Tuesday, Dec 8Hamish Risk | December 8, 2020
The “new normal” and “unprecedented” are words that nobody is going to miss about 2020, and thanks to the vaccines they could soon be consigned to history. In today’s Macro Briefing 3Fourteen Research explains why for equity investors, the pandemic is over and how the “lockdown losers” are set to thrive as human nature kicks in and people want to, well, party for want of a better word. There is still a hurdle to climb in terms of infection, however, and as Vanda Research reveals, a gap between consensus trading convictions and the actual positions investors have put in place in the market. Talking of consensus thinking, 4X Global Research sets out why headlines over a strengthening renminbi are so misleading, Yardeni Research argues the case against worrying about bond vigilantes and in today’s ESG segment Liberum clears up some common misconceptions about ESG investing.
cyclical rotation economic reopening Global equities 3Fourteen Research
1. Deus ex machina – how to trade the reopeningWarren Pies at 3Fourteen Research believes the positive effects of multiple effective vaccines cannot be overstated. For equity investors, that means the coronavirus crisis is over, he says, and sets out why the rally in “lockdown losers” is only just getting started. Pies explains how the pandemic has changed the relationships between and among groups of stocks, and highlights which stocks and sectors are set to benefit the most as the world returns to normal and, as he puts it, the permanence of human nature is revealed.
market positioning Vanda Research
2. Positioning: Consensus expectations and investor crowdingVanda Research are the global leaders in assessing investor positioning across markets, and the firm’s Eric Liu has released a series of notes examining market positioning and expectations as new consensus builds following the news of multiple coronavirus vaccines and the result of the US presidential election. As he observes, consensus views and what investors are actually doing do not always match up. From crowded equity trades and gold to the growing attraction of value stocks and EM, Liu looks at investor positioning, identifying the consensus trades, and highlighting which assets are likely to struggle to advance until the New Year, and in which markets real opportunities exist right now. If you want more detail on Vanda’s positioning data or would like to view samples of their work, click below.
currencies RMB 4X Global Research
3. Far more to the renminbi than USDCNYOlivier Desbarres at 4X Global Research believes too much focus is put on USDCNY and that has fed a consensus view that Chinese policymakers are happy to allow further appreciation of the renminbi in the face of a rising trade surplus and strong capital account inflows. On the contrary, he says price action in the FX market actually shows Chinese policymakers have been gradually weakening their currency, with the renminbi nominal effective exchange rate (NEER) easing in recent weeks as Beijing fights to put a floor under domestic consumer prices that are flirting with deflation. Click here to contact us for the full report and discover why the risk is tilted towards further weakening of the renminbi.
Equities Inflation Rates Yardeni Research
4. The Carrie trade – from bond vigilantes to bond zombiesNot the carry trade – the Carrie trade. Ed Yardeni’s latest newsletter describes the nightmare facing investors if bond vigilantes and inflation rise from the dead a la Stephen King’s eponymous heroine. And they are not the only thing concerning investors, he says – they also have to worry about Dow zombies and the dollar zombies putting in an appearance. As Yardeni says, it is hard get a clear signal from the financial markets given price mechanisms have been so distorted by the Fed and other central banks. He says as long as they keep buying their own government paper, however, risky assets should remain supported and the bond vigilantes, Treasury yields and inflation should remain in check.
5. The truthiness of ESG criticismIn his ever thought-provoking column, Joachim Klement at Liberum takes a pot shot at those that insist that ESG investing is, by definition, somehow sub-optimal. He rails at the “truthiness” of the notion that ESG investing faces more constraints than any other approach. In the end, says Klement, the uncertainties around forecasts are so much bigger than any constraint that modern ESG investing may put on your portfolio. As Klement goes onto explain, anyone who thinks any differently is either uneducated on the subject, or unwilling to learn.