Wednesday, Jan 13, 2016Hamish Risk | January 13, 2021
It is the nature of things that investors have to be ready to seize the opportunity while preparing for the worst. And in the current polarized investment landscape that has never been more the case. In today’s briefing, MI2 Partners explain how easy it could be for the Federal Reserve to spark market turmoil and how the central bank appears to be sleepwalking towards a policy mistake, while Epsilon Theory warns of the nightmare of an aggressive surge in Covid in the US. On the flipside, HSBC sets out why EM investors have never been so bullish, while Arete Research highlights the tech firms that will benefit from the permanent changes driven by the pandemic and Bank of America explains why investors need to look again at unloved European stocks and why the GRANS are the new FAANGs.
eurodollars Rates MI2 Partners
1. Eurodollars timber?
The Federal Reserve is playing a dangerous game, says Julian Brigden at MI2 Partners, on the one hand talking about underwriting fiscal spending, yet in the same breath discussing tapering later this year and ultimately hiking rates. He says he had thought the Fed understood the risk in markets, but now he is not so sure, and investors need to sit up and listen because this is when bond markets can become unanchored and spark turmoil across asset classes and Brigden thinks a move in the Eurodollar strip should make you very scared.
COVID-19 US economy Epsilon Theory
2. The Ireland event – potential for new US Covid surge
Ben Hunt at Epsilon Theory has released a sobering report warning of how and “Ireland event” could see Covid-19 cases surge in the US. He points to events in Ireland in December in which the R number jumped to “insane levels” thanks to the new more virulent strain, with new cases jumping from a few hundred to more than six thousand in just a few days. Hunt explains how there is a “non-trivial chance” the US could experience a series of “Ireland events” over the next 30 to 45 days as the more virulent strain takes hold and Covid fatigue leads to a rapid spread as social distancing is ignored. As Hunt puts it, a single “Ireland event” is a disaster; a series on the scale of the US is catastrophic.
Emerging markets Investor survey HSBC
3. EM Survey; Investors emboldened
Murat Ulgen at HSBC has released a report after the bank’s EM Sentiment Survey revealed investors are the most bullish since its inception, with many having significantly increased their overweight positions in EM equities and EM FX in recent months. He says Covid-19 still tops the list of potential setbacks for EM, but a clear majority of respondents believe the recovery in the global economy has already started or will start in the first half of the year. The report details the asset classes and regions which investors are most bullish and why ESG concerns are becoming increasingly important.
big tech regulation digitalization Technology Arete
4. Internet and digital consumer stocks in 2021
After a year in which internet and digital stocks have shone thanks to the pandemic, technology specialists Arete have issued a fascinating report on the prospects for the sector. The firm outlines which changes in consumer behaviour brought about by the pandemic are likely to be permanent, and which sectors and companies are likely to thrive as the sector is refashioned. Arete also looks at how regulation is likely to progress in the US, Europe and China, and which big tech stocks could benefit from a break up. Crucially, after a stellar year for growth, Arete says too many stocks in the sector rely on “stories” rather than cash flow or earnings to justify their valuations. The report details a long list of companies lacking any easy path to “grow into” their valuations.
Europe Thematic investing Bank of America
5. Thematic investing: Europe – the next 10 years
The pace of change in many fields is the fastest in history, be it via climate change, demographics or technological innovation, says Haim Israel at Bank of America Global Research, and Europe is no different. He says, however, the continent has been unloved by thematic investors for too long. Israel has therefore issued a report mapping out an investment guide for European investors, highlighting opportunities in the next decade. He sets out which European sectors should benefit most over the next 10 years, and which are set to face the biggest challenges.