Reading the 2014 financial scenarios through the lenses of 2013

Posted on 30. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

A bird’s eye view of 2013 History will help us design some financial scenarios for 2014.
The main financial event of 2013 has been the remarkable decline in financial integration (figure 1) which translates a greater confidence in the financial system. Equities of developed countries have steadily risen whereas emerging markets have tumbled. Commodities-linked currencies have [...]

The People’s Bank of China is playing brinkmanship with its own banks

Posted on 23. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

December 23, 2013

China is experiencing a second dry up of interbank liquidity in 2013. Chinese banks hoard cash in a context of increasing defiance over the Chinese banks’ access to liquidity.. As showed in figure 1, the Chinese repo rate is nearing the level reached at the climax of the turmoil in June 2013. Nevertheless [...]

Financial integration, safe havens and diversification

Posted on 17. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

We have already highlighted the paradox of the sharp decrease in correlation combined with the waning of diversification within asset allocation portfolios.

As the systemic decreases, risk premiums get less integrated and returns of assets get more diversified. As showed by figure 1, Riskelia’s Financial Integration indicator has sharply decreased which foretells a decrease in systemic [...]

Financial consequences of the ECB’s impotence

Posted on 09. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Before the last ECB meeting, we could wish that several ECB council members were determined to fight the deflationary threat in the Euro zone southern countries (figure 1). For instance, the last surprise move of the ECB refi rate down to 0.25% seemed to show that the ECB wanted to move towards a proactive quantitative [...]

Why active risk balanced strategies make sense

Posted on 02. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Risk Parity strategy or more accurately risk balanced allocation is a methodology which consists in allocating risk to assets classes rather than capital.

An example is presented below for an unleveraged portfolio. A leverage (for example multiplying all allocations by a factor 2) may be used to match the performance of traditional asset allocation portfolios.

Risk allocation

Capital [...]