Turbulence Distance vs. Risk Aversion: And the Winner is…

Posted on 20. Jun, 2017 by Jean Jacques Ohana in Weekly Focus | 0 comments

June 20, 2017

In 2010, a paper published by the Financial Analysts Journal proposed a measure of financial turbulence based on the Mahalanobis Distance. The latter measures the daily surprise move of all financial assets compared to historical volatilities and correlations.
The Mahalanobis Distance is expressed as followed:

R is the vector of daily returns for each asset, [...]

Do Investors Overestimate the Benefits of Diversification?

Posted on 14. Jun, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

June 14, 2017, Jean-Jacques Ohana, CFA and Dr. Christian Witt (both YCAP Asset Management)

We have witnessed a strong divergence among US sectors over the last 10 years. The S&P 500 Technology sector has almost doubled whereas the S&P 500 Energy has stalled over the same period (see Figure 1). This divergence reveals the impressive winning [...]

The China Anomaly

Posted on 02. Jun, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

June 2, 2017, Jean-Jacques Ohana and Dr. Christian Witt (both YCAP Asset Management)

Over the last month, a very rare performance anomaly has developed on the Chinese equity market. The 50 largest (A-share) stocks included in the Shanghai SE Composite Index (SSE), China’s primary stock exchange, have considerably outperformed the broader benchmark index (see Figure 1). [...]

Are Developed Markets a Concentrated Bet on US Tech Stocks?

Posted on 24. May, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

May 24, 2017, Jean-Jacques Ohana and Dr. Christian Witt (both YCAP Asset Management)

Developed markets, not their emerging peers, have been the primary source of equity returns over the last five years (see Figure 1). The MSCI World, a proxy for the performance of global developed equity markets, accumulated nearly +80% of performance, easily surpassing the [...]

Emerging Markets Worth a Look!

Posted on 12. May, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

May 12, 2017, Jean-Jacques Ohana and Dr. Christian Witt (both YCAP Asset Management)

Over the last year, emerging market equities have outperformed stocks in the developed world by a wide margin (see Figure 1). Developed market equities outside the US, many of which mired in political risks, have done particularly bad. With such political risks now [...]

Mind the Economic Fundamentals

Posted on 04. May, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

May 4, 2017, Jean-Jacques Ohana and Dr. Christian Witt (both YCAP Asset Management)

The “Trump trade” may still be the investment theme of the hour (in developed markets). But current economic fundamentals suggest this is likely to change soon. For one thing, European economies continue their increasingly vigorous recovery, while the US economy seems to slow [...]

Election Disaster Averted. What’s Next?

Posted on 27. Apr, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

April 27, 2017, Jean-Jacques Ohana and Dr. Christian Witt (both YCAP Asset Management)

Emmanuel Macron and Marine Le Pen qualified for the second round of presidential elections in France over the weekend and will face each other in a run-off on May 7, 2017. Markets have welcomed the outcome with an impressive rally across European equities, [...]

The Long Shadow of French Elections

Posted on 13. Apr, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

April 13, 2017, Jean-Jacques Ohana and Dr. Christian Witt (both YCAP Asset Management)

Over the last couple of weeks, markets have been clueless. Some ups, some downs. But nothing dramatic; not even a correction that is worth the name. In our view, this is due to formidable tail risks––most notably an accidental, disorderly breakup of the [...]

European Political Risk Underestimated?

Posted on 30. Mar, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

March 30, 2017, Jean-Jacques Ohana, CFA and Dr. Christian Witt (both YCAP Asset Management)

A series of recently published articles made us reconsider the chances of Marine Le Pen winning the upcoming French presidential election. In these articles, the author convincingly argues that (1) election outcomes are tremendously sensitive to voter turnout, and (2) deeply held [...]

What Drives the Emerging Currency Rally?

Posted on 23. Mar, 2017 by Jean Jacques Ohana in Weekly Focus | Comments Off

March 23, 2017, Jean-Jacques Ohana, CFA and Dr. Christian Witt (both YCAP Asset Management)

Against all odds––most notably fears of protectionism––emerging currencies (against the USD) were among the biggest winners at the start of 2017 (see Figure 1). What a change of fortune! No other currency illustrates this trend reversal better than the Mexican Peso (MXN). [...]