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5. December 2016 16:39
by Irene

November 2016 - Market Commentary

5. December 2016 16:39 by Irene | 0 Comments

Another surprise, this time coming from the United States with the presidential election of Donald Trump that will have astonished many. US equities gained, but so did Sterling, which was up 2.3% for the month of November, not helping Dollar investments for a Sterling denominated investor. With Trump promising to invest in infrastructure and tax cuts this should help boost domestic growth in the US, the Russell 2000 Index saw an exceptional return for Mid Cap equities which was up 11.5%.

United Kingdom

Brexit had a little speed bump with the UK High Court ruling that the government must seek parliamentary approval before triggering Article 50 to start the Brexit process. This strengthened Sterling, together with the Autumn statement, which saw infrastructure being boosted, and thus hoping to increase UK GDP growth. The increase in Sterling and the potential GDP growth did not help equity markets though, with the FTSE 100 being down -2.0% for the month, although the FTSE 250 was essentially flat for the month.


The Eurozone has had more political uncertainty with the referendum in Italy in early December and elections coming up in 2017 in France and Germany. France already surprised with the favourite candidate, Alain Juppe, losing to Francois Fillon as the Republican candidate. From an economic point of view though, the Eurozone points to ongoing expansion with the Purchasing Managers’ Index (PMI) and consumer confidence up. <

United States

With new emphasis in the United States on fiscal over monetary stimulus, expectations of inflation increased which helped specifically mid and small cap companies which are more US centric. The Dollar increased, by 3.4% against the Euro, also helped by a nearly certain rate hike in December by the Federal Reserve.

Asia and Emerging Markets

The clear losers of the Donald Trump election and the subsequent increase in the Dollar were Emerging Markets with fear of adverse US foreign policy and potentially protectionist trade measures. The hardest hit were Mexico and Brazil, dropping -14.7% and -13.2% in GBP respectively. In Japan, equities rallied with the Nikkei 225 up 5.1%, but with the US Dollar rallying and the interest rate differential between the US and Japan widening, the Yen on the other hand lost -8.3% against the Dollar.

Fixed Income

The Trump election saw a regime shift in fixed income markets. As monetary policies move from quantitative easing to infrastructure spending and tax cuts, this is not as generous for yield curves and brings expectations of higher inflation. The result was an increase in yields, especially at the longer end, more or less across the board. The hardest hit were Emerging Markets bonds, where there was additional pressure due to the strengthening of the US Dollar.


Commodities mostly had a good month, helped by an agreement by OPEC to cut production, which saw Crude Oil rise by 7.2% in USD. Gold on the other hand lost -8.0% in USD, also facing headwinds from a stronger Dollar.

Market Returns Overview

Source: Markit, Twenty20 Investments, as of 30 Nov 2016, all returns in GBP.

5. October 2015 16:23
by Irene

September Market Commentary

5. October 2015 16:23 by Irene | 0 Comments

September has been another volatile month for equities and bonds. Just as everybody thought that the Fed was upbeat on the economy, it decided to leave US interest rates unchanged. A hold on rates was more or less priced into the markets, but what spooked investors was Fed Chair Yellen’s speech afterwards, highlighting uncertainty in the markets with particular concern about the growth in China and Emerging Markets. As all the financial press reported, Q3 2015 was the worst for global equities since 2011.

United Kingdom

The FTSE 100 index fell 2.9% for the month of September, and is down 6% for Q3 2015. Funding issues at Glencore did not help, with the stock down nearly 30% in September alone and about two-thirds wiped off its value in Q3, but there were somewhat weaker numbers coming from the UK with the Markit Services and Manufacturing PMI numbers and the ZEW Economic Sentiment Index all declining over the last three months. Both PMI numbers are still above 50, signalling growth, but the trend is slowly reversing.


Macro-economic indicators for Europe have generally been positive, with business and consumer surveys providing reassurance about the euro area’s growth momentum in the face of the slowdown in China. It is notable that European growth is now being driven by an increase in domestic demand and less by net trade. With nine months of consecutive quarters of growth, the relative immunity of the European economy to the Greek crisis and the Chinese slowdown is encouraging. That is, if one does not look at the actual equity markets, with the Euro Stoxx 50 down 5.1% in September, the DAX down 5.8% and the CAC down 4.1%. Indicators for Germany still signal a healthy economy, but may not have priced in the woes of Volkswagen yet. One of the countries that is showing signs of growth again is France, with economic reforms slowly filtering through. The ECB is most likely to continue its QE programme with at least the same speed and most likely also buying asset-backed securities.

