CoreMacro

South Africa’s ambitious reform agenda will take time to bear fruit. Meanwhile, the country faces a stagflationary squeeze as inflation rises while growth slows. South African stocks, bonds, and currency are all vulnerable.

On Friday, the MacroQuant equity z-score fell to -1.01, below the critical -1 threshold that often coincided with bear markets in the past. With that in mind, today, I am downgrading stocks to a slight underweight on both a 3-month and a 12-month horizon.

Today’s ECB rate hike is not the beginning of a hiking cycle. Growth concerns will soon move to the forefront of ECB policy decisions, preventing further tightening.

Rising volatility in Korean markets captures a late-cycle surge in which euphoria and drawdown risk are rising together. While KOSPI momentum remains intact, the bigger opportunity may be emerging in the increasingly mispriced KRW, which could rally meaningfully as portfolio flow headwinds fade.

Special Report

Based on 40 years of history and some 12,000 IPOs, the evidence suggests that the coming IPO wave may dampen forward market returns, mute further multiple expansion, and possibly interrupt sector trends. That said, even monster-sized IPOs are unlikely to trigger a sustained bear market: only about 20% of mega-IPOs coincide with market peaks. The bigger risk is AI leadership rotation as new listings dilute scarcity premia in existing winners.

Although the multi-decade surge in the value of households’ equity holdings has made US activity more vulnerable to a stock selloff, the latest income, spending and employment data suggest that consumption growth can carry on at a 2% inflation-adjusted pace.

The AI boom will increase inflation in the near term and could also raise it over the long term. The Fed’s reluctance to hike rates is understandable, but it risks amplifying what may already be a brewing stock market bubble.

Special Report

The magnitude of US tech/AI capital spending already rivals past bubble thresholds, threatening hyperscalers’ future returns on capital. There are echoes of previous market tops. Our preferred overlay strategy for equity portfolios remains long semiconductor producers / short hyperscalers.

The rally in Colombia’s financial markets has a short shelf life. The election will bring a right-wing government, but it cannot fix inflation, fiscal arithmetic, or balance-of-payments vulnerabilities. Use the near-term rally to downgrade Colombian fixed income and equities.

Oil shocks hit economies with a lag. China will feel the delayed pain of surging oil prices, pushing Beijing toward infrastructure spending as its main tool to prop up growth.