INVESTMENT OUTLOOK. May 2017

Transcription

1 INVESTMENT OUTLOOK May 2017

2 MACRO-ECONOMICS AND CURRENCIES Geopolitical Event Risk - High on the Agenda Developed and Emerging Markets It s been an eventful start to Q Capital markets have absorbed further US tension with Middle and Far-Eastern countries, they have faced mounting uncertainty and hype surrounding a change in leadership for the French and a strategic General Election was called by the UK s Prime Minister in order to strengthen the Conservative s hold over Brexit negotiations. Emerging Markets are digesting a controversial referendum held in Turkey with regard to Ergogan s wishes for Executive Power, South Africa has received a downgrade to junk in light of Zuma s political cabinet re-shuffle and commodity markets continue to be shaped by a rebalancing in Oil, whilst many head to Gold as an asset for safety. The US Government curtailed some expenditure plans in order to pass the spending bill, through to September. Further details were also released of intended fiscal reforms. Implementation of trade tariffs between the US and Canada were highly criticised. Currencies The US Dollar fell during the month, following comments from Donald Trump who suggested some overvaluation and therefore a lack of competitiveness. It is also important to note his reversal in labelling China as a currency manipulator, perhaps to underline a more generous trade deal and gain backing to advance on North Korea. The Euro spiked to a recent high, post the first round of French elections and the Japanese Yen traded through 110 versus the US Dollar, as investors sought some respite from volatility. Emerging Market currencies have benefitted too, such as the Mexican Peso, South African Rand, Chinese Yuan and the Turkish Lira. Energy and other commodities Some OPEC members have expressed concern regarding US output in Oil. The agreement stands that production shall be cut by approximately 1.8mm/bpd for the first six months of Both Saudi Arabia and Kuwait have indicated support for an extension to this. The agreement has to be honoured in order to sustain current energy levels. Brent and WTI indicators continue to trade between high $40s/mid-$50s per barrel. Gold has acted as a safe haven for some, outshining other precious and base metals during the month and furthering it s appreciation year-to-date. It should continue this path through periods of uncertainty and a weaker US Dollar. (see illustration on next page: Asset Class Comparison ) 2

3 MACRO-ECONOMICS AND CURRENCIES Illustration (Section Macro-Economics and Currencies ): Asset Class Comparison Source: Bloomberg Finance L.P. Graph: Quantum Global Investment Management (1-year rolling, daily, indexed) Indices: Commodities: RJ/CRB Commodity Index Total Return Price Index. The base currency is USD. Equities: MSCI All Country World Index includes both developed and emerging world markets. The base currency is USD. Govt. Bonds: The Bank of America Merrill Lynch Global Government Index tracks the performance of investment grade sovereign debt in local currency. The base currency is USD. USD: U.S. Dollar Index indicates the general international value of the USD by averaging the exchange rates between the USD and major world currencies. 3

4 FIXED INCOME Global Bond Markets Major sovereign yield curves have experienced a flattening, despite central banks from the developed regions tightening monetary policy or commenting on potential reductions in stimulus, given growth improvements. High quality government bonds rose on political tensions through the month. US Treasuries were also supported by mixed economic data and an unexpected dip in job creation for March. This was compounded by President Trump s remarks, now favouring low rates and a weaker US Dollar. Gains made from being positioned within the low risk spectrum were partially given back, however, toward the end of the month as news of notable fiscal tax reforms were released out of the US. European woes were also quashed, post first round of the French leadership elections. Credit markets held well with global high yield and emerging markets continuing to deliver. New issuance is strong amongst the debt capital markets, demand for issuer funding is widespread and investor appetite is robust. (see illustration on next page: Government Bonds vs. Corporate Debt ). 4

5 FIXED INCOME Illustration (Section «Fixed Income»): Government Bonds vs. Corporate Debt Source: Bloomberg Finance L.P. Graph: Quantum Global Investment Management (1-year rolling, daily, indexed) Indices: US Treasury: The US Treasury Bond Index includes fixed rate coupon U.S. Treasuries with maturities greater than 12 months. The base currency is USD. Eurozone Sov.: The Eurozone Sovereign Bond Index includes fixed-rate local currency securities issued by Eurozone countries. The base currency is EUR. Japan Sov: The Japan Sovereign Bond Index includes fixed-rate JPY securities issued by Japan. The base currency is JPY. IG Corp: The Global Investment Grade Corporate Bond Index includes investment grade, fixed-rate securities issued in major domestic and Euro-bond markets. The base currency is USD. HY Corp: The Global High Yield Corporate Bond Index includes non-investment grade, fixed-rate, taxable securities issued by global corporates. The base currency is USD. 5