United States

September started with good news for the US economy as figures for July confirmed that the trade deficit was the lowest for five months. As the month progressed and volatility increased in the markets, the likelihood of a rate increase seemed to diminish once and for all. News on the jobs front was somewhat muted with the US economy adding less jobs in August than expected. With the end of month data showing that more than half of all asset classes ended September in the red, Yellen’s dovish comments on the US economy and its dependency on Chinese volatility and falling commodity prices seemed to have influenced the serious wobble seen in the markets.

Emerging Markets

Over in Emerging Markets, equity markets in Brazil and Russia were down 5% and 3% respectively in local currency terms. The flight away from EM currencies meant that weaknesses for EM were compounded in Dollar and Sterling terms. Inevitably, the slowdown in China, coupled with still-high supply, did not help falling commodity prices, which in turn continued to hurt commodity-exporting emerging markets. Commodities remain the worst performing asset class for Q3, with emerging markets not far behind.

Fixed Income

The only positive news came from Fixed Income with UK gilts up 1.2% in September. With the US keeping rates on hold in September, US Treasuries were also a winner, gaining 2.9% in GBP, which was also helped by a devaluation of Sterling. Corporate bonds were flat or slightly negative with US high yield the most negative, losing around 3%.

Market Returns Overview

Source: Markit, Twenty20 Investments, as of 30 Sep 2015, all returns in GBP.

17. March 2015 14:01
by Irene

What now Mr Draghi?

17. March 2015 14:01 by Irene | 0 Comments

The European Quantitative Easing program is finally underway and has begun without any hitches, not something that can be said about the European economy over the last five years and the Greek woes in particular. This makes sense, let’s not forget there would not be a QE program if Europe were in stellar shape. The idea is that QE will boost the European economy and bring inflation back to its target of around but below 2%. History will be the judge. If the ECB can achieve at least one of the two within a year or so, that will be a great accomplishment.

For an investment manager the key question is how will European QE affect the various asset classes; what about European equities (the consensus seems up), the Euro FX rate (the consensus seems down, but how far?) and European interest rates (not such a clear consensus here, the question is how much further can they go down?).

European equities a straight line up?

If history is in fact any judge then previous QE programs in the US, UK and Japan can guide us. In terms of equity returns, it was mainly a one way trade, which is a more or less straight line up. The graph below shows the returns of equities starting from 3 months before the QE program was announced to up to five years thereafter. While the US and the UK started with their QE programs quite early after the financial crisis, the recent QE program in Japan was announced on 4 April 2013. Finally the ECB has followed suit, and not a day too soon, and the doyens of Frankfurt announced their QE program on 22 January this year and it finally started a few days ago. A free lunch may well be on the menu.

Source: Markit, Twenty20 Investments, as of 12 March 2015

Will the Euro weaken much further?

In terms of FX rates, if we take the cue from the US, UK and Japan, there is not such a clear one way picture. The flight to safety made the Dollar stronger not weaker when quantitative easing started. The Yen on the other hand weakened by nearly 25% against the Dollar since QE started in Japan about a year ago. So far the Euro has lost slightly more than 10% against the Dollar since the QE announcement was made by the ECB. Can it weaken as much as the Yen has or is it mean-reverting already?

Source: Bloomberg, Twenty20 Investments, as of 12 March 2015, US Dollar against a basket of FX rates, all other currencies against Dollar

Are negative bond yields here to stay?

Government yields are yet again another mixed bag. For Germany, the question is how much further they can go into negative territory, presumably at some point mean-version must set in. As the balance between supply and demand will mean that there is a shortage for the ECB to buy bunds, this could bring down yields even further.  In the US and the UK, government yields did fall during the first part of QE, but were back at their original level within approximately six months, only to fall again later on with deflation more of a threat than inflation.  

Source: Bloomberg, Twenty20 Investments, as of 12 March 2015

How will these asset class moves help the case for Europe?

