A disappointing December for financial markets capped off a challenging 2018.
We are optimistic that risk assets will find their footing in coming months.

AAUC ASSETS ALLOCATION DEPT.

In December, financial markets were once again stuck in reverse as concerns about slower economic growth scared off investors. We saw this pattern throughout the year as fears overshadowed opportunities. In the end, 2018 proved to be a record year – but not in a good way: more than 90% of asset classes (in USD) generated negative returns in 2018; and December returns for the US benchmark S&P 500 Index were the worst in nearly 90 years.

Markets lose their way

This outcome was not what we had anticipated at the start of 2018 when we believed that risk assets would do well in light of the strong global economy. But concerns about tightening monetary policy and the evolving US-China trade war, among other factors, set financial markets on a different course. In our mandates, we responded with measures aimed at increasing stability and reducing risk.

Dead end

In December, our multi-asset class mandates broadly recorded a negative absolute performance in CHF, USD, EUR and GBP-referenced portfolios. Our fixed-income strategies fared best, while equities had a more challenging month, with US and Japanese markets hardest hit by December’s sell-off. Equities in emerging markets (EM), in contrast, recorded smaller declines. Within fixed income, bond prices benefited from the decreasing and flattening of yield curves.

Time for a restart

Going into 2019, we are optimistic that risk assets will find their footing in coming months – the year got off to a good start. While global economic growth is expected to slow from 2018 levels, the risk of recession still appears unlikely, in our view. We continue to believe that the most effective way to protect investments from short-term disturbances is to stay invested in a well-diversified multi-asset class mandate.

In line with the AAUC House View, we continue to keep a small overweight position in global equities in our mandates, including EM as we believe they currently have the largest relative performance potential given their low valuations. In fixed income, we are slightly underweight in absolute terms. We have a neutral duration stance in US and UK government bonds, and have recently increased our short duration view in EUR, CHF and JPY government bonds to neutral as well given the slowing, we have increased our holding in investment-grade bonds to neutral. Our preferred fixed-income segments are EM local and hard currency bonds.

S&P 500 Index returns since 1946: Top 5 December declines/gains






Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.

Asian bond portfolios – short-duration USD investment grade (IG) credits favored

Our preference for short-duration IG credits last year has been well rewarded, as these credits outperformed major Asian bond benchmarks. Resilience in choppy markets, coupled with reasonable yields, still makes this section of the market the best risk-adjusted opportunity in Asian credits. IG spreads have widened more than what credit fundamentals justify and are expected to tighten going forward. We expect Treasury yields to gradually rise. In such a scenario, short-duration (1–3 year) Asian corporate bond portfolios should return an appealing 5% in 2019.

USD corporate high yield (HY) – China policy stimulus a key support

Asian HY corrected last year on the back of the slowdown in Chinese economic activity and trade concerns. However, the ongoing fiscal and monetary stimulus measures in China are expected to support the economy. Improving economic activity and inexpensive valuations are likely to balance out concerns about trade, the CNY, and refinancing. A more dovish Fed and a stable USD will lend further support. We continue to maintain selectivity and favor issuers with stronger balance sheets and shareholders. Our total return forecast for 2019 is 7%.
 





Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.

Our expectation for China’s macro momentum to stabilize in the coming months, thanks in part to further monetary and fiscal policy easing, drives our positive view on Chinese equities. Additionally, some of the headwinds from 2018 such as earnings downgrades, CNY depreciation and regulatory risks for the internet sector appear to be fading. After months of earnings downgrades, we are seeing a stabilization in the earnings revision cycle. This gives us confidence that Chinese equities can deliver double-digit earnings growth in 2019. As valuations remain attractive, with the MSCI China Index trading at a 12M forward P/E of 10.5x, we believe there is significant room for re-rating. We are particularly constructive on the internet sector, which is seeing renewed investor interest given its structural growth story, reasonable valuation and fading regulatory risks.

Singapore remains our preferred market in Southeast Asia, as it offers a combination of healthy growth and cheap valuation. Though the Singapore economy will be impacted by any slow-down in the global economy, we believe the market has more than priced in the risks, with its 12M forward P/E ratio at 12.0x, one standard deviation below historical average, and high dividend yield of 4.6%. Stable earnings revisions over the past few months also suggest limited downside for market expectations of 7% earnings growth for 2019.

Replace India with Taiwan as our least preferred market: This month in our Asia equity strategy we replace India with Taiwan as our least favored market. Though we continue to advocate avoiding Indian equities given their expensive valuation, downside risk scenarios such as state elections and tight liquidity in the credit market have already played out. We believe that recently lower oil prices, an expected shift by India’s central bank toward dovishness and the outlook for strong investment growth could provide support to the market on the downside. Therefore, we turn neutral on India.

