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 [...]

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 [...]

Why shorting US government bonds is not a good idea

Posted on 29. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The reward of government bonds is made of three parts:

The difference between the yield and the funding rate (assuming that no Fx risk is kept and that the currency is funded at the Libor short term rate).

The curve roll down, which is derived from the steepness of the curve at the point of the yield [...]

Review of the troops after the liquidation

Posted on 01. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The global selloff which hit all asset classes at the same time made significant damage in term of financial stability.

As stated by Riskelia since March 2013, many assets were in bubble territory, in particular risky debts and equities. As showed in figure 1, equities’ exuberance is presently over.

Liquidity has clearly tightened in key systemic links [...]

My name is “Bond”, guess my first name

Posted on 22. May, 2013 by Jean Jacques Ohana in Weekly Focus

Stories about the burst of bonds bubble have recently flourished as US interest rates have risen over the last weeks. We show in this study that bonds are not a homogeneous asset class. We have chosen to map corporate credit debt, sovereign and emerging bonds along two dimensions:

The first dimension characterizes the “risk on” or [...]

Can Italian rates still be pushed higher?

Posted on 22. Apr, 2013 by Jean Jacques Ohana in Weekly Focus

In the past weeks, it has become hard to envision a scenario that could cause peripheral rates to go up. However serious the political gridlock in Italy, however gloomy the growth prospects in Europe, however nervous the commodities and stock markets, the downside of Euro zone peripheral debts could never materialize.

We have observed [...]

Hedge fund performance: alpha or beta?

Posted on 08. Oct, 2012 by Jean Jacques Ohana in Weekly Focus

Is hedge funds’ performance the reflection of managers’ skill or the premium associated to different forms of liquidity and tail risks?

By looking at figures 1 to 3, we realize that the average hedge fund performance looks more and more like the one of a short put on the S&P 500, with low correlation to equities [...]

How to invest in a low Risk Aversion mode

Posted on 10. Sep, 2012 by Jean Jacques Ohana in Weekly Focus

Riskelia’s heat map of financial risks (figure 1) dynamically pictures a normalized fear index reflecting more than 100 quoted risk premium in financial markets: implied volatility, credit spreads, CDS and monetary liquidity spreads like the LIBOR/OIS spread. Every type of financial vulnerability has eased since June 2012, notably the euro funding risk which had been [...]

What asset class would sustain a fourth oil price shock?

Posted on 01. Mar, 2011 by Steve Ohana in Weekly Focus

The turmoil in Maghreb and Middle East has put the risk of a sharp rise in oil at the forefront. Asset allocators, producers and consumers have incorporated a significant geopolitical risk premium into the oil price as a hedge against possible disruption in oil supply from Libya, Algeria, not to mention Iran and Saudi Arabia.

Should [...]