All posts in category: United Kingdom (21)

Keep an Open Mind on Europe

Friday, February 16th, 2024

Leading indicators suggest more upside than for the US

We have several indicators which suggest that Eurozone Equities could be about to generate a positive surprise. Our euro-denominated asset allocation model has upgraded global equities to overweight, chiefly because of some emerging weakness in German bunds. It is now more bullish on global equities than its dollar-denominated counterpart. Our global equity models still have the US as an overweight and the Eurozone as a neutral. There is only limited upside for the US but a lot more for the Eurozone, which has a much stronger uptrend and a better leading indicator. The positive mood is not yet supported by survey or hard economic data, but markets always move before this is published. We urge investors to keep an open mind about Europe, particularly Germany and the Eurozone.

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Switch Off the Autopilot

Friday, October 7th, 2022

Currency impact on equity allocation is now extreme

The strength of the US dollar has hugely overstated the attractiveness of US equities to both US and international investors. The currency effect against developed markets is more powerful than it has been in all but 3% of weekly observations, going back to 1995. This is fine while it lasts, but one day it will go into reverse. Meanwhile, the dollar index is approaching generational highs. After the last tech-bust and peak dollar, US equities underperformed the rest of the world, in dollar terms, for the next five years (2003-08).

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The Times, They Are a-Changing

Friday, June 18th, 2021

Reducing industrial cyclicals and adding to consumer cyclicals

Perhaps the most obvious symbol of the changes under way is the fact that Europe, not the US, has been our preferred equity region since late May. This isn’t the result of one single trend or a dramatic headline. It has happened gradually, as marginal buying shifted from the US to Europe. It is the same with the shift from industrial to consumer cyclicals. No-one doubts the coming industrial recovery, but our charts suggest it is already in the price, so investors are starting to look for the next big idea.

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There Will Be A Correction

Friday, April 23rd, 2021

But we don’t know when, why or how much

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.

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How the World Turns

Friday, November 27th, 2020

The value trade won’t work everywhere

This report is a real-time survey of how the great rotation is progressing in different regions of the world. Our conclusions are (1) Many of the important sector infection points happened back in September; so talking about them now in terms of factors suggests that people missed them the first time round. (2) The UK has much the most aggressive sector rotation and China the least. (3) There are different winners and losers in each region and any attempt to apply one paradigm to all of them is likely to fail. (4) Many value-rich sectors in each region have hardly moved, suggesting that the value trade has already been differentiated into those sectors which have catalysts and those which don’t.

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Lessons from a Fast Market

Friday, June 12th, 2020

China plays a different game and Healthcare suffers

Yesterday’s sell-off was so brutal that it probably marks the start of a different regime in equity markets. We are out of Phase 1 of the recovery and into a second more sceptical and nervous regime. Both the US and the UK broke of out the uptrends in our daily indicator that have been in place since March. The technical situation is better in the Eurozone and Japan, while the level of financial repression is China so severe, in our view, that the indicator has lost most of its signalling power.

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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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The Meaning of Boris

Friday, January 10th, 2020

Three half-full glasses and an alternative

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.

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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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Health Warning

Thursday, February 7th, 2019

Running European equity portfolios is harder than normal

The difference between our recommended sector weights for the UK and the Eurozone has reached a seven-year high. Of course, Brexit is part of the explanation, but for most of the period since the referendum this divergence was below its long-term average. It has always been dangerous to transfer sector views from one region to another without careful thought, but the danger now is much higher than normal.

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