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CoreMacro

BCA’s flagship global macro and investment strategy platform, helping investors anticipate regime shifts, connect signals across regions and asset classes, and navigate the world’s most difficult macro questions.

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Informe especial At last year's BCA New York Investment Conference, I made five controversial predictions. This week's Special Report looks at how they have panned out.
The Fed delivered a "hawkish hold." Remain tactically short U.S. equities and position for a stronger dollar. Meanwhile, the Bank of Japan laid out a radical overhaul: The new framework is consistent with price-level targeting and debt monetization. Long-term investors should position for a weaker yen and higher Japanese equity prices. Also, stay structurally underweight Japanese bonds: Zero is a resting point, rather than a final destination, for 10-year JGB yields.
The sharp spike in HIBOR will be short lived. The RMB "carry trade" has been largely unwound. The RMB will not experience the intense selling as seen in the past year. H shares are still trading at substantial discounts to A shares, which will inevitably continue to draw domestic investors. Strategically, H shares remain a better bet than their domestic counterparts.
Are negative yields on $10 trillion of global bonds a sure sign of a bubble? The answer is no... and yes.
The fiscal spending impulse in China is still positive but receding. The nation's productivity and potential GDP growth are bound to decline due to a rising role of government in capital and resource allocation. Hence, cyclical stabilization could well be overwhelmed by a structural slowdown. Another bubble is forming in China, this time in the corporate bond market. The amelioration in Korean and Taiwanese exports is due to the technology sector/semiconductors, and does not reflect broad-based improvement in global trade.
Informe especial The secular bond bull market is over. Safety is in a bubble. The shift from monetary to fiscal easing is the most likely candidate to prick the bubble in safety. In this piece we revise our yield portfolio to increase its resilience to interest rate shocks.
A looming Fed rate hike will weigh on stocks over the coming weeks. One of the reasons cited for raising rates is the possibility that continued low interest rates are endangering financial stability. Historical evidence suggests that excessive financial deregulation, rather than lower interest rates, has been the primary cause of financial crises. In fact, easy monetary policy - to the extent that it leads to higher inflation and higher nominal interest rates - can actually enhance financial stability.
China's industrial sector is showing signs of regained strength. Odds of immediate fresh stimulus measures have declined, but Fed tightening will not become a serious policy constraint for the PBoC. Chinese stocks will not be immune in a broader global selloff, but the risk-return profile of this asset class is still favorable. Expect H shares to grind higher, albeit with increased volatility.
Today's dangerous distortion does not result from credit excesses. It results from an irrational mispricing of risk caused by a protracted period of ultra-loose monetary policy. In turn, the ultra-loose monetary policy results from the dangerous dogma of the 2% inflation target. How should investors position short-term and long-term?
Informe especial EM corporate credit spreads are too tight according to our fair value model. Such expensive valuations in conjunction with a strong sell signal from our Corporate Financial Health (CFH) Monitor signify that the EM corporate credit market is very vulnerable. The CFH Monitor currently heralds a major relapse in EM risk assets. A new relative value recommendation: long Russian and Chilean / short off-shore China corporate credit.