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In today’s briefing:
- ETFs Are Reaching Way Beyond Passive Investing
- Impact of China’s Economic Deceleration on EM Economies
- Energy Cable: OPEC needs a big rebound on the demand side
- Market Trends and Strategy: Hong Kong Bull Market Broadens
- Positioning Watch – Turmoil in Markets Is Returning
- UK/Europe: Softly, Softly…
- Switzerland CPI Inflation 1.4% y-o-y (consensus 1.4%) in May-24
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ETFs Are Reaching Way Beyond Passive Investing
- ETFs are synonymous with passive investing. It passive investing and beyond. ETFs have been stealing breakfast, lunch and dinner away from mutual funds.
- Active ETFs have jumped from obscurity to ubiquity. >70% of new ETF launches in the US over the last seven years have been active ETFs.
- Active ETFs in the cheapest quintile command AUM of USD 325 billion while those in the most expensive quintile hold merely USD 35 billion.
Impact of China’s Economic Deceleration on EM Economies
- China’s economic growth is expected to decelerate from the previous high-growth period in the 2000s and early 2010s. This will have an impact on other EMs.
- We track the impact from the angles of China’s commodity imports, supply-chain position, and foreign investment.
- Commodity producer countries can be more heavily impacted. The impact on Asia will be mixed, suffering from regional trade, but some supply chains could be diverted away from China.
Energy Cable: OPEC needs a big rebound on the demand side
- Evening from Europe!What a bloodbath in long oil bets today, and we are bleeding alongside the crowd as we are down 5.7% in our long bets in the CLN4 future.
- The OPEC+ meeting over the weekend did not fuel a bullish supply narrative as we can (at best) expect the status quo.
- The supply cuts were prolonged (as was our base-case), but assuming that the cuts will actually be reversed by June or September 2025, which seems to be the forward guidance from OPEC now, we’d have to see a much stronger business cycle in Manufacturing for that to match with the demand side.
Market Trends and Strategy: Hong Kong Bull Market Broadens
- High dividend yield names continue to outperform the broader market. Energy and Materials sectors are best performers over the last year.
- Mainland buying has continued to buoy the Hong Kong market even through the pullback in May.
- Short selling is declining and market breadth is increasing supporting rotational buying between sectors.
Positioning Watch – Turmoil in Markets Is Returning
- Hello everyone, and welcome back to our weekly positioning watch.
- The divergence between market-cap weighted and and non market-cap weighted indices is slowly normalizing, but the impact that NVIDIA (and some of the other big tech firms) has on both broad equity returns is notable with the 5 largest companies in the S&P 500 accounting for roughly 30% of the index by now.
- This does not only have implications for the distribution of returns between bigger indices (Nasdaq vs Dow Jones for instance), but also on indices option volatility, with the VIX ex NVIDIA hitting lows of around 9 in May (2017/2018 lows).
UK/Europe: Softly, Softly…
- Labour’s dual strategy towards Europe could potentially enhance the UK’s economy.
- Despite the potential benefits, it is unlikely to yield significant results until the end of the next parliamentary term.
- This suggests that even in a best-case scenario, the economic impact may not be immediate.
Switzerland CPI Inflation 1.4% y-o-y (consensus 1.4%) in May-24
- Switzerland’s CPI inflation rate was stable at 1.4% year-on-year in May 2024, aligning with consensus expectations and the rate of the previous month, with slight variations from historical averages.
- There was a 0.3% month-on-month CPI increase in May 2024.
- A 0.6% month-on-month PPI increase in April 2024 suggests controlled price transmission and effective measures to maintain consumer price stability.