All posts in category: Global Equities (53)

Red Flags

Wednesday, July 4th, 2018

Emerging Markets, the Renminbi & Eurozone Banks

Our recommended underweights for Eurozone Financials and EM Equities are at the sort of levels we saw just before major crises such as 2008 and 2010-12. We think that both can be traced back to tightening financial conditions and restricted dollar liquidity. What concerns us is that neither the Fed and the ECB are prepared to admit there may be a problem or that these two themes could feed off each other. We also worry that further devaluation of the Chinese renminbi could put additional pressure on EM Equities and bring a potential flashpoint closer.

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Where are all the good ideas?

Wednesday, June 6th, 2018

Without them, equities may struggle this summer

There are very few sectors or countries which currently offer a better than 50% chance of beating the local risk-free, which is one of the reasons why we think that global equities will struggle over the summer. The UK has the highest concentration of winners. Healthcare and Utilities garner most mentions across all regions.

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Leadership Potential

Wednesday, May 23rd, 2018

Which sectors thrive when the region is overweight

We can use our sector and regional equity models to work out which sectors tend to lead a region higher, and which tend to conflict with an overweight recommendation. Sectors with the best leadership record (across all developed markets from 1996 onwards) are Financials and Industrials, but surprisingly not Technology. Sectors most in conflict tend to come from the defensives and Energy.

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Delivery, not Potential

Wednesday, March 21st, 2018

European equities need some momentum soon

Equities in the Eurozone and the UK are not delivering the same returns as the US. This holds true for most sectors as well as the top-level index. Part of the problem stems from the weak dollar, but as most investors did not expect this, they find it hard to forecast the turn. Sooner or later investors will have to respond to this problem.

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A Selection of Emerging Markets

Wednesday, January 31st, 2018

These may help to mitigate dollar volatility

Despite our worries in late November, EM Equities have done well, but we still need to be selective. In Asia, we like China, Thailand and Singapore and have put Malaysia and Indonesia on the positive watch-list. We don’t like Latin America at all, and prefer Austria as the play on Eastern Europe. This leaves South Africa and India, two BRICS, which have interesting upside, if the politics turn out right.

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The Great Volatility Slide is Over

Thursday, January 11th, 2018

It’s still very low, but it will start rising soon

We think our volatility index has stopped falling, though we can’t certain just yet. Once this has happened, it will probably take 10-11 months for it to return to its median level, based on past experience. All other things being equal, median volatility will require most investors to have a benchmark weight in equities, as opposed to their current overweight.

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The Only Game in Town

Thursday, November 9th, 2017

Tech is crowding out other sectors

Everyone likes Tech at the moment. It is ranked #1 in every region apart from the Eurozone, where it is #2 and likely to rise within a few weeks. However, it is starting to crowd out overweight positions in other sectors and the level of dominance is becoming dangerous in China. Other sectors and Tech in 1999 have enjoyed this level of dominance in the past but the longest similar episode was seven months, which would take us through to Q2 2018. After that a period of sustained underperformance nearly always follows.

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Untangling the Currency Effect

Wednesday, September 13th, 2017

Risk-appetite set to decline unless dollar recovers

What would happen to investors’ risk appetite if global currency markets stabilised at their current levels? In our view, the cumulative shock from the weak dollar has already reduced the recommended allocation to equities for most developed markets. This includes the US, though not by very much. The only way to avoid further reductions is for the dollar to retrace some its losses. If all major currencies stay where they are, risk appetite in most countries is likely to trend lower. The only significant exception is China.

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The Probability of Loss

Wednesday, September 6th, 2017

US investors don’t need to sell US Equities

US investors are being bailed out of a tight situation by the weaker dollar. The chances of losing money on their overseas equity positions are much lower than they are in domestic fixed income. The same is true for domestic equities. They can afford to do nothing, but euro-based investors face a much tougher choice.

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Comforting Conclusion

Wednesday, May 24th, 2017

Low volatility not always followed by an explosion

We are now very close to the all-time low on our index of multi-asset volatility, but setting a new record is not really important. What matters is how quickly we revert to the median and what leads us higher. Previous episodes suggest that the reversion takes 8-10 months and is led by US High Yield and US REITs. The numbers also suggest that global equities could correct by 10-15% without significantly damaging investor psychology.

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