Latest from BCA Research
The HK dollar is under an assault from rising US interest rates and a weak economy. To defend the exchange rate peg, the HKMA will continue to tighten liquidity, which will boost HK interest rates above those in the US across the entire yield curve. That will cause major damage to this economy and HK-domiciled companies' stocks. Downgrade the MSCI HK equity index within a global portfolio from neutral to underweight.
A recent report by the Global Investment Strategy at BCA Research frames an argument for equities to surprise to the upside over the next six months.
This week we present our Portfolio Allocation Summary for November 2022.
While there is much variability in company profitability, earnings contractions have commenced and appear to be broad-based. We expect earnings growth to deteriorate further into year-end. Companies are reporting concerns about the trajectory of future economic growth and the uncertainty that it brings. Consumer spending on goods has slowed sharply, while spending on discretionary services has surprised on the upside. Business-to-business spending is still strong.
Europe is hampered by a lower trend growth rate, but has room to grow faster than the US over the next two years. How can investors profit from this outlook?
Financial markets slumped with the tough talk that followed last week’s FOMC meeting, but investors should recognize that the tone of the Fed’s communications is conditioned upon the inflation backdrop. Once it improves, Chair Powell and his colleagues will be able to relax their rhetoric.
In this report, we identify 5 key signposts that will mark a turn in the dollar. These include technical conditions, foreign real interest rates, US (and global) yield curves, Chinese economic conditions and geopolitics. We then assess whether it is time to short the dollar.
The Fed will slow the pace of rate increases but the terminal rate will be higher than initially expected. The Fed will not pivot any time soon. Economic pain is unavoidable. Equities will bottom shortly before economic growth bottoms.
As the FOMC explicitly acknowledged this week, monetary policy operates with substantial lags. We see the risks to stocks as tilted to the upside over the next 6 months but are neutral on global equities over a 12-month horizon.
US equities had a strong October after a positive start to the earnings season with USHQ and the benchmark returning 9.05% and 4.89% respectively. USHQ outperformed in all sectors except Energy and Industrials. The BCA Score Long/Short also performed well following strong returns from the Value, Safety, and Technical composite factors.