Over the past few weeks we have been warning about a continuing underperformance of European equities versus most other equity markets and indeed, most European equity indexes have remained in…This content is for Diamond Membership, Silver Membership, Gold Membership and 1-month Free Trial members only. Log In Get a 1-month Free Trial
In a week that was clearly traumatic in equity markets where all indexes fell by 4 %, our Model Portfolio ended the week flat, despite our decision to cover our hedging positions too early.
Since recording a new all-time high on September 21, 2018, the SP 500 fell by -8% and tested its 200 days moving average for the first time since 2016.
Covering our shorts, Going Long China, Japan, India and Chinese Tech.
The sharp correction we anticipated in the past few weeks ( see our post A sharp global correction may be imminent published on Sep 28th ) took place this week, surprising the majority of investors by its violence.
Back in August 2018, we sold all our positions in Indian equities as we were worried about higher interest rates and the overvaluation of the Indian stock market.
The Indian Rupee had started depreciating since January 2018 losing almost 18 % of it value this year. India’s inflation has been rising towards the 4 % markets, forcing the Central Bank to raise interest rates and we see the currency move as having now ended.
Investors are starting to take notice of Inflation…
Last week’s key event, besides a re-visited NAFTA accord, was the sharp rise in US bond yields that closed up 17 basis points higher at 3.2 % for the 10 years and 3.40 % for the 30 years.
Finally, Investors are taking notice that inflation is back and the labor data published last Friday revealed the lowest unemployment rate since 1969 at 3.7 % and labor costs confirming their strength at +2.8 % year-on-year.
In our various posts since last year, we have been warning about the return of inflation and considered that this was not the time to be invested in fixed rate bonds in any of the major bond markets.
The extra-ordinary measures taken by the US, European and Japanese Central Banks to fight the deflationary effects of the 2008 financial crisis led to a significant period of abnormally low interest rates at the short end where central banks guide interest rates, and at the long end – bonds – through the massive accumulation of long dated fixed rate bonds on the Central banks’ balance sheets.
Last week, as US equity markets were making new all-time highs and emerging markets were rebounding we flashed an orange warning signal.
The weak internal dynamics of US equities, the unusual rise in bonds yields and equity markets at the same time, the loss of leadership of the tech sector and hyper speculative nature of the markets were all elements that triggered warning bells for us.
Azur Asian Equity Fund outperforms the iShares MSCI Emerging Markets Asia ETF by +11.98 % since the beginning of the Year.
Azur Asian Equity Fund, the Asian equity fund that we advise since its inception in November 2014 is up + 4.27 % in 2018 while the iShares MSCI Emerging Markets Asia is down -7.71 % as at 24th September 2018.
Last week was a significant week in the financial markets for many reasons.To us, it flashed a Warning signal. Bond jitters In a very unusual occurrence last week, the Dow Jones…
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