Find anything about our products, search our faqs, and more.
Type your query in the search above and press enter to see the results
Try typing "Card activation"
Chief Investment Officer's team, 11.03.2019
Last week printed the first significantly negative performance of 2019 so far. The magnitude remained moderate, with global equities losing 2% across regions.
Last week however saw the return of growth concerns: China communicated lower than expected growth targets for 2019, and the ECB significantly lowered its outlook for both growth and inflation, prompting the buzzword “Japanification” across trading floors. In addition, job creations in the US were much lower than expected in February.
The negative week shouldn’t come as a surprise: markets were a bit optimistic, quickly correcting their undervaluation as good news on the Fed and trade war caught many investors by surprise. This is why we cut our exposure to DM Equities 10 days ago from overweight to underweight: there was very little remaining upside potential, based on our fundamental framework.
Our stance on the recent news is however simple. 6% growth in China is still very supportive, Europe is actually slowing (and we are underweight on the region across asset classes) and monthly job numbers in the US can reverse very quickly (we would wait for a confirmation and don’t find reasons to be overly concerned in the details). We thus are confident in our current recommended positioning.
Asset classes USD % total return, YTD 2019 and week
No sooner had investors thrown in the towel at the December lows, than risk assets staged one of their strongest rallies ever, to catch up promptly with fundamentals and trade at the upper-end of their foreseeable range. And as promptly, risk assets have now started to reverse course.
At the December lows, when talk of impending recession was rife, the all-clear was signaled by a very strong US payrolls number, while last week payrolls increased by a dismal amount. Overall, this points to the continuation of the global soft patch, with the US economy, while still sporting more than decent growth, converging to the sluggish rest-of-the-world. Talk of recession is of course again resurfacing, as manufacturing business confidence sits in contraction territory both in Europe, Japan and China and trade disputes, although by the day seemingly more likely to be sorted out, remain unresolved.
We have shown some prescience by recently trimming down Developed Market equity positioning to increase cash. We want to be able to take advantage of potential opportunities when valuations and fundamentals again intersect at more appealing levels. We also reconfirm the view that recessionary concerns seem to be overblown to us. Following the January Fed pivot, other central banks are following in the footsteps by turning more dovish, both in the Emerging Markets and in Europe. At the same time, the People’s Bank of China continues to press ahead with more stimulus. Usually, easier credit conditions tend to lead business conditions, hence we would expect growth to pick up in the second half, rather than slide into negative territory. Also, labor markets and the service sector remain quite resilient, providing an offset to poor manufacturing conditions.
To be sure, for the shorter term intermarket relationships and technicals are flashing red. Our EM equity and Forex sentiment models have landed in overbought territory, DM equities are not sitting far from fair values, and the S&P500 has hit the resistance level from where it is being pushed back for the fourth time this year. With macro slipping, good news to an extent priced-in and no obvious positive catalysts in sight, we would think that more weakness lies ahead in the immediate future.
The Japanese yen, currently oversold, looks ripe for a rebound, alongside gold. US treasury yields, although rich, can slip further from here if the flight to quality intensifies. Against this backdrop, high-dividend-yielding equities are expected to outperform, and high-beta stocks, which have year-to-date led gains, to sell off harder.
The Trade-Weighted US dollar, again close to resistance level, is no longer overbought according to our Risk Appetite Indicators, nor is its positioning overly crowded. Hence, against our initial expectations, it can rise to new highs for the year following rising market volatility.
Tactical Asset Allocation: simplified positioning
TAA – relative positioning – moderate profile
TAA – YTD indicative performance
Fixed Income Update
From synchronized growth to synchronized slowdown
It has been an eventful week with flux on sentiment from ECB’s downbeat economic assessment and mixed US payrolls report propping demand for safe-haven assets. US Treasuries were key beneficiary with yields dropping 9bps to back to 2.62%. The dovish tone by policymakers in the APAC region on their underlying economic front also triggered a rally, particularly on the Australian and New Zealand bonds pushing yields 13-16 bps lower to 2.02% and 2.05%. The ECB revised down growth and inflation forecasts, stating that the Eurozone growth momentum has weakened substantially. Authorities expect interest rates to remain unchanged “at least through the end of 2019”. Bond yields across the Eurozone dropped between 10bps to 15bps in absolute terms while some of the European HY credit based crossover indices (Markit iTraxx) widened in response to investor sentiment.
