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Tuesday, Dec 1

The process of pricing in an economic recovery in 2021 continues apace, from the equity rotation to the emerging markets, to other beaten up and unloved assets that could offer significant upside potential, as vaccinations are rolled out over the next 12-months. On the latter, the Macro Strategy Partnership has identified the UK as one such market that has fallen out of favour with investors amid its deep recession, relative to other DM economies, and the shadow of Brexit. They argue there’s every opportunity for the country to emerge from 2021 with a strong recovery. Indeed, as Harlyn Research point out after reviewing the performance of the equity rotation, UK value is a stand out performer. More broadly, Harlyn argue, the rotation of no linear exercise, the value trade has already been differentiated into those sectors which have catalysts and those which don’t. We’ve also seen alot of research that highlights the pent up consumer demand in the US as a result of the lockdowns this year, with all sorts of numbers burning holes in pockets. SouthBay Research highlight what the price of diamonds might tell us about what sort of economic rebound we might see in 2021. Meanwhile, in currency markets we’ve been slightly obsessed with the secular shift to a weak US dollar. ECR Research see commodity-linked currencies as a major beneficiary in 2021. Finally, from time to time we highlight high-conviction trade ideas that might be slightly off the beaten track. Today, we take a look at a Canadian firm, Microbix Biosytems, a biotech firm that is set to benefit from a new government contract that will hand it a vital role in testing for Covid-19 and other viral diseases.
  1. Economic recovery UK Macro Strategy Partnership

    1. Back to life, back to reality. Part II

    Last week, we highlighted an important note from James Ferguson at Macro Strategy Partnership, who outlined how the Covid-19 vaccine presented the UK government with an open goal to aggressively – and responsibly – re-open the UK economy much sooner than most think possible. Today we present the second part of that research, in which he explains why the UK’s economic demise may have been greatly exaggerated, and what may well yet fuel the sort of V-shaped recovery that nobody yet seems to believe in.
  2. equity rotation Global equities Harlyn Research

    2. How the world turns – the value trade won’t work everywhere

    Simon Goodfellow at Harlyn Research has issued a real-time survey of how the great rotation is progressing in different regions of the world, and perhaps more importantly what isn’t happening or hasn’t happened yet. The bandwagon of style rotation is starting to roll very fast he says, but clearly happens at different speeds in different regions. Goodfellow sets out the different winners and losers in each region and explains why the UK is experiencing by far the most aggressive rotation. Many value-rich sectors in each region have hardly moved, he notes, suggesting that the value trade has already been differentiated into those sectors which have catalysts and those which don’t.
  3. Commodities Economic recovery SouthBay Research

    3. Diamonds as an indicator for discretionary spending and an economic recovery

    SouthBay Research has built up a formidable record as one of the top forecasters on US economic activity, consistently beating consensus forecasts on Bloomberg and ranking in the Top 3 forecasters on for US employment data. They also produce a range of indicators on economic activity, including semiconductors . In this note SouthBay discusses what diamond prices might indicate about an economic recovery in 2021. The firm highlights a chart of diamond prices since the financial crisis in 2008. In the 2020 period diamond prices have exhibited a U-shaped pattern, and say that the last time they saw a similar U-shaped pattern was in 2009-11, when the surge in prices also coincided with massive central bank liquidity injections and economic expansion. SouthBay says the implication of US discretionary spending perking up – as seen in diamond prices – is that the economy has already returned to growth in the fourth quarter, and the next bull cycle is under way. Indeed, the firm explains why this will be no-ordinary post-recession recovery, thanks to the depth of the contraction and the size of the liquidity injection. Indeed, the firm says investors should expect year-on-year growth north of 15% as cash-rich consumers unleash massive pent-up demand as COVID restrictions end.
  4. currencies EMFX ECR Research

    4. Prospects for the euro are good, but the outlook for EMFX is better

    Edward Markus at ECR Research has issued a note outlining his views on the currency markets in the months ahead. He explains why EM currencies, especially in Asia, are likely to benefit as the global economy recovers from the effects of the coronavirus pandemic and why commodity-linked currencies are also likely to attract inflows. The euro and the dollar are likely to suffer as an increasingly risk-on backdrop lessens haven demand for the two currencies, says Markus, but he explains why ultimately it will be the euro that outperforms as fiscal deadlock in Washington forces the Federal Reserve to keep its foot firmly on the monetary easing pedal.
  5. healthcare high-conviction trade Pennock Idea Hub

    5. Healthcare; Microbix – high conviction idea

    Ed Pennock at Pennock Idea Hub has released his latest high conviction idea, recommending investors take a closer look at Ontario’s Microbix Biosytems. As he explains, the biotech firm is set to benefit from a new government contract that will hand it a vital role in testing for Covid-19 and other viral diseases, while a new blood clot drug has the potential to be a material event for the company.