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. What happened?
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. To this list we can now also add the spectre of increasing protectionism and outright Trade Wars.
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.
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. In fact, fading enthusiasm for Trump’s ability to execute has arguably served as a tailwind for Emerging Market (EM) assets in the form of a weaker dollar and moderating long term rates.
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.
Emerging markets (EM) have endured strong adjustments in commodities and currencies that coupled with reforms makes a good case for better growth ahead. Still, it will take time for EM to navigate to more stable sources of growth, requiring relative stability through the delicate transition.
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 expect a raft of populist policies to appease the disaffected masses whose voice had not been given attention until Brexit. What is clear is that markets currently place the level of possible success at zero. Defensive trades are more crowded than ever.
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. Emerging markets have been a primary beneficiary...
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. Brexit would appear to be more the start than the end of reconciling these differences.
We believe that the latest experimental monetary policy to do the rounds of central banking rhetoric—‘helicopter money’—may actually prove effective. But it comes with significant risks.
Not just a European phenomenon, the anti-establishment vote is gathering momentum globally. Donald Trump has surged to the Republican nomination in the US on the back of a groundswell of disillusioned middle class voters.
Success in investing can sometimes be as fleeting as the 1000-year old Japanese custom of 'Hanami' — the despair of January was quickly replaced by the euphoria of February and March. However, last year's winners have become this year's laggards.
2016 began in complete panic, with risk assets including emerging markets selling off deeply through the first few weeks of the year. This was then followed by the strongest rally since 2012.