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, 27.09.2020
Last week was already eventful with many economic data and the first presidential debate, before the news of US Presidential couple testing positive for the virus hit the tape on Friday. The instant market reaction was of course negative, but global assets had overall decent returns last week. While safe assets like Gold benefitted from risk-aversion, stocks managed to keep their weekly performance positive, including in the US.
Mr Trump is not the first head of state to be infected, after Mr Johnson and Mr Bolsonaro, but this happens just a month before the elections. The worst case scenario would be for him to be incapacitated and be unable to run in November. In such a case, a winning Joe Biden could be willing to make his program more consensual. In any other case, and we of course wish a prompt recovery to Mr and Mrs Trump, we do not see a game-changing event. If anything, the campaign could be rebalanced towards less personal attacks than we sadly saw during the debate last week. It could also help Republicans and Democrats progress towards a reasonable compromise with regards to the US fiscal stimulus: a minimal deal taking care of the unemployment benefits in particular is not off the table, especially as economic data confirmed that the pace of the recovery is slowing, including significant permanent job destructions. For different reasons, the UK and the EU may also find a more constructive tone on Brexit.
Uncertainty remains high in the short-term but there are positive catalysts ahead in our view, and dips are clearly being bought by underexposed institutional investors. This is why we haven’t reflected the quarterly rebalancing of our SAA in our recommended positioning and are now slightly overweight equities. Stay safe.
The year 2020 will be remembered to say the least as a period marked by dramatic changes eliciting market turbulence going down the history books. Hardly had investors come to terms with the new reality of the pandemic than they now have to manage the uncertainty related to a president fallen sick with Covid19. Nobody has an idea of what the current developments will lead to, considering that already for Boris Johnson reassuring public statements about “mild symptoms” were followed by moments of real concern about his health conditions. Yet markets, far from delving into these kind of speculations, seem to be more pragmatically focused on the better chances for the approval of a stimulus package by Congress, now that the Republicans will find themselves on weaker footing following the inability of a quarantined president to campaign. Nancy Pelosi, the House Speaker, suddenly declared herself “optimistic” about a deal and said that “this kind of changes the dynamic”.
This could be the reason why US 10-year Treasury yields managed to inch 1.5bps higher for the week, in spite of events which otherwise would precipitate chaos and foster a flight to quality. If the lifting of a minor fiscal cliff can have this effect on yields, one may wonder what would happen in the case of a so-called Democratic sweep, when Democrats would be holding control both of the presidency and Congress and approve major fiscal stimulus measures hinging on increased infrastructure expenditure. As a matter of fact, according to some studies a “blue-sweep” scenario would see US long-dated Treasury yields jolted meaningfully, though temporarily, higher to discount larger federal expenditure and risks of future inflationary pressures attached to it. In that case, with higher yields but no immediate economic benefits which would only be kicking in further down the road, risk assets and gold could suffer a setback. This scenario is not far-fetched if only one recollects that just a few weeks ago, following the bottoming of US real yields, an equity pullback started.
Of course, the Fed, ill tolerating a tightening of financial conditions, would be coming to the rescue to crush yields back where they should belong at times of mammoth government debt. Additional asset purchases would be first in line as a tool to cap real yields irrespectively of the size of the public expenditure plans approved by the Democrats. At that point, the game of multiple expansion driven by low yields could start afresh and risk assets would be again moving in the direction most welcomed both by investors and the Federal Reserve.
Fixed Income Update
Last week ended in green for the fixed income assets barring US Treasuries. We continue to adopt a moderately cautious stance as we expect volatility to spike till the end of the US Elections and would typically look to add risk if we see any sizable negative movements.
Spreads tightened across sub-asset classes last week with all the major indices providing positive returns. Global HY and EM spreads have retraced almost 50% of their widening past couple of weeks. The duration in the IG market is at its highest in the last two decades. However, the Fed's policy support has resulted in muted volatility risks in the asset class, as seen during the recent turbulence. This support, combined with better supply-demand technical, should also counter any effects of US Treasury bear steepening due to increases in inflation expectations. Within IG, we continue to like the financials due to the higher yield offered. Treasuries ended the week lower with the curve bear steepening. 30-year yields increased by more than 8 bps to end the week at 1.48%, which is the highest level since 28th August. 10-year yields also closed above 0.7% for the first time in a month.