So how much will QE help Europe? If the problem with Greece is resolved quickly (and that would be a big if), the results could be stellar. Should Greece leave the Euro, the QE program will probably be needed to resuscitate Europe again. Translating this into investment opportunities, using ETFsas the vehicle of choice, it does suggest QE provides one of those feted opportunities to take advantage of macro-economic policy decisions.  European equities seem a particularly good buy for the moment, although at the time of writing in our rear view mirror we see the Dax close at a record high above 12,000.  How many record trading sessions before that demand for European equities is satiated, remains to be seen. Currency hedging any of these exposures would be no bad thing either. German bunds seem another good trade, but with the risk reward ratio not so high, this does appear to be a lower conviction trade. If one wants to play the currency theme only, there are ETFs available that allow the investor to get exposure to many different currency pairs. All of this is well and good, but does need the Greek odyssey to keep its surprises to a minimum.

QE programs in short:

US: First QE announcement date on 25 November 2008, starting with an aim of $600bn and finally ending up with further QE2 and QE3 at a total of $1.7tn

UK: the announcement for the UK was on 5 March 2009, starting with an aim of raising £175bn, which resulted in a total of £375bn

Japan: announcement on 4 April 2013

ECB: announcement on 22 January 2015 for a total of EUR 1.1tn

3. November 2014 09:42
by Allan

Oil price deflation is a game changer for Sweden

3. November 2014 09:42 by Allan | 0 Comments

As Sweden’s central bank lowers interest rates down to zero, now is a good time to get back into the equity market.

As one of the first banks to raise interest rates, Riksbank came out of the traps last week and cut rates all the way down to zero in their quest to stem the spectre of deflation.  In a week that saw the Fed declare an end to QE and the market only expecting a cut of 15bps, it was clear that something was amiss.  Welcome to the world of post-modern economics where the shale oil boom in the US sees some commentators talk of the US becoming a net exporter of oil.

With Brent Crude prices dropping by 23% since June, this appears to be the first sign of a reversal of fortunes for the non-oil producing countries, which incidentally includes most of Europe.  As a result, Sweden, which imports over 90% of its oil, has slowly but surely seen the possibility of entering a deflationary period in the not too distant future.

Source: OECD - 31st October 2014

Since the start of the year, the economic landscape for Sweden has been in rude health. Every month since January, the OECD’s composite leading indicator has increased, regularly topping the list of countries offering the most promising growth prospects. This indicator does come with a two month lag, but GDP growth currently at 1.9% is forecast to increase to 2.7% in 2015 and 3.3% in 2016. Retail sales have been particularly healthy, supporting the case for increasing consumer confidence. Business confidence has undergone some reversals but has also been on the increase as of late. Sweden’s most recent manufacturing PMI number came in at a respectable 52.1, slightly below the forecast number of 52.39 and down from last month’s high of 53.4.

In many instances this positive economic background would have seen the Swedish equity markets flourish. As a Swedish investor, the OMXS30™ index, consisting of the 30 most traded shares on the NASDAQ OMX in Stockholm, has bounced back strongly during the last couple of weeks of October and is up 8.5% year to date. However, as a USD investor the Swedish Kroner is down by 14% since its 2014 high in mid-March and down 13% year to date, resulting in a net loss in US dollar terms.

Source: XACT - 31st October 2014

Since the start of 2014 the large cap country index MSCI Sweden is itself off by 8%, which given that it is denominated in USD is broadly speaking in line with the performance of the OMX index as measured in USD.

As Sweden’s central bank tries to hold back the threat of deflation and with SEK rates now down at zero, currency intervention and asset buying are the two key tools at their disposal. With in-fighting amongst senior members of the bank, nerves definitely appear to be frayed

With a non-negligible probability that this bout of nervousness could result in Sweden’s answer to QE, now looks like a good buying opportunity to invest in the Swedish equity market for which there currently exist two ETFs allowing one to get this equity exposure. The locally traded ETF, XACT OMXS30 ETF, with ticker XACTOMX:SS, trades out of Stockholm denominated in SEK and has $1.28bn AUM as of 31st Oct 2014. The iShares MSCI Sweden ETF, with ticker EWD:US, is denominated in USD, trades out of the US and has $368m AUM as of 31st Oct 2014, which suggests a reasonable size of assets under management in both cases. As one of the stronger economies in the Eurozone, the case for investing does stand on its own merit.

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