6 EQUITIES Global Equity Markets Global equity markets have proven resilient and overall, the mood demonstrated by investors is risk-on. Stock indices appreciated toward the end of the month as uncertainties related to global political events dissipated. US equities traded around all time highs, as did the German Xetra Dax. Notable performance came from within Europe as the CAC 40 rallied on the result of the first round of the French elections. Volatility indices which measure the nervousness of markets, crashed to recent lows in response to the bullish mood and markets edging higher. The UK s FTSE 100 was this month s underperformer, linked to the surge in value of the British Pound, versus it s major peers. Corporate earnings have so far been encouraging, setting expectations high for a stonger US economy but also to grow at a faster pace. (see illustration on next page: Major Equity Indices ) 6

7 EQUITIES Illustration (Section Equities ): Major Equity Indices Source: Bloomberg Finance L.P. Graph: Quantum Global Investment Management (1-year rolling, daily, indexed) Indices: S&P 500: The Standard & Poor s 500 Index includes 500 U.S stocks representing all major industries. The base currency is USD. Stoxx Europe: The STOXX Europe 600 Index includes 600 stocks across 18 countries of the European region. The base currency is EUR. Nikkei-225: The Nikkei-225 Index includes 225 top-rated Japanese companies. The base currency is JPY. MSCI EM: The MSCI Daily Total Return Net Emerging Markets index captures large and mid cap representation with 832 stocks across 23 Emerging Markets countries. The base currency is USD. VIX Index: The Chicago Board Options Exchange Volatility Index reflects a market estimate of future volatility and includes an average of the implied volatilities for a wide range of option strikes. The base currency is USD. 7

8 OUTLOOK Market Implication Global markets have shown resilience in recent weeks and continue to record moderate gains. Post election optimism in the US has cooled and domestic economic data has been mixed. However, as long as there are no major surprises to the downside and international military action is averted, expansionary improvement should continue. Central banks should carefully manage out of accommodative policies, as the fallout from hawkish actions coupled with a politically charged flight to quality could produce less favourable conditions. Europe is experiencing a swath of elections which will continue into H2 2017, promoting volatility and uncertainty as the populist movement remains strong. Meanwhile, China should be on track to achieve 6.5% GDP this year, citing a slowdown in capital outflows and a stable Yuan, after last years fear of instability subsided. Asset Allocation We remain positive on equities as global earnings improve and the landscape for corporates is underpinned by stable growth. Increasing inflationary pressures should force interest rates higher and thus we prefer credit over government rates. The risks being a) Brexit negotiations, b) elections across core Europe and c)the US administration susceptible to over promising and under delivering. Fixed Income: Interest rates are set to rise further but short-term there are many risks to this assumption, which would keep them relatively low versus historic averages. Global credit should find itself in suitable conditions to perform within the current growth environment and we note a bias to short duration portfolios, with a tilt to lower credit quality from the developed and emerging markets. Equities: Global earnings are on an improving trend that imparts an upward bias to stock prices. We expect global equity prices to rise moderately in the coming year. Currencies: The US Dollar s advancement versus peers will continue grind higher whilst other major economies persist with accommodative monetary policy. A risk to this is a lack of progression from the already announced US Presidential reforms and an early end to the ECB s current stimulus program. Emerging market currencies have performed well through 2017 and are also at risk of a partial correction. The Japanese Yen and Swiss Franc should benefit in more volatile periods. Commodities: Oil markets will continue to trade range bound until a significant agreement can be achieved in order to curtain production. As China continues to grow, base metals will be in demand and Gold should continue to act as a safe have asset in times of uncertainty. 8

9 DISCLAIMER Quantum Global Investment Management AG ( Quantum Global ) has taken every effort to ensure the accuracy of the information contained in this report. All information contained in this report is obtained from sources believed to be accurate and reliable. The estimates, strategies, and views expressed in the report are based upon past or current market conditions and/or data and information provided by third parties (which has not been independently verified) and is subject to change without notice. Quantum Global does not guarantee the appropriateness, accuracy, usefulness or any other matter whatsoever regarding this information. While all information presented is believed to be accurate and reliable, it is prepared without audit unless otherwise identified as audited financial information. Due to the possibility of human or mechanical error as well as other factors, this information is provided as is without warranty of any kind and Quantum Global makes no representation, express or implied, as to the accuracy, reliability, completeness, or timeliness of this information, and is not responsible for any loss or damages incurred by parties using this information. Forward Looking Statements The report may contain forward-looking statements. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words believe, anticipate, expect, estimate, intend, project, plan, will likely continue, will likely result, or words or phrases with similar meaning. Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental and technological factors outside of Quantum Global s control. Quantum Global does not intend, and undertakes no obligation, to update any forward looking statements. 9