Do not forget to hold Japanese stocks!

Posted on 24. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

As showed in figure 1, Japanese equities are coming back to the forefront with a remarkable positive dynamic. Since the beginning of 2014, the USD/JPY used to offer better perspectives than Japanese equities. This trend has however reversed since May 2014 so that Japanese equities now present better risk/reward than the short position on the [...]

Easing of financial conditions on emerging assets

Posted on 10. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

We mentioned in April 2014 the strengthening of our indicators on emerging assets. The recovery was first spotted in Asia where Indian and Taiwanese stocks showed impressive positive dynamics at the beginning the year.

As showed in figure 1, emerging bonds in dollar are clearly leading the way up and MSCI emerging equities are following. Emerging [...]

Increase in equities + decrease in yields: what is behind this joint dynamics?

Posted on 03. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

Since the start of the year, interest rates drifted lower including in core sovereign debts (US, UK, Japan, Germany) while global equities rose. As a matter of fact, the US 10 years rates dropped around 50 bps, the German 10 years Bund rate tumbled 60 bps whereas the MSCI World index increased by 3.3% before [...]

Financial markets directionality and Global Macro opportunities

Posted on 05. May, 2014 by Jean Jacques Ohana in Weekly Focus

Markets directionality may be defined as the propensity of financial assets to trend.

To compute this directionality on a dynamic basis, we first compose a basket comprising an equal number of stocks indices, commodities, currencies and bonds futures. We then calculate, on this set of markets, the average absolute Sharpe Ratios over a three-month horizon. We [...]

The FOMC will not suffice to provoke a global interest rates rise

Posted on 24. Mar, 2014 by Jean Jacques Ohana in Weekly Focus

As analyzed by the Fed watcher, Tim Duy, the FOMC was perceived significantly more hawkish than expected. The unemployment trigger (6.5%) was dropped but the FOMC has also renounced to accept an inflation rate 0.5% above the long term objective of 2%. Tim Duy thinks that the 2% inflation level is no longer a target [...]

Long Bonds and long Equities altogether

Posted on 10. Feb, 2014 by Jean Jacques Ohana in Weekly Focus

As liquidity comes back to risk seeking territory (figure 3), equities are likely to rise again but surely less than in 2013.

Nevertheless, the uncertainties about the emerging countries’ outlook will weigh on financial markets and deteriorate the global economic outlook. As a matter of fact, Chinese authorities will maintain a tightening mode in liquidity so [...]

Are you so sure that interest rates will rise in 2014?

Posted on 20. Jan, 2014 by Jean Jacques Ohana in Weekly Focus

Judging from the trends on sovereign bonds, the Radar is increasingly constructive on bonds (figure 1) beyond corporate bonds where we have maintained a positive view since mid-2013. Besides Italy and Japan, Canadian and French bonds are flipping to positive trends while the dynamic of US and UK sovereign debts is improving.

The situation in Canada [...]

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 [...]

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 [...]

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 [...]