Note Précis January 26,2018: Q1/2018 – Caveat emptor on market momentum arises due to risk, value and societal stress about the distribution of the benefits of global growth. Amid euphoria, diversification is necessary. In equities, valuation contraction is globally a risk. More effort should be devoted to value and progress in restructuring as opposed to momentum. Restructuring leadership in and from the financials remains crucial. We would put more emphasis on sector selection rather than on geographical discrimination. Relative sectoral weightings globally vary widely. On this basis, we expect overall market leadership to still be from the United States via sectors like information technology and industrials, be in emerging markets via growth and include materials/energy segments via markets like Australia and Canada. In overpriced fixed income markets now with changing central bank conditions again led by the Federal Reserve, we position our benchmark towards low to medium duration. Junk bonds especially face the potential for rising risk premiums and illiquidity if adverse conditions were to develop, such as higher inflation or weaker corporate revenues. Central banks need to evaluate systemic risk from the demographic and capital allocation impacts of their policies. In markets, ETFs liquidity is likely not as extensive as the prevailing fervor assumes. After all, iIt was the lesson of the portfolio insurance debacle of 1987 and credit in 2007. From trade to governance to geopolitics, there appear increased signs of political economy fracture. Currency markets need careful monitoring. For these reasons, we espouse holdings in alternate assets, more specifically precious metals.
Kind Regards,
Subodh
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