Cash is being put to work at every dip. Money market funds saw a Net withdrawal of $20 Bn in the last week. The majority of the Net inflows happened in the equity mutual funds after a sharp pullback the previous week. Fund flows into Fixed Income funds remained slightly positive at $2.2 Bn. High Yield sub-asset class saw the largest pull-out of funds within fixed income amounting to $3.4 Bn. EM Local currency funds also saw some negative flows after notching record inflows the previous week.
Global corporate defaults reached 180 as of last week. Global defaults in the third quarter of 2020 slowed considerably to 56, compared with 93 defaults in the second quarter. Simultaneously, the number of oil and gas defaults remained elevated, with 17 defaults in the third quarter--only one less than the sector's second-quarter tally of 18. Total energy sector defaults stand at 37 YTD as compared to 53 in 2016. The fallen angel transitions have slowed down, with Q3 volumes of less than $20 Bn compared to almost $150 Bn debt transition in Q1 this year. The 12-month trailing default rate increased to 4.9% due to the additional defaults.
GCC bonds performed well last week, after September resulted in a -0.55% return. August and September monthly returns showed the first back to back negative returns since April 2018, making some the bonds of the region more attractively valued. MENA markets saw two priced deals last week. FAB issued its long-awaited perpetual at 4.5% coupon with a $750 Mn tranche size. The bond trades at a premium in the secondary market due to sizeable retail interest. Egypt issued the first green sovereign dollar bond of the region. There was massive demand from European investors with books covered more than ~3.5x times.
Whilst September can be defined as a "pause" in the equity recovery, the first down month since March, global equities gained last quarter and most major global equity indices are in the green year to date, with close to 10% gains for DM and EM equities in Q3. Emerging markets did slightly better last quarter and now lag developed markets by just 3%. Outstanding last quarter were Indian equities +15% and China +12.5%. In developed markets the U.S. +9% led in Q3, continuing its long outperformance streak. Technology and consumer had a good quarter but importantly cyclical sectors i.e. materials and industrials saw over 10% gains, with the only negative sector energy down 12.5%, in line with the fall in oil prices.
October begins with a continued focus on U.S. elections and containment of the virus. Pres Trump testing positive for Covid-19 has increased market volatility with even more uncertainty into the election process. We see any substantial pullback as an opportunity to add to equity positions in line with our recommended positioning along geographies and themes. Economic data in the U.S. remains encouraging: the unemployment rate has improved and House Speaker Pelosi remains optimistic about an additional round of stimulus and requested that the airlines hold off on planned layoffs as a relief package for the airlines is “imminent.” Earnings expectations continue to trend higher with positive earnings revisions in September and 3Q earnings should surprise to the upside, similar to 2Q, though sustainability of the earnings recovery would be more certain with additional fiscal support.
Our region had a good quarter with the KSA gaining 15% and the Dubai Index over 10%. Abu Dhabi equities gained 6%. Results have kicked kick off with Almarai, the leading dairy supplier in the KSA, on solid revenue growth, much in line with the global consumer staples sector with essential food very much in demand. Oil lower last week, will impact the petrochemical stocks and government revenue. Arabtec, a leading contractor in the UAE is suspended from trading as it goes into proposed liquidation. Established in 1975, the company has played a role in building iconic landmarks such as the Louvre in Abu Dhabi and the Burj Khalifa. Construction firms have thin profit margins and any recessionary environment creates risk around project financing and payment schedules, which has always led us to remain underweight contractors. In line with planned diversification away from oil for the region, Abu Dhabi state fund Mubadala is taking a stake in the retail division of India’s Reliance Industries, following KKR and Silver Lake Partners.
There's a lot about 2020 that has been unusual and there's more uncertainty to come, with largely populated countries like India which are seen as the global growth beacons, still reeling from the effects of the virus on normal economic activity. Sharper daily swings in markets as the US election nears and around additional US fiscal stimulus, a rise in global COVID-19 cases, vaccine timing and a still-unresolved Brexit saga all create significant ambiguity, and will keep markets volatile and range-bound over the next few months. But this creates opportunity, and this cycle is more normal than appears on the surface, with positioning still light.
Written By:Maurice Gravier Chief Investment Officer, MauriceG@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.
Known catalysts with an unknown timing
Momentum loss in markets continue
Between emotion and reason
How was your website experience today?
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