Quants Blow Up, as Turkey Leads EM FX Rebound…

Beijing Hubris Risks Policy Error, as Europe Becomes Key For US Yields…

Turkey Crisis Reflects Dollar Liquidity Peak...

As Dollar Rebounds, EM and Europe Consensus Narrative Shaken

Founder and Strategist, Entext Economics & Strategy

Sean Maher

Founder and Strategist

Entext Economics & Strategy

Entext provides institutional investors with distinctive, actionable asset allocation and thematic research, which typically challenges the market consensus. Our clients range from credit, equity and multi-asset hedge and pension funds to family offices and sovereign funds. 
 
We focus on identifying key inflection points in macro data and relative asset performance amid the 'groupthink'  and confirmation bias that characterizes most investment bank analysis.

Macro Driven Investment Insight

Macroeconomics

<blockquote><p><em>Downside risks next year include a sharper than anticipated China slowdown, US protectionism and intensifying geopolitical tail risks as covered previously as well as the market structure fragilities I covered in the ‘Volatility Volcano…’ note in October. </em><em>That backdrop implies that markets will be more volatile, asset dispersion will rise, and rather than riding QE-enhanced beta returns via passive trend following, active investors will be able to capture alpha from fundamental analysis of idiosyncratic risks and a good tactical allocation process.’</em></p></blockquote><div class="content-remarks"><p>Weekly Insight, Dec 18<sup>th</sup> 2017</p></div><blockquote><p><em>‘A key risk this year as highlighted previously is that China makes a policy error by underestimating US resolve to redress perceived imbalances in trade as well as downside growth risks, as what are seen as potentially destabilising finance sector innovations are systematically repressed. Beijing is entitled to feel a degree of hubris, having ruthlessly faced down foreign hedge funds in early 2016 to see FX reserves rebound. The point I made in the December EM outlook note was that China seems serious this time about cleaning up its financial system ahead of MSCI bond inclusion, a critical deleveraging mechanism; consensus faith in the ‘Beijing Put’ remains likely to be tested this year…’  </em></p></blockquote><div class="content-remarks"><p>Weekly Insight, Jan 22nd 2018</p></div><blockquote><p><em>‘The last few years have become particularly difficult for active fund managers as market movements have become more volatile and asset prices increasingly correlated, and often dislocated from fundamental analysis. In previous periods, weakness created opportunities but as we survey the outlook for 2019, we are concerned that we don’t see those opportunities. Both the political and economic outlooks remain confused and without clear direction.’ </em></p></blockquote><div class="content-remarks"><p>Hedge fund manager Philippe Jabre, announcing the closure of his fund last week</p></div>

Downside risks next year include a sharper than anticipated China slowdown, US protectionism and intensifying geopolitical tail risks as covered previously as well as the market structure fragilities I covered in the ‘Volatility Volcano…’ note in October. That backdrop implies that markets will be more volatile, asset dispersion will rise, and rather than riding QE-enhanced beta returns via passive trend following, active investors will be able to capture alpha from fundamental analysis of idiosyncratic risks and a good tactical allocation process.’Weekly Insight, Dec 18th 2017‘A key risk this year as highlighted previously is that China makes a policy error by underestimating US resolve to redress perceived imbalances in trade as well as downside growth risks, as what are seen as potentially destabilising finance sector innovations are systematically repressed. Beijing is entitled to feel a degree of hubris, having ruthlessly faced down foreign hedge funds in early 2016 to see FX reserves rebound. The point I made in the December EM outlook note was that China seems serious this time about cleaning up its financial system ahead of MSCI bond inclusion, a critical deleveraging mechanism; consensus faith in the ‘Beijing Put’ remains likely to be tested this year…’  Weekly Insight, Jan 22nd 2018‘The last few years have become particularly difficult for active fund managers as market movements have become more volatile and asset prices increasingly correlated, and often dislocated from fundamental analysis. In previous periods, weakness created opportunities but as we survey the outlook for 2019, we are concerned that we don’t see those opportunities. Both the political and economic outlooks remain confused and without clear direction.’ Hedge fund manager Philippe Jabre, announcing the closure of his fund last week

Consensus Euphoria Turned to Foreboding in 2018…