Asia biased macro & technical analysis, Untying The Gordian Knot

Untying The Gordian Knot

Asia biased macro & technical analysis

A differentiated process with a primary focus on Asia. Technical Analysis as core and Macro drivers that could bring the view to fruition & changes that could make the idea fall apart. The objective is to be the best in class, hence corner shop.

Technical Analysis

<ul>
<li>The US market led the global equity rally as the invasion started. The long bond yields rose, and the yield curve steepened</li>
<li>European markets did well on Thursday and Friday but failed to recover as strongly as US stocks. Asia was a laggard in general.</li>
<li>I would have been more confident of the equity rally had the long bond yields rose on Friday, and the curve steepened.</li>
</ul>


The US market led the global equity rally as the invasion started. The long bond yields rose, and the yield curve steepened
European markets did well on Thursday and Friday but failed to recover as strongly as US stocks. Asia was a laggard in general.
I would have been more confident of the equity rally had the long bond yields rose on Friday, and the curve steepened.


Fixed Income and Currency Strategist

Gautam Jain, PhD, CFA

FX & Rates

<ul>
<li>Following the invasion of Ukraine by Russia, it is only a matter of time before the US and other western allies impose a new set of economic sanctions on Russia</li>
<li>A directive from the US Treasury this week expanded the restrictions on Russian bonds as it prohibits participating in the secondary market of new bonds, thereby cutting financing for Russia. </li>
<li>With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different scenarios.</li>
</ul>


Following the invasion of Ukraine by Russia, it is only a matter of time before the US and other western allies impose a new set of economic sanctions on Russia
A directive from the US Treasury this week expanded the restrictions on Russian bonds as it prohibits participating in the secondary market of new bonds, thereby cutting financing for Russia. 
With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different scenarios.


Risks to Russian Bonds from Escalating Sanctions

<ul>
<li>In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.</li>
<li>The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.</li>
<li>If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.</li>
</ul>


In an environment marked by uncertainty with regards to the dollar's next move, EM currencies have been stable and LatAm currencies have outperformed Asia and CEEMEA so far this year.
The strong start for LatAm currencies is partly to make up for their underperformance last year and partly supported by their high carry relative to other currencies.
If risk aversion remains low, this trend should persist but given the uncertainty, it is best to be selective and target relative-value trades to take advantage of differences across countries.


Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

<ul>
<li>The turnaround of Asian currencies is likely to continue with growth resurfacing in the region ex-China and the interest rate differential with the rest of emerging markets narrowing.</li>
<li>The main risks to watch are whether the slowdown in China worsens and weighs on the region as a whole and whether central banks embark on FX interventions again.</li>
<li>While the overall view on Asian currencies is constructive, I prefer cross-country trades to take advantage of differences arising from idiosyncratic drivers and to eliminate the dollar risk.</li>
</ul>


The turnaround of Asian currencies is likely to continue with growth resurfacing in the region ex-China and the interest rate differential with the rest of emerging markets narrowing.
The main risks to watch are whether the slowdown in China worsens and weighs on the region as a whole and whether central banks embark on FX interventions again.
While the overall view on Asian currencies is constructive, I prefer cross-country trades to take advantage of differences arising from idiosyncratic drivers and to eliminate the dollar risk.


Drivers Behind the Turnaround of Asian Currencies

<ul>
<li>The US dollar has started appreciating again on the back of a safe-haven bid with risk aversion rising due to the Fed's upcoming rate-hiking cycle and the Russia-Ukraine tensions.</li>
<li>Given my expectation of rising dollar volatility, I had recommended hedging a diversified EMFX portfolio with the euro. Indeed, the euro hedge has worked well over the past three months.</li>
<li>I continue to prescribe maintaining the euro hedge. If the dollar remains volatile, I don't expect the low volatility of EM currencies – dragged lower by Asia – to persist. </li>
</ul>


The US dollar has started appreciating again on the back of a safe-haven bid with risk aversion rising due to the Fed's upcoming rate-hiking cycle and the Russia-Ukraine tensions.
Given my expectation of rising dollar volatility, I had recommended hedging a diversified EMFX portfolio with the euro. Indeed, the euro hedge has worked well over the past three months.
I continue to prescribe maintaining the euro hedge. If the dollar remains volatile, I don't expect the low volatility of EM currencies – dragged lower by Asia – to persist. 


Value of Euro as a Hedge for EM Currencies in Times Like These

Russia

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Buy at the Sound of Cannons

The US market led the global equity rally as the invasion started. The long bond yields rose, and the yield curve steepened

Untying The Gordian Knot

Risks to Russian Bonds from Escalating Sanctions

With new sanctions on the way, the risks to Russian bonds have increased. I list the possible risks for holders of Russian bonds under different...

Gautam Jain, PhD, CFA

Will Latin American Currencies Continue to Outperform Against Asia and CEEMEA?

If risk aversion remains low, LatAm currencies should continue to outperform but given the uncertainty, it is best to target relative-value trades...

Gautam Jain, PhD, CFA

Drivers Behind the Turnaround of Asian Currencies

The turnaround of Asian currencies is likely to continue with growth resurfacing in the region ex-China and interest rate differential with the...

Gautam Jain, PhD, CFA

Value of Euro as a Hedge for EM Currencies in Times Like These

Given my expectation that the dollar should remain volatile in the near term, I continue to recommend maintaining a euro hedge for a diversified...

Gautam Jain, PhD, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)