LIVE MARKETS-Rare earths and chips: "like children in a divorce"

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RARE EARTHS AND CHIPS: "LIKE CHILDREN IN A DIVORCE"

The difficult process of Western economies "derisking" from China, especially in sectors like rare earths and chips, may paradoxically support markets by requiring ongoing talks between global superpowers, according to a Kairos Partners strategist.

While decoupling is a long-term goal, Alessandro Fugnoli at the Italian investment firm believes that the immediate hurdles in the discussions are positive for market sentiment.

"Shedding China is proving less easy than expected, and for the markets, this is actually better," he says.

Fugnoli highlights China's strategic leverage, notably in processed rare earths, which are vital for industries ranging from automotive to defence, and where developing alternative supply chains could take at least five to ten years.

This interdependence, which requires continuous talks over issues like export licenses, is seen as more reassuring to markets than outright conflict or a sudden trade halt.

"Rare earths and semiconductors will be like children in a divorce case, forcing former partners to stay in contact and not give in too much to aggression and resentment," he says.

Looking ahead, while current global growth is positive and inflation appears contained, Fugnoli says widespread fiscal stimulus and tight labour markets could see inflation concerns resurface.

"That will be an issue for next year, though. For the time being, high stock prices and the stability of bonds remain sustainable."

(Danilo Masoni)

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