We have recently trimmed some Chinese equity exposure, as conventional wisdom about China growth has now fully gravitated toward our view—that growth would be relatively strong and stable in the lead up to the National Party Congress.

Conventional wisdom is our assessment of what the marginal investor is currently thinking across markets and currencies in the dimensions of economic activity, monetary accommodation and risk-aversion. These assessments are both a function of magnitude and direction gleaned from short-term data as well as from our qualitative sense of the degree of homogeneity or heterogeneity in the conventional wisdom.

Conventional wisdom varies by market and region and in some cases tends to be more stable than in others, which is illustrated by situations in China and Japan.

In regard to China, for example, conventional wisdom tends to swing around a bit more dramatically than in other markets, with perceptions changing from positive to negative relatively quickly. We’ve seen that recently with respect to Chinese growth.

The conventional wisdom on economic activity in China was negative and heterogeneous in 2016, yet today it has become quite positive and homogeneous just a year or so later. Conventional wisdom was that short-term growth was set to slow because of the debt situation and that the Chinese yuan (CNY) was virtually certain to weaken against the U.S. dollar (USD). A year later, when S&P downgraded the country’s sovereign credit rating, it was hardly a blip on the marginal investor’s radar.

At, perhaps, the other extreme, the conventional wisdom on Japan has historically tended to be more stable. Save for a brief pop of positivity around Prime Minister Shinzo Abe for a few years, Japan has widely been viewed negatively within Asia.

I take note of that, because when everyone is largely in agreement and conventional wisdom is homogeneous, it can produce an environment that is set up for a skewed reaction from the marginal investor.

More heterogeneity of conventional wisdom typically points to a more balanced reaction going forward while highlighting potential investment opportunities and risks that the market might not fully appreciate, and helps us navigate the path that prices take on their way to fundamental value.

Analyzing conventional wisdom is an important aspect of our team’s approach in assessing “Why” prices deviate from fundamental value. As a global team and serving a global investor base, we’re often in communication with clients and prospective investors around the world.

And when we meet with those clients and prospective investors, we try to get a sense of their views on certain subjects. That helps build our sense of conventional wisdom, which we bring back to our team dialogue.

If our take on North Korea, for example, is consistent with what we’re hearing from many of our clients, we can safely assume that we may not at that time have any unique insights. That isn’t necessarily always a bad or a good thing, but it might prevent us from responding in a very strong way to the analysis that we’re formulating.

On the other hand, if we feel that our views are not widely held throughout the investment landscape—arriving at this opinion from conversations with investors, the fund flow information we’re seeing, or by some other means—we may be more confident that we have some unique insights and an opportunity to add value.

After being geared toward both China equity market and CNY exposure this year within our aggregate long Asia exposure, we have recently trimmed some equity exposure there, as conventional wisdom has fully gravitated on China growth (from heterogeneous and negative) toward our view that growth would be relatively strong and stable in the lead up to the National Party Congress.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2018 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

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Please carefully consider the Funds’ investment objective, risks, charges, and expenses before investing. This and other information is contained in the Funds’ prospectus, which you may obtain by calling +1 800 742 7272. Read it carefully before you invest or send money. Investing includes the risk of loss.

Any statements or opinions expressed are those of the author as of the date of publication, are subject to change without notice as economic and markets conditions dictate, and may not reflect the opinions of other investment teams within William Blair Investment Management, LLC or the Investment Management Division of William Blair & Company, L.L.C.

This content is for informational and educational purposes only and not intended as investment advice or a recommendation to buy or sell any security. Investment advice and recommendations can be provided only after careful consideration of an investor’s objectives, guidelines, and restrictions.

Factual information has been taken from sources we believe to be reliable, but its accuracy, completeness or interpretation cannot be guaranteed. Investments are subject to market risk. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Statements concerning financial market trends are based on current market conditions, which will fluctuate.

William Blair does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax questions and concerns.

Distributed by William Blair & Company, L.L.C., member FINRA/SIPC.

Copyright © 2018 William Blair & Company, L.L.C. "William Blair” is a registered trademark of William Blair & Company, L.L.C. No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent.

Statement of Financial Condition | NMS Rule 605 & 606 | Business Continuity Plan | UK Stewardship Code
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