The Economy
Rising PMIs and capex signal that global growth could be set to rebound even
as the US fiscal cliff should first slow the US economy. Monetary policy to
move into more intense QE mode. 2.4% global growth in 2013, but 2.9% on
Q4/Q4 basis.
Asset allocation
Value, or still high-to-attractive risk premia, outright and vs. delivered
volatility, is at the core of our long equity, credit, and carry strategy. DM
equities near 10% return and credit in the 5% to 7.5% range. Government debt
in EM and DM near zero returns, when hedged into USD. We are long EM
across asset classes, and UW US in equities vs. Europe and Japan, the latter
currency hedged.
Cross asset volatility strategy
Our average implied volatility measure across five asset classes reached a new
post-Lehman low. We view the very low level of implied volatility and the
relentless compression of volatility risk premia as signs of complacency,
which makes us reluctant to recommend outright short vol trades.
Fixed income
We forecast slightly negative government bond returns next year, for the first
time since 1994. We are short duration in DM, but focus most risk on
overweighting the Euro area periphery.
Credit
We stay long credit into 2013. In US HG we focus on BBBs and financials. In
US HY we prefer single-Bs, and bonds to loans. In Europe we prefer HY to
HG, and in EM we focus on NEXGEM sovereigns.
Equities
An underweight in US equities remains our main regional theme for 2013. We
opened an OW in Topix vs. S&P500 currency hedged on Nov 16th. We see
this trade as a theme for 2013. Euro area peripheral countries should
outperform next year as the Euro debt crisis subsides. Favor a long in IBEX35
and MIB vs. DAX for 2013.
Currencies
2013 should see a gradual slide in the dollar versus Europe, and a 10% return
on EM currencies versus the USD.
Commodities
Our 2.9% global growth projection, Q4/Q4 is consistent with a return on
commodities near 10%. We stay long base metals on improving global
economic data and short agriculture on likely higher future production. We
also open a long in US natural gas.
No comments:
Post a Comment