On the non-farm payrolls, the US economy added just 20,000 jobs in February, way less than expected. The unemployment rate dropped to 3.8% from 4.0%, indicating the contrasting strength of the household survey, while average hourly earnings rose a better-than-expected 3.4% from last year. US yield curve (30Y minus 5Y) steepened to 58bps for the first time in a year. The focus would turn this week to inflation data prints on the consumer prices, followed by producer prices, and the survey results on inflation expectations. These data are critical to assessing the shape of the yield curve and further calibrate our long-term positioning.
EM: How much can China stimulate? Can India’s curtail on bond purchase sustain?
The authorities have adopted prudent fiscal stimulus and embarked on monetary policy tools to spur credit and growth this year. The Peoples Bank of China Governor Yi Gang has emphasized that China still has some room to lower the reserve requirement ratio (RRR) and that monetary policy in 2019 should "reflect counter-cyclical adjustments" and strike a balance between tightening and easing while considering external factors. The current RRR for larger and smaller banks stand at 13.5% & 11.5% from their peak levels of 21.5% & 19.5% witnessed back in 2011.
The Reserve Bank of India is shortening its support for the bond market, investors’ hopes of relief are reeling under two straight months of declines. According to Bloomberg News, the Reserve Bank of India may buy INR 1.7tn, which is about USD 24bn of debt in the year starting on April 1st as compared to INR 3tn during the fiscal year. The increase in government spending should relax the burden on RBI’s purchases while policymakers keep a close watch on liquidity conditions. With INR stability, benign inflation (below RBI target) we expect bond yields to be well supported ahead of the elections in May.
Emirates NBD has hired banks to arrange fixed income investor meetings before a potential issue of US dollar-denominated bonds. The planned deal would be of benchmark size, Additional Tier 1 perpetual bond not callable for six years.
Fixed Income key convictions
Fixed Income valuations
High-Yield credit protection sought by investors
Most major equity markets last week gave back some of their 2019 gains, on growth concerns (weaker than expected Chinese export data, reduction in manufacturing orders in Germany, a weak US jobs report, ECB Outlook…). Wages ticking higher, with hourly earnings by 3.4% YoY could be seen as pressuring corporate margins. A trade deal is now at least partially priced but would help sentiment. However, China turning into a free market and giving US companies carte blanche, is still some time away. China stimulus to boost the economy was however welcomed, as all eyes are on maintaining the magic 6% GDP growth number which is required with the country’s debt. Q1 corporate earnings are likely the most important fundamental catalyst in the coming weeks. Expectations are low which could help.
The S&P 500 finished the week 2.1% lower with defensive sectors leading over cyclicals. MSCI Emerging Markets printed a negative -2.2% (total return, USD) last week. We still have some upside potential there to our fair values, which is why the segment has our preference, especially Asia. China valuations remain attractive in absolute and relative to some other emerging markets. India should settle down as elections are approaching, and as economic growth and corporate profitability are still fine. Valuations have always been at a premium but the long-term prospects are supportive.
The UAE’s high dividend paying companies in the real estate sector look very attractive as they provide reassurance that dividend payouts are on schedule and at levels equal to previous years. The banks have high payouts too, however most have already rallied as dividends have already been paid out.