Conversely, we see downside risks in Taiwan. The market is vulnerable to the slowdown in global industrial growth given its dependence on the manufacturing sector. The tech hardware sector, 57% of the Taiwan index, is under tremendous pressure due to slowing global smartphone growth and the warning from Apple of lower iPhone demand. On top of this, the market is witnessing substantial earnings downgrades, which could lead to negative earnings growth in 2019, resulting in further outflows. In light of these cyclical headwinds, we turn negative on Taiwan equities.

Asian fixed income to smooth out portfolio volatility Over the past month, global bond benchmarks have held up in the face of an equity sell-off as global government bond yields edged lower. Emerging market (EM) and Asian bonds have posted positive returns as the Fed turned more dovish and country-specific risks faded.

Looking ahead, the slowdown in global industrial momentum we expect may still create some drag, but we expect EM and Asian bonds to deliver positive returns in 2019 given the large undershooting of asset prices relative to the still robust growth environment, expectations of further USD consolidation, and only a gradual rise in US Treasury yields.





Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.

 

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The  setback  for  the  IT  sector  started  at  the  beginning  of September when the semiconductor equipment company KLA-Tencor presented at a technology sector investor conference and stated that the growth outlook for the semiconductor industry in the near to mid-term might slowdown. In the following weeks, semiconductor stocks across the board came under pressure. This affected other IT stocks and also the so-called FAANG stocks, which had been the strongest performers on the Nasdaq regulatory issues (e.g., tax and data privacy) may not go away, we believe that the size of the correction justifies taking a closer look again at the stocks as we see the regulatory impact on their businesses as limited and as more of sentimental in nature.

The chart below shows the aggregated share price performance of the FAANG stocks and the aggregated EPS growth and consensus outlook for the group of stocks. It shows that their share price performance has been well supported by earnings growth. While we assume that the growth rates might be a bit lower next year compared with the extraordinarily strong growth in 2017–2018, we continue to expect solid and above market average earnings growth going forward. We consider the correction as similar to the one we had in H1 2015-Q1 2016, which also started with a slowdown in the semi-cycle  and emerged later as a preparation for the next leg of growth. The move to 5G is in our view the next leg of digitization from which FAANG stocks should benefit the most. From the five stocks, Alphabet is part of our US Top Picks list.

FAANG stocks’ share price well supported by earnings growth

Correction so far not much different from the last correction in 2015–16.



Until end-September. From 1 October, the FAANG stocks have dropped between 14% (Google) and 30% (Netflix). Facebook, Apple, and Amazon have dropped by 18%, 21% and 25%, respectively, and investors have started to ask whether this is the end of the nine-year upward trend or a buying opportunity. We believe the latter is the case.

Firstly, Q3 reports of the FAANG stocks were pretty solid and  the  next  quarter  outlooks  are  not  really  something  to  be concerned about with regard to a change in the positive underlying trends and their ability to create further shareholder value (although  in  the  case  of  Amazon  the  result  was  weaker  than expected).

Secondly, although trade tensions between the USA and China along with Brexit indeed can have a negative impact on  the  overall  global  economic  activity,  as  far  as  the  FAANG stocks are concerned, there appear to be no direct impact, and this  should  not  change  going  forward. 

Thirdly,  while  we  have been recommending for a while now to diversify away from the FAANG  stocks  into  other  attractive  areas  of  the  IT  sector.

We highlight four of our Energy top picks below:

After BP (BUY) was forced to sell down its asset base in order to pay USD 65 bn in fees and penalties in relation to the Macondo accident, it became a simpler and more focused organization. This ‘shrink to grow’ strategy came to an end when BP bought BHP’s shale assets in the Permian and Eagle Ford, which will give it critical scale in the US shale oil segment and signal its return to more active portfolio management with acquisitions. Among Big Oils, BP offers an attractive dividend yield (about 6%) & long-term volume growth (targets 5% estimated production CAGR through 2021).

Chevron (CVX, BUY) is now reaping rewards from completing a large investment program and the focus has now shifted to production growth and free cash flow generation while offering a sustainable dividend yield of almost 4%. In addition to long-lived assets, the company has strong exposure to US shale assets (Permian and Duvernay shale basins), which is expected to drive its growth going forward. CVX targets overall growth of 3.5% through 2022 and expects its shale assets to be about 20% of the total production by 2020. Further, it has initiated a buyback program with a target to buy shares worth USD 3 bn per year going forward (bought shares worth USD 750 m in Q3).

