in the United States are increasingly mirroring traditional EM risk factors.

Fiscal incontinence and financial repression are macro risks that investors typically associate with emerging markets. Their developed counterparts have enjoyed valuation premiums in their stock and bond markets based on a perception of stronger fiscal and monetary discipline, as well as better institutional protections.

The current flare-up in sovereign bonds yields in developed markets partly reflects their governments’ failure to curb rising debt burdens by cutting public spending back to pre-Covid levels, coupled with anaemic growth (with the exception of the United States). Investors fear that, lacking the political will to rein in spending, governments in developed countries will adopt policies of financial repression, keeping interest rates below the rate of inflation to slow or reverse the rise in debt-to-GDP ratios.

Relative to developed markets, many emerging markets have become more fiscally and monetarily disciplined over the past decade. Having learnt the consequences of fiscal and monetary incontinence the hard way, they have strengthened central bank credibility, maintained positive real interest rates and improved macroeconomic resilience.

China’s export boom risks a backlash from trading partners

We having been gradually reducing portfolio exposure to leading Chinese exporters in recent months as risk grows of an international backlash to overproduction of high-end manufactured goods.

The internal contradictions in Beijing’s model for economic growth model have fuelled an export boom that is nearing the end of the road. While the Chinese Communist Party (CCP) has acknowledged that involution – or excessive levels of competition by firms producing more at low or negative margins – is unsustainable, we are yet to see any concrete measures to curb overcapacity.

“The world is not enough”

The issue is that China now accounts for 30% of global industrial production with the share set to grow to 45% by 2030 according to the UN. As noted by Council on Foreign Relations President Michael Froman in a piece for Foreign Affairs this month, this is a level of industrial dominance not seen since the United States at the end of the Second World War. He also emphasised that in 2025 China recorded the largest trade surplus in history in US dollar value terms, with exports growing at three times the rate of global goods trade.

China has outgrown its economic model and the global economy’s capacity to absorb its exports. It must take decisive steps to rebalance towards an economy driven by consumption. Unfortunately, CCP policy incentives underpinning rigid GDP growth targets and local government financing create powerful and entrenched feedback loops that fuel overcapacity, which is vented to the rest of the world through exports.

While flooding the world with cheap goods has been a disinflationary force over several decades, it has also created huge trade imbalances leading to de-industrialisation and rising debt in many of China’s trading partners. China’s economic model suppresses domestic consumption in order to maximise industrial output through an undervalued currency, subsidies and preferential financing (among other measures). Peking University economist Michael Pettis argues that this system defies David Ricardo’s principle of comparative advantage, explaining why free trade maximises global output. To quote from a Substack post by Pettis in February this year:

Competitive advantage is not the same as a comparative advantage. The former means an economy is able to produce more cheaply than its trade partners. The latter means that the relative “cheapness” with which an economy produces some goods is greater than the relative “cheapness” with which it produces other goods, so that it can only have a comparative advantage in roughly half the goods it produces.

This is because comparative advantage is about relative costs, not absolute costs, and while an economy can have lower absolute costs in most or even all things, by definition it cannot have lower relative costs in much more than half of what it produces. Ricardo’s example shows this very clearly. In his model. Portugal produces both textiles and wine more cheaply and efficiently than England, which means that Portugal has a competitive advantage in all goods, and England a competitive disadvantage in all goods.

But Ricardo did not argue that the world would benefit if Portugal produced both wine and textiles, with England producing neither and acquiring them by running trade deficits with Portugal. Instead, he showed that because the relative “cheapness” with which Portugal produces wine is greater than the relative “cheapness” with which it produces textiles, Portugal only has a comparative advantage in producing wine, and England has a comparative advantage in producing textiles. He showed that if Portugal only produces wine, and exports some of it to England to buy textiles, and if England only produces textiles, and exports some of it to Portugal to buy wine, trade would be balanced and total output would be maximized – and as counterintuitive as it may seem, this is the case even though Portugal can produce textiles more cheaply and efficiently than England.

Looking at today’s global trading system, Ricardo might argue that China’s exploitation of its competitive advantage is creating persistent global imbalances, as a result of which global production falls and unemployment rises, or “debt must rise in deficit countries to make up for weak demand in the surplus country and to prevent unemployment from rising.”

We can see both of these outcomes occurring in Europe. France relies on debt to prop up demand while Germany’s industrial giants are announcing the largest layoffs since the Global Financial Crisis.

Volkswagen flags 50,000 job cuts across group as board approves turnaround plan (Reuters, September 3, 2026)

Volkswagen’s supervisory board on Thursday approved a transformation plan that will include cutting another 50,000 jobs in its attempt to counter painful tariffs, overcapacity and aggressive Chinese ​rivals.

The plan, the most extensive restructuring in Volkswagen’s 89-year history, includes exploring alternatives for four German plants ​that will eventually run out of models during the next decade.

