Results for search of category: Geo-political risk

The China Question

Our recommended weight for Chinese equities has just hit its all-time low since the beginning of this century. They have been in extreme underweight territory for their longest period ever. We think this is more than a temporary misunderstanding. It could represent the breakdown of the pro-China consensus that has dominated US investment thinking for over a decade. There may be parallels with what happened when the US became disillusioned with Russia 10 years ago. US investors who want international equity diversification will be forced to have another look at Europe.  [Read More... ]

There Will Be A Correction

With very few exceptions, our main risk-appetite indicators are at or close to maximum risk-on. We see evidence of peaking behaviour in global equities vs global fixed income, in US Credit, and cyclicals vs defensives in the US, Japan and the UK. There is one indicator – Italian vs German government bonds - which is already past its peak. Most investors understand this and intend to use any correction as a buying opportunity. However, it still makes sense to take some risk off the table now, if only to put it back on at a lower price. We are also concerned that investors may be ignoring an uptick in geo-political risk.  [Read More... ]

EM Bonds: the new safe haven

Many investors, brought up on the Tequila crisis of 1994, or the Thai baht crisis of 1997, or others too numerous to mention, may be surprised to see EM Sovereign Bonds at the top of our euro asset allocation model and at #2 in the US$ version. Times have changed. The volatility of the EM bond portfolio (but not necessarily individual countries) is less than 7-10 year Treasuries and the yield is a lot higher. They deserve their ranking.  [Read More... ]

Opportunity in the Detail

Even if the macro outlook is uncertain, there are still several important messages that can be gleaned from the detail of our equity sector models. The three we highlight concern US Energy, Global Utilities and European Consumer Goods. Our models can never prove any investment thesis, but they can suggest interesting lines of enquiry.  [Read More... ]

How Low Do We Go?

Our asset allocation model cannot get much more bearish. In our view the reason for the recent weakness has been the need for US equities to adjust to PE ratios in line with their long run average now that everything else - real interest rates, risk conditions and earnings growth – is also approaching its own average. We are less concerned about the prospect of a US recession, partly because we see no warning signs from the credit markets. Our model is unlikely to get more optimistic in the next six weeks, but this may happen just in time for Christmas.  [Read More... ]

Enjoy Your Long Weekend

US buy-backs to the rescue. Risk conditions have deteriorated faster than we expected and the deterioration has been led by the US, which is unusual. The excess volatility of US Equities relative to Treasuries has experienced the sharpest three-month increase in the last 22 years, including the run-up to the GFC. The current correction could well be as bad as early 2016. To end it, we may need the Fed to take a time-out on the June rate-hike. We will certainly need US corporates to resume their buy-back programmes as soon as the earnings timetable allows. Apart from Emerging Markets, buying the dip in international equities, without doing the same in the US, is not an attractive strategy.  [Read More... ]

Peak Euphoria

Our portfolio has had Eurozone Equities as its #1 position since the middle of March. We now see evidence of indiscriminate buying, with investors scrambling for exposure to the benchmark and not caring about sector or country tilts. Our exposure is now at a level which has only been matched three times by any equity region since the onset of QE.   [Read More... ]

Prices Move Before News

Newspapers like to argue that events are unforecastable, which is why you need to pay for access to news. We agree that forecasts don’t really work, but we don’t think news does either. We think that prices move before news. Very often the change in price is the news.  [Read More... ]

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