On the back of its strong exposure to the low-cost Marcellus assets, Range Resources (RRC, BUY) targets to achieve strong double-digit production growth (CAGR 13%) on a debt-adjusted per share basis until 2022. Additionally, RRC also benefits from a relatively high share of natural gas liquids (NGL) production (one-third of the total production). We consider RRC uniquely positioned to benefit from the current gas price recovery given its relatively lower hedging levels. Other near-term catalysts could be faster-than-expected deleveraging (supported by the ongoing strength in NGL prices)  and management’s focus on raising shareholder returns.
 
Over the past three years, Repsol (BUY) has done a commendable job in transforming its business and developing a geographically balanced portfolio between Organisation for Economic Co-operation and Development (OECD) countries and non-OECD (no single country in non-OCED now makes up more than 5% of the capital employed). In light of the upcoming IMO 2020 regulation, which is expected to push refining margins for distillates higher, Repsol has one of the best feedstock advantages with a fairly high share of distillate production and the ability to process the heaviest crude oils.  Further, it should benefit the most as its downstream refining & marketing business makes up 50% of group profits, which is the largest relative refining exposure among its peers.

Since a couple of years ago, global attention has shifted drastically to investing in digital assets. The good news is the avalanche of platforms where individuals can buy and sell digital assets with relative ease.

Although the available options promised to be the best platform for making digital asset transactions, they have failed to live up to their billings. That necessitated the need for an exchange company that can walk the talk: Coinsquare.

Coinsquare was created in 2014 to address the needs in the cryptocurrency world. Since its establishment as a reliable exchange, it has followed its mission “to revolutionize and simplify the buying and selling of digital assets.” Over the years, the company has stayed true to its promise by delivering top-notch services to its users.

It doesn’t achieve that through the stroke of luck. The company worked hard to carve a niche for itself by making provision for its users. This involves creating different plans with different features that are designed to meet the specific needs of the users.

Regardless of your years of experience in the digital currency world, Coinsquare has made its platform suitable for your needs.

Trading methods

The Coinsquare platform has multiple trading methods for the variety of users of the platform. The available trading methods are:

1.   Quick Trade

Quick Trade is primarily designed to give newbies the opportunity to conduct transactions with ease.

The features of the trading method include:

•   Availability on Android/iOS devices to make trading on the go easier for the users.
•   Access to valuable live quote.
•   An affordable fee of 0.2%-0.4%.

2.   Trading Desk

Specifically designed for traders who have been in the business for years and conduct large volume trades, this trading method cares for the needs of traders who can trade with as low as $25,000.

Such traders will enjoy these benefits:

•   Quote through phone,
•   Quote through email.
•   Live support.

3.   Advanced Trade

Experienced traders will find this trading method apt for their transactions. A special trading platform, it offers these benefits:

•   A custom dashboard.
•   Preset pairing selections for setting limit orders.
•   Low fees between 0.1% and 0.2%.

You may be wondering why Coinsquare is considered to be head and shoulder taller than its competitors. Well, in addition to the multiple trading methods that accommodate the different needs of its host of users, it also offers the following benefits that are very rare to find in most trading platforms:

1.   Referral commission

This trading platform offers you the opportunity to earn passive income while conducting transactions. You stand a good chance to earn as much as 45% commission for each referral you make to the company. Whenever your referrals conduct transactions, you will receive your BTC commission. That’s a great way to earn passively for as long as you want.

2.   Easy transaction

If you have experienced difficult trading processes on other platforms, you will be spared of such experience on Coinsquare. As depicted in the image below, the transaction process is easy and smooth.

To make transactions easier, you also have all the information about your transactions in addition to other valuable pieces of information.
 


3.   Second-to-none security

Coinsquare claims to the most secure trading platform. Well, that claim shouldn’t be taken with a pinch of salt because the platform’s proprietary system ranks high among trading platforms that have been fully tested to ascertain how it can handle stress and DDoS.

It is reassuring that it aced the test, making this platform a very secure option for those who are worried about security issues.

4.   Quick and better trades

Speed of transaction is one of the major factors that are considered when choosing a trading platform. The availability of a wide range of trading methods ensure that you can get faster transactions done by using the right method that guarantees better trades than using a random method that may pose unwanted issues.

This great trading platform offers you these benefits and more. However, before you can take advantage of the awesome offers to make trading easier for you, you must first sign up on the platform.

The sign-up process is simple and straightforward. You are only required to provide the right information in the form and you are good to go.


 
Don’t forget to check the “Terms and Conditions” box to indicate your willingness and readiness to abide by the conditions attached to your membership as well as the company’s Privacy Policy. Without this, your sign-up application won’t be approved.

In spite of the huge collection of digital asset trading platform available across the globe, the distinct features of this trading platform make it stand out among its peers, making it a go-to platform for cryptocurrency traders who want nothing but the best service, but now and in the future.

