Andrew Hunt's biggest call for 2025—monitoring capital flows—proved prescient as record Chinese inflows (potentially the largest ever) defied his initial bearish thesis and kept markets elevated despite weakening fundamentals. However, the critical shift from private sector flows into risk assets to PBOC purchases of foreign sovereign bonds, combined with deteriorating global growth and recent signs of flow reversal, sets up 2026 for either continued rally or sharp correction depending on whether foreign capital persists, with Hunt certain only that the eventual policy response will be inflationary regardless of near-term direction.

As 2025 draws to a close, Andrew Hunt's analysis reveals a year that confounded consensus predictions through one critical mechanism: unprecedented capital flows that delayed the inevitable reckoning.

Hunt began 2025 expecting global capital flow disruptions to drive bond yields higher as deficit countries competed for funding. For a brief period in February, this thesis appeared validated. Then something remarkable occurred. Despite tariff tensions and "Independence Day" political friction, the U.S. experienced what Hunt describes as potentially "its biggest ever capital inflows" during August-September, the fifth largest relative to GDP in history.

The China Factor

The unexpected protagonist driving these flows was China. Hunt estimates Chinese entities—both private and public—routinely export $1.5 trillion annually to global financial, property, and direct investment markets. Initially, China's struggling private sector led these outflows, channeling funds into Sydney property, private equity, and conventional equities through offshore centres like the Cayman Islands.

However, as China's economy deteriorated through 2025, a crucial shift occurred. With Chinese corporate liquidity at its lowest levels in the modern era, private sector outflows stalled. The People's Bank of China stepped in, purchasing approximately $400 billion in bonds to prevent currency appreciation—but notably avoiding US Treasuries for geopolitical reasons, instead favouring Japanese, UK, and European sovereign debt.

The Consensus Mirage

Hunt points to a striking disconnect between narrative and reality. If you ask AI how 2025 went it reflects the media consensus that the global economy was recovering after initial weakness. However, the data tells the opposite story. World trade surged through the first eight months as businesses front-ran tariffs, only to slow sharply thereafter. The US economy, which only 4% of investors expect to face a hard landing, shows employment growth near zero, deteriorating surveys, and weak freight data.

Hunt's recommendation throughout this liquidity-fuelled rally? Don't fight the tape. While expressing persistent caution about valuations and fundamentals, he advised clients against shorting it aggressively just yet. The lesson proved prescient: massive capital inflows supported asset prices even as underlying growth weakened, echoing 2006 when foreign investors sustained markets after domestic participants exited.

The 2026 Outlook: Deflationary Shock, Then Inflation

Looking ahead, Hunt sees the US already entering the deflationary shock phase he's warned about. With global growth faltering, China not truly growing despite official claims, India's growth overstated by statistical balancing items, and major economies from Germany to Japan struggling, central banks face an inevitable policy response.

The critical question now centres on capital flows. Recent weeks show troubling signs: geopolitical tensions with Japan over Taiwan appear to have halted PBOC purchases of Japanese government bonds, while reduced private Chinese outflows are already impacting Australian banks' foreign funding and global risk assets.

Hunt's message for 2026 combines certainty with tactical ambiguity. The certain element: whether markets correct or continue higher, the policy response will be inflationary. The uncertain element: near-term direction depends on whether foreign capital, particularly Chinese, continues supporting U.S. markets or whether the funding tap turns off, potentially triggering higher real yields, weaker equities, and rapid recession.

Rather than bold predictions, Hunt advocates careful monitoring of capital flow data, private credit stress signals, and banking system responses to Federal Reserve easing. For investors unable to trade actively, he suggests a barbell approach: real assets including Japanese and regional property, short-term bills capturing expected rate cuts, and inflation protection for the inevitable reflation once deflation forces central banks' hands.

The year ahead promises to be less about forecasting than about remaining flexible as capital flows—China's in particular—determine whether 2026 begins with fireworks beyond Sydney Harbour Bridge.