All posts in category: Equities (56)

In Search of Fresh Inspiration

Friday, February 21st, 2020

Is the Boris trade close to its peak?

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.

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Two Week Warning

Friday, January 24th, 2020

Mean reversion signal getting close to the danger zone

Our standard PRATER process is well-correlated with the subsequent performance of equities vs bonds. However, the relationship decays when we get close to extremes. Here, we can use a modified RSI approach to estimate the potential for mean reversion. Our 25-year data set indicates that equities are particularly vulnerable when they have been accelerating too hard (RSI) in relation to the speed at which they are travelling relative to bonds (PRATER). Presently, they are accelerating too hard, but the difference is not yet critical. At current progress, global equities will enter the danger zone in about two weeks, after which the probability of a high single-digit correction vs bonds rises sharply.

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Is Energy Un-Investable?

Thursday, November 7th, 2019

Sector at multi-year lows in equity and fixed income models

Nobody likes the Energy sector. On a global basis the current sell-off is as bad as all the other major declines, apart from 2014. The difference is that oil prices are much more stable now than they were then. The medium-term challenges (ESG agenda, electric cars, balance sheet distress) are all well-known, but we would be really surprised if the sector wasn’t rated overweight again within the next two years – any maybe sooner.

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Equal and Opposite Signals

Thursday, October 24th, 2019

Crossover for EM Equities and EM Bonds

The macro picture remains confused, so we are reduced to talking about signals which may appear in the near future. On present trends, we expect EM Equities to overtake their moving average and EM Bonds to drop below theirs. Both are measured relative to the equity and fixed income models as appropriate. At first, the switching opportunity would be for EM specialists, but it may develop wider significance.

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New Risk Conditions Indices

Thursday, October 10th, 2019

Equity and bond volatility are behaving inconsistently

This week we introduce four new risk conditions indices covering the equity and government bond markets of selected emerging market and developed countries. They highlight the fact that the relationship between equity and bond volatility is abnormal, given their recent relative performance.

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Six Sector Ideas

Thursday, September 26th, 2019

Where to look in advance of the Q3 results season

The macro picture is confused. Our last note argued that we are in the late late-cycle for equities, but we could go on like this for months and there are no new developments to prove or disprove this view. So, our focus shifts to sector selection. We highlight six sector ideas – one from each region we cover – where we think there is potential for a major upgrade or downgrade in the near future.

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Catch-22 and Japan’s response

Thursday, August 29th, 2019

US Equities are vulnerable almost whatever happens

If investors want to prevent the negative effects that a trade war between the US and China could have on US Equities, they may be forced to sell US Equities. This may be one of the few ways they have of getting President Trump’s attention. Our models are at – or very close to – maximum underweight in equities. If there is a storm coming, Japan may have an important policy tool to mitigate some of the damage.

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Eurozone Rising

Thursday, July 11th, 2019

US investors need to take another look

The Eurozone will soon be the top-ranked equity region in both our euro and dollar-denominated asset allocation models. We think this will prompt US investors to have another look across the Atlantic. We think there are three sectors where they will concentrate their buying to start with: Consumer Goods; Industrials and Utilities. All three sectors are capable of outperforming their US counterpart and the US index as a whole.

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Opportunity in the Detail

Thursday, June 13th, 2019

Listen to the market. It has lots of ideas.

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.

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Time to Get Fussy

Thursday, March 21st, 2019

Be selective in EM Equities

Indiscriminate buying of any and all emerging market equities worked well from Q4 2018 to Q1 2019. We now see signals that it is time to be more selective. We have just put four EM countries on our negative watch list, and we will have to rely much more on index heavyweights like India, China and Taiwan if the region is to continue to outperform. The region also faces renewed competition from certain “cheap” European countries.

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