Latest from BCA Research
The longer the Strait of Hormuz remains closed, the more likely the Eurozone will experience an economic recession, as higher energy prices, supply chain disruptions, and weaker global demand slowly grind the European economy to a halt. The relief rally is running out of time. Investors should add exposure to the best-performing sectors following past oil supply shocks: Energy, pharma, and utilities.
The S&P 500 finished last week at an all-time high as optimism over earnings has pushed the Iran conflict out of the spotlight. Despite uncertainty in the Strait of Hormuz, we do not think investors have enough evidence to justify underweighting equities and other risk assets.
Chinese onshore equities are riding the global “scarcity trade,” powered by tight semi supply and surging alternative-energy demand. How should investors position in this environment?
The Iran war has damaged LNG production capacity and halted tanker flows through the Strait of Hormuz. We assess the conflict's impact on LNG markets over cyclical and structural horizons.
Most of the increase in S&P 500 earnings estimates this year has stemmed from shortages. The oil shortage, which has pushed up estimates for energy companies, will fade once the military conflict is resolved. However, the shortage of semiconductors and other AI paraphernalia could persist for a while longer. As such, we are moving our recommended 12-month equity allocation from a slight underweight to neutral. We are already neutral on a 3-month horizon.
In the US, the oil shock’s impact is more inflationary than recessionary but in the other economies, like the UK, the impact is both inflationary and recessionary. This creates relative value opportunities for bond investors. Plus, we reiterate short AUD/JPY as a trade.
With central banks largely on hold, the return of a lower volatility environment is bringing carry trades back into focus. We outline the most attractive carry opportunities across global fixed income markets.
We recommend increasing exposure to spread product as the US economy transitions back into a low rate vol regime.
Peru is well established to elect a pro-market government in the June 7 run-off, with institutional constraints limiting left-tail policy risks. We will go long Peruvian assets when Hormuz volatility subsides.