Markets Research

Overview

Our investment strategists absorb our teams’ political and economic views and forecasts. Then, using a market lens, they provide our clients with advice on asset allocation, investment positioning and portfolio risk management.

At TS Lombard, we are in the advantageous position of having a wealth of global economic and political analysis at our disposal. Through the judicious interpretation of this knowledge, and rigorous market analysis, we provide clients with high-conviction advice on the best course of action to take in order to capitalise on opportunities and avoid risks.

We provide actionable asset allocation advice (3-6 month horizon) expressed in absolute terms and relative tems in model portfolios. We also provide tactical trade ideas (6-8 week horizon).

Our Markets Research Methodology

Timing is key, and our focus is to determine the optimal moment to increase or reduce exposure to a specific asset class or make a tactical trade. We take pride in presenting our clients with resolute ideas based on their specific needs, giving them an opportunity to make adjustments to their portfolios with greater confidence. In many cases, we act as a ‘sounding board’ or a ‘second opinion’ to help you see how interdependencies and interconnections will have an impact on your decision-making.

 

Our proprietary strategy models can help you identify where the value is in the market with a greater degree of certainty. And our agnostic approach to asset classes allows us to give you the best value recommendations – whether that’s cross-asset, multi-asset or within asset classes.

Using detailed economic and political risk analysis as the building blocks of our forecasting, our team of expert strategists assess market positioning and technical signals and then formulate asset and investment recommendations based on the most likely outcomes.

Services

Asset Allocation

Combines global macroeconomic views and market strategy to give investment recommendations within and across the main asset classes – with a 3 to 6 month investment time horizon. Views expressed as both absolute calls and relative allocations in our model portfolio. Contains proprietary ValuQEST equity model.  (Monthly)

Strategy Chartbook

Highlights important market drivers and summarises our key investment conclusions across all the major asset classes. (Monthly)

Macro Strategy

Global tactical trade ideas to play key macro themes or exploit relative value opportunities – with a 6 – 9 week investment horizon. (Weekly on Wednesday)

Daily Notes

Insightful macroeconomic analysis driven by ideas and provided in a concise 2-page format. (Daily)

Macro Picture

Focusing on global macro themes at the heart of current market moves and provided in an easily readable 8-10 page format. (Fortnightly on Thursdays)

Quant Strategies

We have developed 10 quantitative signals that provide reliable short-term market calls for investors. Each strategy uses and places heavy weighting on data sets and other technical inputs selected by our macro economic team. These have been overlaid with other quant data and market timing data. The out of sample performance over 5 years has consistently generated alpha. The strategies rebalance once per week or month as appropriate. 

They are:

  • US Equity Sectors
  • Europe Equity Sectors
  • DM Country Selection
  • EM Equity Sectors
  • Government Bond Futures
  • VIX Arbitrage
  • VIX Directional
  • Commodity Selection
  • FX Selection
  • Dynamic Futures Asset Allocation

Research Partners

At TS Lombard Research Partners we partner with experienced market-facing analysts to bring our clients a wider range of independent research services in a highly innovative way.

The changes to the industry’s research business model prompted by the adoption of the MiFID II directive have meant that many well-established analysts are questioning the future direction of their careers.  At the same time, investment managers are just as hungry for sources of alpha generation, and are starting to look at non-traditional sources of insight.

We have therefore created a distribution and compliance platform for experienced, independently-minded analysts.  TS Lombard was ranked in the top three independent research firms globally in our field in the most recent Extel Survey.

Asia Property

Our Asia Property service analyses developments in the sector, with an emphasis on the largest most liquid stocks and provides actionable single stock recommendations and calls on the value of specific REITS and property companies.

Coverage is by Andrew Lawrence from our Hong Kong office.  Andrew joined us as a Research Partner in 2017 and combines 21 years’ experience in Asian real estate at banks such as Kleinwort Benson, Deutsche Bank and Barclays with direct investment experience, investing across the capital structure of both public and private real estate companies for hedge funds, as well as consulting experience in the real estate business.

All research from our partners will offer the same high standards that underpin our macroeconomic and strategy work.  Research partners interact with our in house team to exchange ideas. Through this macro analysis and micro sector expertise come together.  

We launched our Research Partners service in 2016/17 to provide expert sector coverage and investment advice.  Andrew Lawrence covers Asian Property - a sector that links directly to our existing expertise in the macroeconomic and policy arenas.  Andy is a well-established analyst with extensive experience in his ector and strong relationships with investment managers globally.

As other high-quality, experienced analysts leave major sell-side institutions, we will expand the sectors under coverage and will be actively engaged with clients about meeting their needs for high-quality, insightful research.

 

His research has been top rated in industry surveys and consistently valued by many international investment institutions. Prior to moving to Asia 21 years ago, Andrew was head of property strategy for a major UK PLC and spent seven years in real estate advisory. He founded Oculus Research Asia in 2015 as an independent research service committed to providing original and insightful research focused on the Asian real estate sector.

We believe his partnership with us will generate fresh investment ideas and create outperformance.

