Emerging markets (EM) slid from February through the year-end on the back of a stronger dollar, an escalating trade war and notably weaker growth in China. However, we see evidence that these previous headwinds may now be turning into tailwinds.
The return of negative bond/equity correlations was a rare silver lining for multi-asset investors in 2018.
As we wrap up the final weeks of 2018 and look ahead to whatever challenges lay ahead next year, we can’t help but reflect on what has been a testing and frustrating year for investors.
Global equities corrected downwards by 7.5% in USD terms in October. Stocks in the US ended the month down 6.5% after an intra-month peak-to-trough drawdown exceeding -10%.
The trade war between the US and China appears to be morphing into deeper and more protracted conflict as reflected in a recent speech by US Vice President Mike Pence, who criticised China not just for trade practices but more fundamentally for its broad political and economic model.
A trade deal was finally struck between the US and Canada that combined with the Mexico deal has been rebranded as "USMCA", though it could aptly be described as the same old NAFTA with a few tweaks.
As markets continue to grapple with the potential for a protracted trade war between China and the US, central banks have stuck to their task of setting monetary policy.
Equity pessimism took a breather in July as investors shifted focus from trade wars to the start of this quarter’s highly anticipated earnings season. With 53% of the companies in the S&P 500 reporting, over 80% had positive earnings-per-share surprises and almost 80% reported a positive sales surprise.
Trump imposed USD50 billion in tariffs against China with USD200 billion still pending and more in the pipeline to effectively cover all imports (USD450 billion) from China.
Financial markets continue to come to terms with a more protectionist and less globalised world. The surprise perhaps is not that tariffs have finally been imposed by the US on its trading partners, but that it took so long for a key campaign promise to become reality in spite of Republican control of the House, the Senate and the White House since November 2016.
Uncertainty surrounding Trump policy has reached new highs with global trade wars back on. Steel and aluminium tariff exemptions have been allowed to lapse for Canada, Mexico and Europe, and USD 50 billion in new technology-focused tariffs against China will be detailed by mid-June and imposed shortly thereafter.
After depreciating for over 18 months, the US dollar has managed to make a comeback, recouping its 5% YTD loss in a matter of weeks. Coupled with 10 year US Treasury (UST) yields hovering around 3%, this has put pressure on Emerging Markets (EM).
As much as we would prefer to discuss market fundamentals over the trials and tribulations of the current US Administration, it has been largely unavoidable in this first quarter of 2018.
The market narrative changed abruptly over the quarter, from observing the “melt up” in January with exceptionally low volatility, to a massive spike in volatility in early February with markets remaining on edge ever since.
Markets continue to come to terms with the return of higher volatility, triggered ostensibly by fears of inflation and the unwinding of highly leveraged short volatility positions at the beginning of last month.
In our 2018 outlook, we made the case for rising volatility as central banks across the developed world slowly remove the stimulus punch bowl, but few would have imagined volatility spiking with such a vengeance as it did in recent weeks.
Over the past few years, one of the main risks that concerned our team was the possibility that asset classes could become positively correlated.
What is the prognosis for Emerging Markets as major global central banks begin to tighten policy?
The Trump reflation trade may have lost some of its shine during the quarter, but any disappointment was more than overshadowed by strong global data as exports and production continued to gather pace.
Is Volatility too low and what re-pricing could mean for various asset markets
In the continuing aftermath of the US Presidential elections, it is easy to overlook the many other macro-political events that made 2016 such an exceptional year.
2016 may best be remembered as the year in which Trump won and the world changed. The question becomes which reforms will take centre stage.
Donald Trump has won and the world has changed. A real estate developer cum reality TV star will soon be the leader of the free world.
Our Multi-Asset portfolio manager based in Singapore reviews the prospects for profit margin expansion in the three main Emerging Market regions.
Emerging markets (EM) have endured strong adjustments in commodities and currencies that coupled with reforms makes a good case for better growth ahead.
As we enter the final quarter of 2016, concerns around political risk are at an uncomfortable level. October saw further volatility in the UK Pound, as negotiations around Brexit drove the currency to its lowest level in over 30 years.
Since the 2008 financial crisis, markets have become accustomed to central banks calling the shots. Investors eagerly await each central bank meeting in the hope some new form of monetary policy chicanery can help propel markets higher.
Another summer has passed in the northern hemisphere and any Brexit-related jitters appear a distant memory. Global equities have rallied almost 10% since the June lows, with most markets now in positive territory for the year.
We generally refrain from quoting external sources, but found the strength of this statement compelling. Calling an end to a 35-year long bull market is incredibly bold and we are unsure if it will prove to be right or wrong.
Many are wondering if it's time to give up on Abenomics. While some of the scepticism is understandable, we believe it is too early to throw in the towel.
We have been concerned for some time that the disillusioned middle class would eventually rail against the existing establishment and the set of policies they feel are responsible for leaving them behind.
The UK's late June vote in favour of 'Brexit' was initially read as a deep negative, particularly given that markets were priced strongly in favour of a 'Remain' vote. However, after brief reflection, markets outside the region saw a rally, with risk asset performance more than making up for Brexit losses.
We have previously written about our concern that monetary policy is reaching the limits of its effectiveness, particularly when considering zero and negative interest rate policies (ZIRP & NIRP) and quantitative easing (QE).
On April 24, the first round of elections was held for a new Austrian President. The position is subordinate to the Austrian Chancellor but had still been controlled by the two mainstream parties in Austria for decades.
Since 2011, Brazilian assets have re-priced to the downside. Given the size of the adjustment – both in commodities and assets – the question is whether Brazil is now presenting attractive investment opportunities.
On March 10, the European Central Bank (ECB) delivered what is commonly referred to in market parlance as the ‘bazooka’ – a stimulus programme well beyond market expectations.
2016 began in complete panic, with risk assets including emerging markets (EMs) selling off deeply through the first few weeks of the year.
As we have seen over the past year in the equity market, the more Beijing wants to exert control, the more it slips away. Is pragmatism going to trump ideology in Beijing? In the current environment, the PBOC letting the RMB free float might not be so unbelievable after all.
Our Singapore Multi-Asset and Equity team analysts cover oil’s swoon using a bit of humor, but the clear-cut conclusion is of great importance.
In early 2016, hedge fund Nevsky Capital decided to call it quits after 15 years of successful asset management. One of the reasons for the closure is that since the global financial crisis (GFC), emerging markets (EMs) are breaking away from the transparent 'Washington Concensus' model and are now prone to much less predictible nationalistic policies.
Real yields and inflation expectations currently suggest exceptionally low growth and low inflation far out into the future.
These reforms coupled with strong balance sheets and demographics will support higher levels of global growth for decades to come.