nvestment outlook · to quality could produce less favourable conditions. europe is experiencing a...

INVESTMENT OUTLOOKMay 2017

Quantum Global Investment Management AG · Bahnhofstrasse 2 · 6300 Zug · SwitzerlandPhone +41 41 560 29 00 · Fax +41 41 710 63 00 · [email protected] · www.quantumglobalgroup.com

Geopolitical Event Risk - High on the Agenda

Developed and Emerging MarketsIt’s been an eventful start to Q2 2017. Capital markets have absorbed further US tension withMiddle and Far-Eastern countries, they have faced mounting uncertainty and hype surroundinga change in leadership for the French and a strategic General Election was called by the UK’sPrime Minister in order to strengthen the Conservative’s hold over Brexit negotiations.Emerging Markets are digesting a controversial referendum held in Turkey with regard toErgogan’s wishes for Executive Power, South Africa has received a downgrade to junk in light ofZuma’s political cabinet re-shuffle and commodity markets continue to be shaped by arebalancing in Oil, whilst many head to Gold as an asset for safety. The US Government curtailedsome expenditure plans in order to pass the spending bill, through to September. Further detailswere also released of intended fiscal reforms. Implementation of trade tariffs between the USand Canada were highly criticised.

CurrenciesThe US Dollar fell during the month, following comments from Donald Trump who suggestedsome overvaluation and therefore a lack of competitiveness. It is also important to note hisreversal in labelling China as a currency manipulator, perhaps to underline a more generoustrade deal and gain backing to advance on North Korea. The Euro spiked to a recent high, postthe first round of French elections and the Japanese Yen traded through 110 versus the USDollar, as investors sought some respite from volatility. Emerging Market currencies havebenefitted too, such as the Mexican Peso, South African Rand, Chinese Yuan and the TurkishLira.

Energy and other commoditiesSome OPEC members have expressed concern regarding US output in Oil. The agreement standsthat production shall be cut by approximately 1.8mm/bpd for the first six months of 2017. BothSaudi Arabia and Kuwait have indicated support for an extension to this. The agreement has tobe honoured in order to sustain current energy levels. Brent and WTI indicators continue totrade between high $40s/mid-$50s per barrel. Gold has acted as a safe haven for some,outshining other precious and base metals during the month and furthering it’s appreciationyear-to-date. It should continue this path through periods of uncertainty and a weaker USDollar.

(see illustration on next page: “Asset Class Comparison”)

MACRO-ECONOMICS AND CURRENCIES

2


Illustration (Section “Macro-Economics and Currencies”):Asset Class Comparison

Source: Bloomberg Finance L.P.Graph: Quantum Global Investment Management (1-year rolling, daily, indexed)Indices: Commodities: RJ/CRB Commodity Index Total Return Price Index. The base currency is

USD.Equities: MSCI All Country World Index includes both developed and emerging

world markets. The base currency is USD.Govt. Bonds: The Bank of America Merrill Lynch Global Government Index tracks the

performance of investment grade sovereign debt in local currency. The base currency is USD.

USD: U.S. Dollar Index indicates the general international value of the USD by averaging the exchange rates between the USD and major world currencies.

MACRO-ECONOMICS AND CURRENCIES

3


Global Bond Markets

Major sovereign yield curves have experienced a flattening, despite central banks from thedeveloped regions tightening monetary policy or commenting on potential reductions instimulus, given growth improvements.

High quality government bonds rose on political tensions through the month. US Treasurieswere also supported by mixed economic data and an unexpected dip in job creation forMarch. This was compounded by President Trump’s remarks, now favouring low rates and aweaker US Dollar. Gains made from being positioned within the low risk spectrum werepartially given back, however, toward the end of the month as news of notable fiscal taxreforms were released out of the US. European woes were also quashed, post first round ofthe French leadership elections.

Credit markets held well with global high yield and emerging markets continuing to deliver.New issuance is strong amongst the debt capital markets, demand for issuer funding iswidespread and investor appetite is robust.

(see illustration on next page: “Government Bonds vs. Corporate Debt”).

FIXED INCOME

4


Illustration (Section «Fixed Income»): Government Bonds vs. Corporate Debt

Source: Bloomberg Finance L.P.Graph: Quantum Global Investment Management (1-year rolling, daily, indexed)Indices: US Treasury: The US Treasury Bond Index includes fixed rate coupon U.S. Treasuries with

maturities greater than 12 months. The base currency is USD.Eurozone Sov.: The Eurozone Sovereign Bond Index includes fixed-rate local currency

securities issued by Eurozone countries. The base currency is EUR.Japan Sov: The Japan Sovereign Bond Index includes fixed-rate JPY securities issued

by Japan. The base currency is JPY.IG Corp: The Global Investment Grade Corporate Bond Index includes

investment grade, fixed-rate securities issued in major domestic andEuro-bond markets. The base currency is USD.

HY Corp: The Global High Yield Corporate Bond Index includes non-investmentgrade, fixed-rate, taxable securities issued by global corporates. The basecurrency is USD.

FIXED INCOME

5


Global Equity Markets

Global equity markets have proven resilient and overall, the mood demonstrated byinvestors is risk-on.

