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Equity Strategy: Time to Take Profits in Asia-ex-Japan Equities
Following 10% outperformance since December, and with our SBI overbought, we now downgrade our recommendation on Asia-ex-Japan from Overweight to Neutral. Recent outperformance has been supported by Activity Surprises, the region’s high Beta with respect to Global Equities, the weaker USD and lower bond yields. Our belief that surprises have peaked and global growth will slow as the year progresses therefore present a challenge to further outperformance, whilst tapering may put a floor under global bond yields. However, the increased weight of the Tech in Asian Equities may act to limit the region’s downside in a global slowdown scenario.
PODCAST: Click to hear Zahra’s accompanying podcast
Economics: US - A Bold Path Forward
In his final article for ASR, former Treasury official, Gerald Cohen, argues that a credible proposal is needed to overcome the current political morass. One avenue might be to introduce a ’20-20-20 tax plan’, suggested by Gerald himself. Without such a plan, the Trump administration risks losing the confidence of consumers and businesses, which could undermine the financial markets and economy.
Multi-Asset: Taking profits on long EM / short Materials
We are recommending clients take profits on the long MSCI Emerging Markets / short MSCI World Materials ‘convergence trade’ idea from February as: a) the performance ‘gap’ that opened up in the aftermath of Trump’s election victory has largely closed; and b) Brazil’s political scandal has brought forward Brazilian sovereign credit concerns that would probably have otherwise emerged in H2 as the growth rebound faltered.
Politics: The Four Options for Brexit
We envisage four potential Brexit outcomes, none of which include a trade deal being negotiated within two years as outlined by the UK Government.
1. A negotiated hard Brexit ASR probability 40%
2. An unnegotiated chaotic Brexit ASR probability 40%
3. A transitional Brexit ASR probability 15%
4. No Brexit ASR probability 5%
• Time to Take Profits in Asia-ex-Japan Equities, by Zahra
• Guest article: A Bold Path Forward, by Gerald D. Cohen
• Absolute Surprise: The costs of a hard Brexit, by Raph
• Absolute News: Proposals for eurozone renewal
• Sentiment extremes and markets on the move, by David
• The Four Options for Brexit, by Richard
Economics: US corporate sector: debt & disruption
Equity Strategy: An ASR Global Liquidity Signal For Global Equities
Multi-Asset: Lack of macro ‘uncertainty’ keeping a lid on vol
ASR’s CIO Pack summarises the macro and the market environment and highlights 10 charts from the ASR research team for the month. For May these include:
• Global Equities unlikely to sustain gains
• It’s not just lower oil prices that will challenge global EPS
• Risk of Higher Real Yields may be Overstated
• EUR/USD and Eurozone- US real 5-year swap rate spread
• ASR Newsflow: Fiscal boost offset by Monetary Tightening
• IG Corporate Bonds at risk from skewed debt and duration
• Increasing share of US dividends paid by high debt stocks
• When will the Riksbank accept that policy is too loose?
• Sticking with 7/10yr yield curve steepener
• US Tax reform needs to deal with ‘pass through’ companies
Equity Strategy: Lower Oil Prices will Challenge Global Earnings
Multi-Asset: Good market breadth may be bad news for EZ equities
Economics: International Trade is Also Complicated
Equity Strategy: Equities are Pricing in Slowing Trade Growth
Multi-Asset: BTPs’ shining chance
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This report is not intended to provide personal investment advice and it does not take into account the investment objectives, financial situation and the particular needs of any particular person who may read this report.
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