RRG EM Macro Weekly - Outlook for 2019 in Focus - Lower Oil and Rising Trade Impact

Global Asset Allocation, Politics & Governance, Ecstrat

John-Paul Smith

Global Asset Allocation, Politics & Governance

Ecstrat

Ecstrat is a consultancy advising on asset allocation between global equity markets, with a focus on the intersection of governments, geopolitics, governance and markets.
 
Over the past few years and more especially since the Great Financial Crisis (GFC), investors have become more focused on short-term market movements and real-time returns and have consequently neglected the analysis of the underlying structural themes that underpin longer term performance.
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More specifically we believe that the evolution of governance-based relationships between investors, controlling shareholders, labour and the state is one of the primary determinants of both relative and absolute performance between individual equity markets.
 
We will endeavour to provide investors with some of the context surrounding governance-related issues which encompass many different disciplines including history, economics and political science, as well as the financial metrics which are the most obvious manifestation of the structural characteristics of each market.
 
We will pay particular attention to the shifts and potential inflection points for governance in individual markets as these are often the best lead indicators for both economic and market performance.

Cross Asset Strategy

Multiple Countries / Cross Asset Strategy

<h2><strong>Indonesia (overweight); prime beneficiary of lower UST yields</strong></h2><p>With a drop of around 17% in USD terms during 2018, Indonesian equities have been one of the main casualties of the appreciating dollar, due to the high proportion of Indonesian bonds held by foreign investors of around 40%. I upgraded Indonesia from a neutral to an overweight position on 15<sup>th</sup> October, as the market should benefit relative to the EM benchmark from the amelioration of pressure on global interest rates, as growth begins to slow.</p>

Indonesia (overweight); prime beneficiary of lower UST yieldsWith a drop of around 17% in USD terms during 2018, Indonesian equities have been one of the main casualties of the appreciating dollar, due to the high proportion of Indonesian bonds held by foreign investors of around 40%. I upgraded Indonesia from a neutral to an overweight position on 15th October, as the market should benefit relative to the EM benchmark from the amelioration of pressure on global interest rates, as growth begins to slow.

Asian Equity Markets (Ex-China) Overview; ASEAN