In today’s briefing:
- Overview # 28 – Capital Flows into Hard Assets Continue
- US Attracting Strong FDI Inflows at Europe’s Expense, While Wall Street Frets Over Withholding Tax
- Asian Equities: Southbound Flows Turning to Dividends and Beaten Down Sectors
- Real Asset Chartbook Week #10
- Why “Sell America” Isn’t Equity Bearish
- S&P 500: A Cresting Tide?
Overview # 28 – Capital Flows into Hard Assets Continue
- A review of recent events/data impacting our investment themes and outlook
- Fast and furious moves up in silver, PGM and related metals
- Sectors we have highlighted as inflation beneficiaries starting to attract capital
US Attracting Strong FDI Inflows at Europe’s Expense, While Wall Street Frets Over Withholding Tax
- Since the COVID-19 pandemic, the US share of inbound foreign direct investment (FDI) has risen significantly at the expense of Europe. President Trump aims to attract even more FDI.
- The America First Investment Strategy unveiled by the Trump administration seeks to bolster manufacturing investment via tax incentives as well as the creation of a sovereign wealth fund.
- Foreign ownership of the Treasury and US equity markets are roughly the same size and significant and potentially a major source of turbulence due to geopolitics.
Asian Equities: Southbound Flows Turning to Dividends and Beaten Down Sectors
- In May, onshore Chinese investors bought US$5.85bn of HK-listed stocks, down sharply from the $19-21 bn net buying range of the past three months. The favorite stocks also changed sharply.
- The hitherto Southbound favorites, Tencent, Alibaba and Xiaomi were sold down. Onshore investors’ current favorites seem to be the high dividend yield stocks, particularly China Mobile, CNOOC, China Construction Bank.
- Competitive pressures crashed food delivery and EV share prices. But Southbound investors seem to see these share price drawdowns as buying opportunities. Meituan, Li Auto were bought in significant measure.
Real Asset Chartbook Week #10
- This week, we are interested in US NatGas. For the last few weeks, the NatGas Mismatch Indicator has been flashing red.
- The mismatch indicator identifies positioning mismatches between the net number of individual speculative traders and their net speculative open interest.
- These points frequently intersect with price inflection points and can be useful trading signals.
Why “Sell America” Isn’t Equity Bearish
- We have been fairly cautious in our U.S. equity outlook in these pages, but that doesn’t mean we are equity bearish.
- We are embracing the “Sell America” trade because of a combination of deteriorating U.S. fiscal position and the trade war policy pivot that’s contributing to falling confidence in USD assets.
- The key risk to our “Sell America” thesis is whether the U.S. can sustain its technology dominance in the next investment cycle.
S&P 500: A Cresting Tide?
- The U.S. equity rally may be stalling as a frothy market encounters negative divergences.
- It faces the combination of valuation pressures, challenging trade negotiations with China and early signs of economic weakness.
- The last shoe to drop is price momentum, which may be in the process of rolling over.
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