Note Précis March 13,2019: Contrary Core Developments – Contrary to our expectations for better balance, intense interplay remains between quantitative ease driven central bank policy and capital market activity. For instance and as often in this cycle, when concern builds on equities or elsewhere, major sovereign country benchmark fixed income yields decline, even flirting with zero or less in Europe and Japan. It is constructive that the major central banks appear cohesive, unlike famously in the late 1980s. Still and despite enormous collective and individual size, asset managers appear reluctant to counter central bank assumptions. It contrasts with late 1980s hedge funds versus monetary and fiscal policy and which in this cycle, does occur about individual company securities.
Softness in ongoing corrective checks and balances could make capital markets now especially vulnerable to external shocks. For instance even as global growth appears slowing to 3 ½% in annual GDP and dissonance more limited in monetary policy, it exists in fiscal policy, in global politics and trade relations. Political misunderstandings could arise. For instance and amid key trade talks, the U.S. President appeared to summon the leader of China to his Florida golf resort for a second time but went twice to Asia to only meet the North Korean leader. In Europe, issues amid elections are more entangled from Brexit to French yellow vests. Tight elections appear in India even as South Asian tensions rise. Levant tensions now stretch from Algeria to Iran amid Israeli elections.
Such market realities make diversification essential, including above benchmark cash and shorter duration fixed income to be supplemented by precious metals in asset and equity mix. Within underweight fixed income, in addition to shorter duration, we favor emphasis on high quality corporate paper. With practically universal heavy weightings in indices, developments in many financials underscore their crucial role for equities.
On core growth and defensiveness dependent on meeting business challenges, we favor Information Technology over Consumer Staples. These aspects also hold the U.S. markets in good stead compared to Europe, for instance. Despite recent prominence being given divestment of Energy, we overweight it. We recall that Energy majors were long attuned to managing business risk and prospering even when crude oil was mandated at $2.50-3/Bbl. for two decades to 1970. StrategeInvest’s independent consultancy operates as Subodh Kumar & Associates. The views represented are those of the analyst at the date noted. They do not represent investment advice for which the reader should consult their investment and/or tax advisers. Any hyperlinks are for information only and not represented as accurate. E.o.e.