As Stein’s Law goes, “if something cannot go on forever, it will stop.” China’s domestic economic imbalances are provoking social and political responses among its major trading partners. In response, governments in virtually all advanced economies have taken their first steps to address the issue, enacting stronger import duties, local content requirements, and even bans on Chinese equipment in sensitive sectors such as telecoms. However, these measures will fall short without structural change in China.

Layoffs in the German auto industry virtually guarantee a more forceful and coordinated response from Europe.

Italian lobby group calls for 80% EU tariff on Chinese cars and parts (Reuters, September 10, 2026)

The head of Italian auto suppliers lobby Anfia has urged the European Union to impose 80% tariffs on Chinese-made vehicles and parts above a certain threshold to safeguard Europe’s ​car industry.

Anfia President Roberto Vavassori told Reuters that Chinese imports to the European Union ‌should be tariff-free up to 8% of annual European vehicle registrations, but with an 80% tariff on imports above that limit.

It should cover both vehicles and components, he said, as parts account for roughly 80% of a vehicle’s value. “We have ​maximum respect for what the Chinese industry has achieved,” Vavassori told Reuters. “But that respect has ​now turned into fear.”

“Europe cannot lose an industry which is essential for its ⁠strategic autonomy.”

His comments come days after Volkswagen approved a major restructuring in the face of slumping demand and ​increasing competition from China. Figures from the European Automobile Manufacturers’ Association (ACEA) showed that the share of Chinese-branded cars sold ​in the EU rose to top 9% in the first half of this year.

Other countries fearing the damage of a China supply shock to their leading manufacturing industries may also seek to collaborate with Europe and the United States to address the issue. There are strong incentives for both China and major trading partners to collaborate with the aim of engineering a gradual rebalancing over decades, lest more sudden measures trigger an external demand collapse for Chinese exporters, and globally inflationary supply chain disruption.

We remain admirers of the Chinese entrepreneurs that have built outstanding businesses across autos, renewable energy, batteries, heavy industries and other advanced manufacturing processes. The leaders in these industries have been innovators able to scale across a continental-sized economy amid ferocious competition and go global to challenge incumbents. In our view, their long-term prospects remain bright and they would continue to prosper in a more balanced environment for international trade, and in a domestic environment where competition is rationalised through the re-alignment of economic policy incentives that promote more sustainable growth. However, portfolio changes including reducing exposure to battery manufacturer CATL and avoiding automaker BYD altogether for the past year or more reflect lower conviction levels over the short to medium term as we move through a period of realignment in international trade.

October’s presidential election in Brazil will be a tight contest

Source: Polymarket, 10 September 2026

We wrote previously on how political uncertainty has weighed on Brazilian equities:

Brazilian Blackjack: Decoding the allure of a high-risk, high-reward market

Brazilian Blackjack revisited

Crunch time is approaching with the presidential election set to take place in less than a month. Picking up the blackjack analogy, it is safe to say there are no high cards (more moderate and economically conservative candidates stepping up to make a run) left in the deck to be dealt in this political cycle. Voters are set to choose between two deeply flawed candidates in incumbent Lula and Flavio Bolsonaro, who are both fending off corruption allegations.

Nevertheless, our view was that political risk was reflected in extremely cheap valuations for some high-quality businesses, which led us to move to a modest overweight in Brazilian equities. The market has been rallying in recent weeks, partly reflecting a betting-market lead for Flavio Bolsonaro, perceived by investors as more market friendly (debatable in our view).

We read the market move with some caution. The betting-market odds are out of line with the polls, which remain a statistical tie in second-round simulations, and much of the recent shift tracks an internal Supreme Court dispute and leaked communications weighing on Lula rather than a durable realignment of the electorate.

With a first round on 4 October and a probable runoff on the 25th, event risk is high and early, contrarian positioning has been rewarded already. Our exposure remains focused on quality names trading below intrinsic value, and sized to give us room to take advantage of volatility in the months ahead.

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The key measure used to track the cycle is the annual change in G7 stockbuilding, expressed as a percentage of GDP. This is supplemented by a more timely indicator derived from business surveys, which displays a strong correlation with the GDP measure – see chart 1.

Chart 1

The GDP indicator last bottomed in Q1 2023, implying that the current upswing is mature, already matching the historical average duration of a whole cycle (of 3.5 years).

The GDP measure reached a level consistent with a peak in Q1 2025 but stockbuilding behaviour around that time was distorted by front-running of US tariffs. A correction over subsequent quarters has run its course, with the business survey indicator signalling a strong rebound in Q3 2026. This is supported by other evidence, e.g. the Atlanta Fed US GDP nowcast currently estimates that stockbuilding will contribute 2.0 pp to annualised Q3 growth.

The judgement here, therefore, is that the cycle is reaching a final peak in Q3 ahead of a multi-quarter downswing.

The cycle describes demand for production inputs – both raw materials and semi-manufactures, including electronic components – so is strongly correlated with their prices. A further rise in year-on-year growth of industrial commodity prices and global semiconductor sales in Q3 is consistent with the cycle reaching a peak – chart 2.

