In today’s briefing:
- Omicron Creates an Antifreeze Lake
- China: EM Active Fund Positioning Update. BABA Drives Allocations Lower
- In an Environment of Rising Rates, Colombia 10y Local Rate Is a Good Short
Omicron Creates an Antifreeze Lake
- Covid infection numbers keep hitting new extremes, and yet the threat has moved on from the lockdowns of 2020-21. The omicron variant is mild.
- Future mutations probably won’t harden the response again. Political pressures in the UK broke the reaction function, and it is unlikely to return.
- Covid’s growth impact should now be through supply shortages, mostly related to the lost potential during past restrictions, but China’s zero covid policy poses a risk.
China: EM Active Fund Positioning Update. BABA Drives Allocations Lower
- China allocations fall to a 2-year low, driven by widespread closures in Alibaba Group (BABA US) New Oriental Education (EDU US), China Mobile (941 HK) and CNOOC Ltd.
- Active GEM Managers head in to 2022 with Consumer Discretionary and Communication Services the key China sector exposures, though Industrial stocks stand out the main overweight.
- On a stock level, the most widely held company is Tencent, held by 81% of the managers in our analysis and taking the crown from Alibaba Group in 2021.
In an Environment of Rising Rates, Colombia 10y Local Rate Is a Good Short
- In the current environment of upside risks to global rates, it is appropriate to look for countries where one can position for rates to move higher with limited downside.
- From this perspective, I like shorting long-end rates in Colombia ahead of the upcoming presidential election in May where a leftist candidate is leading in the polls.
- The political risk premium should rise in Colombia using the increase in rates in Peru and Chile last year as guidance since both countries went through similar election-related political turmoil.
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