Stock indices appreciated toward the end of the month as uncertainties related to globalpolitical events dissipated. US equities traded around all time highs, as did the German XetraDax. Notable performance came from within Europe as the CAC 40 rallied on the result ofthe first round of the French elections. Volatility indices which measure the nervousness ofmarkets, crashed to recent lows in response to the bullish mood and markets edging higher.The UK’s FTSE 100 was this month’s underperformer, linked to the surge in value of theBritish Pound, versus it’s major peers.

Corporate earnings have so far been encouraging, setting expectations high for a stonger USeconomy but also to grow at a faster pace.

(see illustration on next page: “Major Equity Indices”)

EQUITIES

6


Illustration (Section “Equities”): Major Equity Indices

Source: Bloomberg Finance L.P.Graph: Quantum Global Investment Management (1-year rolling, daily, indexed)Indices: S&P 500: The Standard & Poor’s 500 Index includes 500 U.S stocks representing

all major industries. The base currency is USD.Stoxx Europe: The STOXX Europe 600 Index includes 600 stocks across 18 countries of

the European region. The base currency is EUR.Nikkei-225: The Nikkei-225 Index includes 225 top-rated Japanese companies. The

base currency is JPY.MSCI EM: The MSCI Daily Total Return Net Emerging Markets index captures large

and mid cap representation with 832 stocks across 23 EmergingMarkets countries. The base currency is USD.

VIX Index: The Chicago Board Options Exchange Volatility Index reflects a marketestimate of future volatility and includes an average of the impliedvolatilities for a wide range of option strikes. The base currency is USD.

EQUITIES

7


Market ImplicationGlobal markets have shown resilience in recent weeks and continue to record moderate gains. Postelection optimism in the US has cooled and domestic economic data has been mixed. However, aslong as there are no major surprises to the downside and international military action is averted,expansionary improvement should continue. Central banks should carefully manage out ofaccommodative policies, as the fallout from hawkish actions coupled with a politically charged flightto quality could produce less favourable conditions. Europe is experiencing a swath of electionswhich will continue into H2 2017, promoting volatility and uncertainty as the populist movementremains strong. Meanwhile, China should be on track to achieve 6.5% GDP this year, citing aslowdown in capital outflows and a stable Yuan, after last years fear of instability subsided.

Asset AllocationWe remain positive on equities as global earnings improve and the landscape for corporates isunderpinned by stable growth. Increasing inflationary pressures should force interest rates higherand thus we prefer credit over government rates. The risks being a) Brexit negotiations, b) electionsacross core Europe and c)the US administration susceptible to over promising and under delivering.

Fixed Income:Interest rates are set to rise further but short-term there are many risks to this assumption, whichwould keep them relatively low versus historic averages. Global credit should find itself in suitableconditions to perform within the current growth environment and we note a bias to short durationportfolios, with a tilt to lower credit quality from the developed and emerging markets.

Equities:Global earnings are on an improving trend that imparts an upward bias to stock prices. We expectglobal equity prices to rise moderately in the coming year.

Currencies:The US Dollar’s advancement versus peers will continue grind higher whilst other major economiespersist with accommodative monetary policy. A risk to this is a lack of progression from the alreadyannounced US Presidential reforms and an early end to the ECB’s current stimulus program.Emerging market currencies have performed well through 2017 and are also at risk of a partialcorrection. The Japanese Yen and Swiss Franc should benefit in more volatile periods.

Commodities:Oil markets will continue to trade range bound until a significant agreement can be achieved in orderto curtain production. As China continues to grow, base metals will be in demand and Gold shouldcontinue to act as a safe have asset in times of uncertainty.

OUTLOOK

8

9

DISCLAIMER

Quantum Global Investment Management AG (“Quantum Global”) has taken every effort to ensure the accuracy of the informationcontained in this report. All information contained in this report is obtained from sources believed to be accurate and reliable. Theestimates, strategies, and views expressed in the report are based upon past or current market conditions and/or data and informationprovided by third parties (which has not been independently verified) and is subject to change without notice. Quantum Global does notguarantee the appropriateness, accuracy, usefulness or any other matter whatsoever regarding this information. While all informationpresented is believed to be accurate and reliable, it is prepared “without audit” unless otherwise identified as audited financialinformation. Due to the possibility of human or mechanical error as well as other factors, this information is provided “as is” withoutwarranty of any kind and Quantum Global makes no representation, express or implied, as to the accuracy, reliability, completeness, ortimeliness of this information, and is not responsible for any loss or damages incurred by parties using this information.

Forward Looking Statements

The report may contain “forward-looking statements.” Forward-looking statements include, without limitation, any statement that maypredict, forecast, indicate or imply future results, performance or achievements, and may contain the words “believe,” “anticipate,”“expect,” “estimate,” “intend,” “project,” “plan,” “will likely continue,” “will likely result,” or words or phrases with similar meaning.Forward-looking statements involve risks and uncertainties, including, but not limited to, economic, competitive, governmental andtechnological factors outside of Quantum Global’s control. Quantum Global does not intend, and undertakes no obligation, to update anyforward looking statements.

nvestment outlook · to quality could produce less favourable conditions. europe is experiencing a...

Documents