Equity recommended regional positioning
Major indices performance (TR, US$) and 2019PE
Global sector performance (TR, US$) and 2019PE
Written By:Maurice Gravier Chief Investment Officer, Maurice G@EmiratesNBD.com
Emirates NBD Bank PJSC (“Emirates NBD”) is licensed and regulated by the UAE Central Bank and this website aims at providing Internet users with information concerning Emirates NBD Private Banking, its products and activities. Persons having access to information made available by Emirates NBD on this website accept the following rules:
Emirates NBD uses reasonable efforts to obtain information from sources which it believes to be reliable, however Emirates NBD makes no representation that the information or opinions contained in publications on this website are accurate, reliable or complete. Published information may include data/information from stock exchanges and other sources from around the world and Emirates NBD does not guarantee the sequence, accuracy, completeness, or timeliness of information contained on this website provided thereto by unaffiliated third parties. Anyone proposing to rely on or use the information contained on this website should independently verify and check the accuracy, completeness, reliability and suitability of the information and should obtain independent and specific advice from appropriate professionals or experts. Further, references to any financial instrument or investment product are not intended to imply that an actual trading market exists for such instrument or product. Emirates NBD is not acting in the capacity of a fiduciary or financial advisor. Any publications on this website are provided for informational purposes only and are not intended for trading purposes. Data/information provided herein is intended to serve for illustrative purposes and is not designed to initiate or conclude any transaction. The information available on this website is not intended for use by, or distribution to, any person or entity in any jurisdiction or country where such use or distribution would be contrary to law or regulation. This website and anything contained herein, is provided "as is" and "as available," and that Emirates NBD makes no warranty of any kind, express or implied, as to this website, including, but not limited to, merchantability, non-infringement, title, or fitness for a particular purpose or use.
The provision of certain data/information on this website is subject to the terms and conditions of other agreements to which Emirates NBD is a party. Emirates NBD reserves the right to make changes and additions to the information provided at any time without prior notice. The information may be modified or removed without prior notice. No buy or sell orders submitted via the internet or email will be accepted. In addition, the data/information contained on this website is prepared as of a particular date and time and will not reflect subsequent changes in the market or changes in any other factors relevant to the determination of whether a particular investment activity is advisable.
Information contained on this website is believed by Emirates NBD to be accurate and true, in all material respects. Emirates NBD accepts no responsibility whatsoever for any loss or damage caused by any act or omission taken as a result of the information contained on this website. Further Emirates NBD accepts no liability for the information and opinions published on the website and is under no obligation to remove outdated information from its website or to mark it clearly as such. The information given on this website may not be distributed or forwarded in whole or in part. Accordingly, anything to the contrary herein set forth notwithstanding, Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries shall not, directly or indirectly, be liable, in any way, to you or any other person for any: (a) inaccuracies or errors in or omissions from the information available on this website including, but not limited to, quotes and financial data; or (b) loss or damage arising from the use of this publication, including, but not limited to any investment decision occasioned thereby. or (c) under no circumstances, including but not limited to negligence, shall Emirates NBD, its suppliers, agents, directors, officers, employees, representatives, successors, assigns, affiliates or subsidiaries be liable to you for direct, indirect, incidental, consequential, special, punitive, or exemplary damages even if Emirates NBD has been advised specifically of the possibility of such damages, arising from the use of the information on this website, including but not limited to, loss of revenue, opportunity, or anticipated profits or lost business. Emirates NBD expressly accepts no liability for losses or damages of any kind arising from using or accessing this website or links to third-party websites or from viewing information on any of its web pages. Furthermore, Emirates NBD accepts no liability for any unauthorized manipulation of users IT systems. Emirates NBD expressly draws user’s attention to the risk of viruses and the threat of hacker attacks
Third Party Website:
Users may be aware that Emirates NBD has no control whatsoever over third-party websites linked to or from this website and therefore accepts no liability for the content of such websites being correct, complete and legally valid for the products and services offered on such websites. Emirates NBD’s express written permission must always be sought before including a link to this website on a third-party website.
None of the information on this website in any way constitutes a solicitation, offer, opinion, or recommendation by Emirates NBD to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or investment.
