Chapter 2 of my book - chapter 1 is here. If you are just here for timely market insights and not details of how and why I think the way I do, feel free to ignore.
It was 2021, and I was reading the Financial Times, when a small article caught my attention. The newly created Chinese digital regulator had called all of the biggest Chinese tech firms in for a meeting. At the time, the COVID tech bull market was raging, and US investors were all talking about FANG (Facebook, Amazon, Netflix and Google). These were the stocks that were going to lead us onwards and upwards. The Chinese equivalent was BAT (Baidu, Alibaba and Tencent). Even though relations between China and the US was deteriorating, everyone was hyped about tech, including Chinese tech.
I did not have particularly strong views either way on tech, but I knew that the Chinese government did not call in companies just for a “chat”. That was not how it worked in China. To me, it sounded like a problem. Curiously, the article did not mention which companies had been called in - just “leading tech companies”. So I spent the next couple of hours searching the internet to find the names of the companies involved. Eventually I found a list of 34 companies.
I started looking through the list - many were high profile companies that we all know - but I was surprised to see almost every Chinese tech company with a US listing was called into the meeting. Some had only just listed, some were just about to list, and some had been around a while. When I looked at market positioning, it was universally positive. When I asked people their thoughts, basically it was along the lines of the US has FANG, China is going to have to support its tech companies to compete, so the regulators will do nothing.
The thing that really got me was that the Chinese regulator was basically saying to the Chinese internet companies, you can not use your platforms to dominate and to promote firms you own or have an interest in. That is you could not use your market power to extract rents from other companies. For me, this sounded incredibly bearish - technology is naturally deflationary without consolidation and collusion. So after two hours work, I decided to put small shorts on all the companies.
As expected, the market was caught off guard completely by the level of regulation that the Chinese government imposed on its internet champions, and the effects on profitability. All of these shorts fell by 50% or more over the next few months.
This was one of my most successful shorting campaigns, but also wake up call. Previously, all my short themes had been built on pure economics, supply and demand and shifting prices. This campaign was built on two hours of research and from reading Chinese politics better than Wall Street. It was realising this, that led me to change my investment style, not because the world had changed, but because the politics of the world had changed.
Markets Are Driven by Politics, Not Economics
Before I ever opened a company report, I lived inside a policy machine.
My mother worked in Parliament House in Canberra. Not as a politician, not in front of cameras, but in the engine room — the research service that fed information directly to ministers. Her job was to answer the questions they were going to be asked in Parliament: What is Australia’s position on the Middle East? On China? On trade? On security? She would research, draft, and write responses that would later be delivered — often word for word — by elected officials.
As a child, I didn’t fully grasp the significance of that. I just knew Mum worked in a big building with flags, and that politics was not something abstract that happened “out there.” It was something people did. Something negotiated. Something constrained.
What I absorbed, as if by osmosis, was that decisions were rarely about what was economically “best.” They were about what was politically possible.
That difference matters.
In economics textbooks, systems move toward equilibrium, towards the most efficient outcome. In politics, systems move toward survival.
Governments don’t optimise. They stabilise. They delay. They trade one problem for another if it buys time. They protect voters, coalitions, and power bases. The outcome might look irrational from an economic perspective, but from a political one, it often makes perfect sense.
Growing up, I heard conversations about policy not in terms of theory, but in terms of trade-offs. If you raise taxes, who do you alienate? If you cut spending, where does the pain show up? If you devalue, who wins and who loses?
This lens stayed with me long before I understood how to use it.
Australia in the 1970s was not a calm political environment. The dismissal of Prime Minister Gough Whitlam in 1975 — the only time an Australian Prime Minister has been removed by the Governor-General — was a constitutional earthquake. It happened in the world I grew up in. These weren’t distant historical events; they were lived reality.
Later, I would admire Paul Keating for pushing through painful reforms that damaged his popularity but strengthened the economy long term. As a child, I didn’t frame it that way. But I saw, through my mother’s work and the atmosphere around us, that leaders often had to choose between economic logic and political survival — and usually chose the latter.
That lesson became crucial in my understanding of the markets.
When I started working in finance, I noticed something odd. Investors talked about governments as if they were rational economic actors. As if central banks pursued pure price stability. As if policymakers allowed recessions to “cleanse excesses.” As if currencies floated freely according to fundamentals. And even when economies and policymakers act “rationally” this was treated as a policy decision as well. Free markets are not an economic inevitability; they are a political choice.
Governments intervene. They distort. They subsidise. They bail out. They cap yields. They suppress volatility. They support asset prices when political stability is threatened. They don’t do this because it is economically elegant. They do it because falling markets mean falling confidence, unemployment, elections lost, social unrest. Even when governments don’t intervene, that is a political decision as well. Markets are not just economic systems. They are political systems with price tags attached.
I saw this clearly during crises.
When markets wobble, investors ask: What are the fundamentals? Policymakers ask: What breaks if we do nothing? Does this help us stay in power or not?
Those are not the same question.
A currency might be overvalued. A banking system might be insolvent. A property market might be a bubble. But if letting it collapse threatens political stability, the authorities will often choose distortion over discipline.
Rates will be cut. Liquidity injected. Rules bent. Losses socialised.
The flip side is crisis. This can also achieve a political aim. To break the power of certain interest groups, for example. Everything is political first, economics second.
If you analyse markets as if they are governed purely by economics, you will repeatedly be surprised. If you analyse them as political systems, the behaviour becomes more predictable. Most fund managers and investors do not, I have noticed, want to take political views.
This awareness shaped how I interpreted policy moves.
When China launched enormous stimulus after 2008, many analysts focused on debt sustainability and misallocation of capital. Those mattered, but the deeper driver was political. Growth had to be maintained to preserve social stability. The leadership could not tolerate a sharp slowdown. Economics came second.
Similarly, in developed markets, central banks repeatedly supported asset prices because falling markets fed directly into consumer confidence, pension funding, and electoral outcomes. The “wealth effect” was not just an economic concept — it was a political stabiliser.
Once you see markets this way, you stop asking: “Is this economically justified?” You start asking: “What is the political constraint?”
That is often the more powerful force.
Now I increasingly take the view that Japan’s lost decades were not a fundamental economic decision, but a political one. The 1980s saw the rise of US-Japan trade tensions, and policymakers chose a policy of benign neglect of Japan, to stabilise the relationship. Now, with the rise of China, Japanese political calculations are changing again. Politics before economics.
This doesn’t mean economics doesn’t matter. Over the long run, imbalances build and eventually assert themselves. But the timing — the path — is shaped by politics. Pain is delayed. Losses are shifted. Incentives are altered.
As an investor, this means you cannot just model growth and valuation. You must model power, incentives, and survival. That instinct came to me not from a trading desk, but from growing up in a household where politics was dissected as a practical activity, not a moral debate.
I learned early that outcomes are negotiated, not optimised. Markets are the same.
So when I say markets are driven by politics, not economics, I don’t mean numbers don’t matter. I mean numbers operate inside political boundaries. Those boundaries move. They bend. Sometimes they break. But they are always there. Understanding that gives you an edge — not because it tells you exactly what will happen, but because it stops you being surprised when “irrational” policy choices override economic logic.
To many investors, government intervention feels like distortion. To me, it feels like the system behaving exactly as it was designed to.
