Results for search of category: Elections

Prices Move Before the News

One of the great virtues of our process is that it is sensitive enough to identify sudden changes in the relationship between risk and return, which have no apparent justification in real life – until the news story which prompted them finally breaks. We have just had a classic example of this with the resignation of Prime Minister Abe, which was announced in late August, eight weeks after our weighting in Japan was suddenly reduced. There is always an explanation, even if you don’t what it is, and this note highlights ten other recent moves at sector or country level, which we think are only partially explained.  [Read More... ]

In Search of Fresh Inspiration

In Q3 2019 a group of housebuilders, utilities and dollar-sensitive industrials began to outperform the UK index on hopes that the Conservatives would win a general election. This created a powerful long momentum effect, but our analysis says that we are now close to maximum exposure. For the Boris trade to become more powerful, we need greater consensus on which stocks to underweight/short.  [Read More... ]

The Meaning of Boris

The result of the UK election has made the country more attractive to international equity investors, but not to domestic investors, except in the sense that equities everywhere have become more attractive relative to fixed income. We do have substantial overweight positions in cyclical sectors like Industrials, but these are funded by underweights in other cyclical sectors like Materials. We expect to upgrade Small Caps to overweight in the near future, but we have already done so in Japan and the Eurozone. It’s all a bit underwhelming. But our models are clear that if you think that the UK will prosper outside the EU, you should buy Ireland.  [Read More... ]

The Calm Before the Storm

Before the ECB’s announcement today, nothing very important had happened in financial markets for several weeks. We get nervous when it’s this quiet, so we prepared a list of issues to worry about. They range from the benign, like a melt-up in risk assets caused by a sell-off in US Treasuries to the borderline catastrophic, like a Eurozone banking crisis. Our main point is that the current directionless environment is likely to end in the near future. Whether investors believe in any, or all, of the scenarios listed below is up to them.  [Read More... ]

Alternatives to Santa

Investors should feel free to trade a Christmas rally in equities, provided they can identify when to take profit. Our US sector model is firmly in de-risking mode, which means that an extended rally is unlikely. Investors can profit from this correction by adding exposure to EM Equities, buying either an index ETF or selecting from our list of preferred countries.   [Read More... ]

Eurosceptics may win EU elections

We take recent opinion polls for each political party in each country in the EU and compare them with the share of vote and the number of seats they won in the EU Parliamentary elections in 2014. We conclude there is a good chance that Eurosceptic parties may form the largest single grouping after the elections in May 2019. We believe that this scenario has not even been considered by most investors and that it has significant shock value. Some may even regard it as a black swan.  [Read More... ]

Euro-Schizophrenia

International investors are still in love with Eurozone equities, but the strength of the euro is starting to cause problems for domestic investors. The euro is probably overbought in the short-term, but further strength later this year would cramp Eurozone earnings growth in 2018 and tighten monetary conditions in which would allow the ECB to delay interest rate rises and shrinking its balance sheet.  [Read More... ]

Where To Next?

US Equities look as though they are due a 5-10% correction, so US investors have a chance to look at other opportunities. One option is a Northern Europe group of fiscally responsible countries in and out of the Eurozone. Our preferred option is a diverse group of EMs, including India, Korea, Mexico, South Africa and Turkey, which offer equivalent risk-adjusted returns, but much lower correlation with US Equities.  [Read More... ]


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