The information contained on this website does not purport to contain all matters relevant to any particular investment or financial instrument and all statements as to future matters are not guaranteed to be accurate. Certain matters in this publication on the website are about the future performance of Emirates NBD or members of its group (the Group), including without limitation, future revenues, earnings, strategies, prospects and all other statements that are not purely historical, constitute “forward-looking statements”. Such forward-looking statements are based on current expectations or beliefs, as well as assumptions about future events, made from information currently available. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “seek”, “believe”, “will”, “may”, “should”, “would”, “could” or other words of similar meaning. Undue reliance should not be placed on any such statements in making an investment decision, as forward-looking statements, by their nature, are subject to known and unknown risks and uncertainties that could cause actual results, as well as the Group’s plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. Past performance is not necessarily a guide to future performance. Estimates of future performance are based on assumptions that may not be realized.
Risk: In addition, before entering into any transaction, the risks should be fully understood and a determination made as to whether a transaction is appropriate given the person’s investment objectives, financial and operational resources, experiences and other relevant circumstances. The obligations relating to a particular transaction (and contractual relationship) including, without limitation, the nature and extent of their exposure to risk should be known as well as any regulatory requirements and restrictions applicable thereto. Data included on this website may rely on models that do not reflect or take into account all potentially significant factors such as market risk, liquidity risk, and credit risk. Emirates NBD may use different models, make valuation adjustments, or use different methodologies when determining prices at which Emirates NBD is willing to trade financial instruments and/or when valuing its own inventory positions for its books and records.
Investment in financial instruments involves risks and returns may vary. Before making such an investment, investors should consult their advisers on the legal, regulatory, tax, business, investment, financial and accounting implications of the investment.
The information on this website has been developed, compiled, prepared, revised, selected, and arranged by Emirates NBD and others (including certain other information sources) through the application of methods and standards of judgment developed and applied through the expenditure of substantial time, effort, and money and constitutes valuable intellectual property of Emirates NBD and all present and future rights in and to trade secrets, patents, copyrights, trademarks, service marks, know-how, and other proprietary rights of any type under the laws of any governmental authority, domestic or foreign, shall at all times be and remain the sole and exclusive property of Emirates NBD and/or other lawful parties and you acknowledge that you have no ownership rights in and to any of such items. Except as specifically permitted in writing, the information provided in this website shall not be copied or make any use of any information on this website or any portion of the intellectual property rights connected with this website, or the names of any individual participant in, or contributor to, the content of this website, or any variations or derivatives thereof, for any purpose. Further you shall not use any of the trademarks, trade names, service marks, copyrights, or logos of Emirates NBD or its subsidiaries in any manner which creates the impression that such items belong to or are associated with you or, except as otherwise provided with Emirates NBD’s prior written consent,
The information on this website solely for non-commercial use and benefit and the use of this information is not intended for resale or other transfer or disposition to, or use by or for the benefit of, any other person or entity. Information contained in this website shall not be used, transferred, distributed, reproduced, published, displayed, modified, create derivative works from any data contained on this website or disposed of in any manner that could compete with the business interests of Emirates NBD. Any part of this website may not be offered for sale or distribute it over any medium including but not limited to over-the-air television or radio broadcast, a computer network or hyperlink framing on the internet without the prior written consent of Emirates NBD. The information contained on this website may not be used to construct a database of any kind. The data on this website shall not be used in any way to improve the quality of any data sold or contributed by you to any third party.
In accessing this website, you acknowledge and agree that there are risks associated with investment activities. Moreover, you agree that your use of this publication is at your sole risk and acknowledge that the responsibility to obtain and carefully read and understand the content of documents relating to any investment activity described on this website and to seek separate, independent financial advice if required to assess whether a particular investment activity described herein is suitable, lies exclusively with you.
Eventful week, flat markets - 04 March 2019
Not-too-distant future - 26 February 2019
Politics and Policies - 19 February 2019
A Perfect January - 04 February 2019
Subscribe and stay updated!
Get exclusive deals, latest promotions and important information
All this and more in the Emirates NBD newsletter
You will now be redirected to an external website to view this content. Emirates NBD or any of its subsidiaries does not bear liability/responsibility for any other information published by the website owner or publisher.
You will be redirected in 5 Seconds