Get further details from: https://join.coinsquare.com

Oil has suffered from a major sell-off and volatility has spiked amid multiple bearish developments. We increasingly think that the drop is excessive and see scope for a tactical rebound.

AAUC Head of Commodities and Hedge Fund Strategy

Oil markets have had a turbulent few weeks with both WTI and Brent shedding more than USD 20 since the beginning of Octo- ber to drop into the low-USD 50s and low-USD 60s, respectively. This plunge was indeed accompanied by bearish fundamental shifts such as Iran sanction waivers, significant agency revisions to supply and demand estimates, weak seasonality, and broadening macro concerns. That said, we increasingly believe that the magnitude of the sell-off is overdone and see scope for a rebound into the year-end, subject to two major prerequisites: The Organization of the Petroleum Exporting Countries (OPEC) must adjust supply again and US inventories need to start drawing soon.

The sell-off has been exacerbated by an abrupt positioning unwind among investors who have amassed at record length during the H2 2017-H1 2018 uptrend. This process now appears advanced through the absolute position has not yet reached extremely low levels – unlike in other commodity segments.

   Iran: The market has gone from pricing huge disruptions to Iranian oil exports (>1.25 Mb/d) to now expecting a much smaller disruption (about 0.5 Mb/d), if at all. We would stress that the market will still lose considerable volumes of Iranian crude in the coming months but in a more staggered way. It is also possible that US authorities will again adopt a more hawkish stance on sanction implementation now that the midterm elections are over.

   Supply/demand estimates: Lowered consumption numbers could prove sticky given a more uncertain macro backdrop, but supply upgrades, particularly to US shale volumes,  are now prone to renewed downgrades since drilling activity remains price sensitive.  As upgrades were made when WTI prices traded in the mid-USD 70s, it is likely that renewed downgrades will follow next.

   OPEC: Anticipating strict US sanction enforcement, OPEC ramped up output too much in October, creating excess supply in the market when the USA has decided to change course on Iran at the last minute. Indeed, Saudi Arabia and several other OPEC members should acknowledge the need for renewed supply cuts at the upcoming meeting on 6 December (by about 0.5–1.0 Mb/d) in order to prevent inventories from piling up again next year. While we think that such an action is likely and necessary for prices to find some grip, it is not a given, especially considering the current pressure exerted by the US administration on Saudi Arabia. It is possible that OPEC will simply stress that it will focus on meeting actual client demand and adjust output accordingly instead of committing to firm targets.

   Seasonality:  Seasonal effects should tilt in favor of firmer prices into the year-end. We are currently observing seasonal stock builds in the USA as refineries conclude their October/November maintenance programs during which crude intake drops considerably. Activity is now set to pick up in the coming weeks until early January, which should lead to renewed stock draws. This might prove an important catalyst for stabilizing sentiment and lifting prices.

Against these uncertainties, volatility has spiked to above-average levels and put skews have widened sharply, flagging still-elevated two-way risks. However, we see chances of a tactical rebound in the coming weeks as flagged by our Investment Committee’s view change to outperform. From an investor perspective, we would consider selling the current volatility spike. Risk reversals or bullish put spreads (with different tenors to cover the OPEC meeting event risk) could be expressions to explore. We would stress that this is a tactical call for risk-tolerant investors and that caution remains warranted in 2019.                    




Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.

                         
Without getting into too much detail, the metriAAUC show – with a reasonable degree of confidence – that since 1991, each time a buy signal was triggered, a return of 25% was generated over the subsequent 70 weeks with 63% of these signals being successful.

Similarly, over the same period, we also note the GRA also generated buy signals for the HSI and MSCI Singapore indices. For the HSI, a return of 27.3% was generated over the subsequent 70 weeks with 63% of the signals being successful. For the MSCI Singapore Index, a return of 19.3% was generated over the subsequent 70 weeks with 57% of the signals being successful.

MSCI Singapore risk appetite signal




Hang Seng Index risk appetite signal


Indeed, more broadly, the entire emerging market (EM) complex is firing buy signals right now with the overall MSCI EM Index also expected to return 25.4% in the next 70-week period.

In my view, selling fatigue has set in among investors. Almost daily we read of asset managers active in accumulating deep value stocks across Asia, taking advantage of depressed pricing. I will wait for the “starting tweet” at the end of the month before I recommend we do the same.                             





Important Information:

This part of the material: (i) aims to provide macro-market commentary; (ii) does not contain any statements or advice in relation to any specific marketable security or financial product; and (iii) does not take into account your personal circumstances and should not be treated as any form of regulated financial advice, legal, tax or other regulated service.