Latest from BCA Research
A lack of confirming growth indicators puts the equity advance at risk. Lift hypermarkets to overweight, stick with homebuilders and fade any small and/or mid cap relative strength.
We are confident that the reward/risk tradeoff to holding equities and high-yield corporate bonds is deteriorating and that rallies in these assets are high-risk affairs.
Risk assets will continue to edge higher over the next couple of months on improving economic data, notably from China. Longer term however, EMs - including China - are starting a prolonged deleveraging cycle, keeping commodities and cyclical stocks on the back foot. The dollar will likely follow the mirror image of commodities: down slightly the next two months, up substantially thereafter. A stronger dollar, in turn, will limit any rise in Treasury yields. Long-term investors should remain modestly overweight duration.
These general themes - along with our assessment that markets were overestimating downside price risk and underestimating upside risks arising from supply destruction and geopolitical instability - supported the best-performing strategic recommendations we made last quarter.