Chart 2

The suggestion is that the cycle about to shift from providing a tailwind to global economic momentum and pricing power to acting as a progressive headwind, with a maximum negative impact in mid-to-late 2027.

The risk of economic weakness next year is magnified by signs that a downswing in the long-term housing cycle is on track to accelerate into a 2027-28 low. The cycle has averaged 18 years historically, with the last trough reached in 2009.

The behaviour of homebuilding stocks may provide a clue to the timing of the next low. Chart 3 shows that an average of stock prices of US and UK homebuilders reached a peak 47 and 37 months respectively before lows in the last two housing cycles, in 1991 and 2009, while UK prices peaked 33 months before a previous trough in 1975.

Chart 3

The most recent peak in the average occurred in September 2024, suggesting a cycle trough between June 2027 and August 2028.

UK homebuilding stocks broke below a 2025 low in March and have yet to regain this level. US stocks currently remain above the corresponding low; an equivalent breakdown would suggest an acceleration of the cycle downswing – chart 4.

Chart 4

Joint weakness of the stockbuilding and housing cycles in 2027 would likely overpower and / or shorten the current business investment cycle upswing.

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If AI hasn’t already struck fear in the minds of the general population, humanoid robots are threatening to break the confines of the lab and enter the real world. It’s been hard to ignore those funny humanoid robot videos but it’s not all about party tricks and dance moves. Deployments are expected to surge from today’s tens of thousands to millions in the next decade, driven by broadening commercial and industrial applications.

What’s stopped full-scale adoption in the past?

Robots themselves are not new. They have been performing singular mechanical tasks like painting, welding or assembling for decades. There is no shortage of demand for real-world applications, but the biggest constraint for full-scale, multipurpose adoption remains a lack of real-world training data.

Unlike LLMs where most of the training data resides on the internet, robots need data from the physical world, including watching humans performing various mundane and complex tasks in unpredictable environments (called physical AI). However, the race is on to use real-world and synthetic data to create the data flywheel that will enable rollout at scale. AI-based simulation algorithms can now replicate physical-world training data and compress the learning cycle from years to days.

Additional constraints to humanoid robot adoption are the lack of dexterity and limited battery life that prevent robots from taking up complex and mission critical tasks – for now.

What’s changed now to drive full-scale adoption?

As per CLSA, there are four key trends beneath the surface that could be changing the paradigm when it comes to full-scale commercialization of humanoids.

1. Actuators used to convert electrical energy into kinetic energy (movement) are being standardized across the industry with energy efficient and precise electric actuators (vs. leaky hydraulic actuators).
2. A move toward modularization where the motor, reducer, inverter and controller are housed in one integrated unit which is easier to mass produce.
3. Reducers are what give robotic joints the power to lift weights. Advances in AI software are helping decrease inaccuracies in low-cost planetary reducers, therefore enhancing performance while bringing overall costs down.
4. Finally, the adoption of linear actuators which use convert rotational energy into straight-line thrust, mimicking the contraction and extension of human muscles. This helps with heavy load bearing capacity and better shock absorption on ground impact.

Where will demand come from?

• Manufacturing – particularly in automotive industries which have both the scale and assembly line processes to enable large-scale adoption. We also see auto component companies as fertile ground for the emergence of humanoid robot opportunities, given their scale manufacturing and quality control experience.
• Retail and facilities management – from tasks like customer service, cleaning and delivery-related work.
• Logistics – tasks around assembly, packaging, inspection and transportation.
• Defence and hazardous tasks – from mine clearing to dangerous material handling.

We have several holdings in the emerging market small cap portfolio that could potentially benefit from the coming robotics revolution. Sinbon Electronics Co. Ltd. (3023 TT) supplies sensors and connectors for both battery charging and signal transmission, and video capture harnesses directly to humanoid robot OEMs. Reliability and quality requirements are stringent and Sinbon is a sole supplier for at least two US humanoid clients.

Similarly, pneumatic actuators and linear motion components are among the most widely used parts in humanoid robot joint and limb assemblies and Airtac International Group (1590 TT) is an important supplier in this space. We also believe holdings such as WeRide Inc. (WRD US) and Dongguan Yiheda Automation Co. Ltd. (301029 CH) could potentially benefit from increased investment in humanoid robotics.

We believe emerging markets will be at the heart of the humanoid revolution. According to Bloomberg, China accounted for almost all global humanoid shipments so far this year. Just as how Asian supply chains deliver the picks and shovels enabling the current AI buildout, we think a similar story will play out in robotics as the current supply chain leverages its scale and manufacturing excellence to mass produce everything from actuators, reducers, sensors and cables that are needed to power this revolution.

The companies discussed are provided for illustrative purposes to demonstrate the investment team’s research into the robotics theme and are not intended as investment recommendations. There is no assurance that these companies will benefit from increased adoption of humanoid robotics or that the investment thesis will develop as anticipated.

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