Fund Team: Macro Update

Chris Makowski, Macro Sector Leader 2015-16

The Macro section of the Fund Team seeks to invest following the Macroeconomic trends that emerge in the Global economy. To this end we look strongly at large economic moves that affect indices, commodities and foreign exchange. To this extent we first submitted several trade ideas. The first being the short sale of Oil when Brent was hovering just above $45/barrel. This was heavily influenced by the removal of Iranian sanctions allowing them to increase the oil supply in the market. This was paired with calls by Saudi Arabia that they had no plans to reduce their production so we predicted we would see declines in this area. 

We also cast our view to China, where we saw several opportunities to capitalise upon, Chinese equities having suffered from continued uncertainty in recent months, we believe there are undervalued opportunities in many area, this however need to be tempered by examining their low-cost competition in other countries. More specifically we looked into Chinese steel companies, which firstly dominate EU companies on price, so we see real opportunity, particularly with steel having been at one third of the price at which it opened at the start of 2015.

Further we aimed to long USD:MYR, with the aim of shorting a country we viewed to have significant internal and external balances in favour of an improving developed economy. This was largely looking forward to the tightening of US monetary policy but also serval weaknesses in Malaysia, such as a rising debt to GDP ratio, a declining current account surplus – which was accelerated by the fall in oil prices, and their underperformance compared to neighbours.

Looking to the Americas, we considered going long MXN:CAD, driven by the poor growth of the Canadian economy, the fact it has a lower interest rate than the US and the fact it’s non-energy sector has seen slow productivity growth. This is in comparison to Mexico Peso, which Daniel Tenengauzer, head RBC Capital Markets EM strategy, claimed is undervalued and will benefit from the strengthening US economy. Further looking to TPP, we believe the attractiveness of Mexico relative to China as a manufacturing destination will rise due to China’s absence from the deal.

These have been some of our larger ideas, however, we are continuing to search for new opportunities. I would like to thank Cameron Lee, Ted Hill, Jonathan Kong, Carlota Garcia Abad and Ollie Loney for their excellent work. For those interested we have more detailed information on all of these points.

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