Markets Research

Markets
01 Oct 2019

EM Strategy Monthly: Beijing's acceptance of slower growth marks turning point in global cycle

  • Risk: We turn less negative but still think the long list of potential upsets ahead merits a continued negative call on risk.
  • Turkey: We raise our call on equities to positive, which we view as a short-term tactical move owing to the expected sharp fall in inflation in September.
  • Russia: Prospects for further declines in inflation and the key policy rate remain solid; we maintain our positive call on all Russian securities.
  • Brazil: We continue our positive rating on Brazil ahead of the final passage of pension reform and continued easing by Banco Central.
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Markets
25 Sep 2019

Macro Strategy: Four black swans

  • There are plenty of things to worry about in the current market environment
  • And we reckon investors are getting too worried, desperate to be the first to identify these black swan
  • S&P 500 set for a period of consolidation, but we are not in the recession camp
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Markets
13 Sep 2019

Asset Allocation: The global slowdown wave

  • China’s 2016 stimulus created a global synchronised growth spurt
  • But the expansion wave has since turned into a global slowdown tsunami
  • Nonetheless, we may be past the nadir in this cycle
  • We add back some risk but remain conservatively positioned
  • We stay underweight equities and overweight bonds, but only by 2%
  • Our preference in equities is for DMs, in fixed income for EMs local currency
  • Bond yields close to fair value relative to cyclical indicators
  • Treasury liquidity tightening likely, but Fed needs to ease monetary policy
  • The dollar still smiles, but China policy remains important: CNY cut to -1
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Markets
03 Sep 2019

EM Strategy Monthly: China slowdown? Yes, but this time the policy response will be different

  • Risk: We cut our call on risk to negative to reflect the rise in market uncertainties associated with global growth and the trade war.
  • Indonesia: We raise our equity call to positive to reflect continuing relatively strong growth amid improving fiscal performance.
  • Russia: Prospects later this year for a pickup in growth and continuing cuts in policy rates are positive; we maintain our positive call on equities.
  • Brazil: We view equities as oversold given more positive growth prospects and progress on pension and tax reforms. We maintain our positive rating.
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Track Record

Markets
22 May 2019

2019: Long XHE ETF vs IHE ETF

We said:

Trade war makes it hard to make directional calls. Consequently, we think it makes sense to focus less on making directional macro calls (most of which will be affected by trade developments that are hard to predict) and concentrate more on idiosyncratic stories.

Following years of outperformance, Healthcare Equipment’s returns fell into line with those of Pharmaceuticals about a year ago. Current levels are reasonably attractive, being roughly in the middle of the range of the past 12 months. Given the length of the market’s consolidation, plus the renewed push in Congress to lower healthcare costs, we think now is a good time to gain exposure to a sector that has stronger long-term prospects than Pharma. We therefore buy the XHE ETF against the IHE ETF. 

Outcome:

Healthcare Equipment outperformed and the trade generated a 7.5% return when we closed it out on 9 September. We raised the stop-loss on 19 June to lock in 4% profit. On 24 July we raised the stop-loss again to lock in 5% profit. On 31 July re raised the stop-loss again to lock in a gain of 7.5%. 

Markets
13 Mar 2019

2019: Gazprom to gain on corporate governance

We said:

Other top-down drivers besides sanctions rule out a repeat of last year's outperformance of Russian oil and gas stocks relative to the wider Russian equity market. Corporate governance performance could outweigh these top-down headwinds. Lukoil and Gazprom are the stocks to watch here. 

The upside in Gazprom's case is that it is one of the few hold-out SOEs that, until now, have managed to avoid compliance with the government's 50% dividend pay-out ratio norm. That resistance will continue to be beaten down this year and next. Brightening dividend prospects at Gazprom depend not only on government pressure (which is always up against Gazprom's lobbying clout), but also on the impending completion of the company's major pipeline projects - Power of Siberia, Turkstream and Nordstream-2. New government initiatives to tighten control of SOE capex should also be good for shareholder value. Finally, increased exposure to Gazprom makes sense given the increasing share of gas in global energy consumption and the chance during this political cycle of more radical - and value-enhancing - restructuring of the company through export liberalization and the unbundling of its business. 

Outcome:

Gazprom gained 66% from 153.30 ruble at the time of publication to 255.35 ruble on the 4th of July. The MICEX index gained 15% over the same period. The trigger was the mid-May announcement of a doubling of the dividend pay-out from 2017. The Financial Times quoted analysts as follows: "We deem the new proposal to be a strong signal of positive corporate governance developments". 

Markets
23 Jan 2019

2019: Fed pause will turn into easing then rate cuts: we buy October fed funds

Consensus said:

The futures market was still expecting Fed rates to rise in 2019 from 2.4% on the date of inception to 2.44% at year-end. The rates market was pricing a less than 5% chance of a rate cut in 2019 and a 20% chance of a hike in by June. 

We said:

FOMC policy tightening has been stable and predictable for the last two years, but now that the Fed has moved to a ‘wait-and-see’ mode, and has bought optionality around the pace of balance sheet reduction, uncertainty over the next step is high. We reckon Powell’s FOMC is more pragmatic than previous committees, and will be more willing to act against the risk of curve inversion. In our view, the US economy needs a rate cut given signs of a slowdown. And slowing the pace of QT makes it more likely.

Market expectations of Fed policy have stabilised after the wobble around the new year, when at one point the market was discounting over 10bp of rate cuts for 2019. And although the slightly upward-sloping curve includes a non-zero probability of rate cuts, according to Bloomberg, market expectations of a cut this year are less than 5%. The market discounts a 20% chance of a rate hike by June. We reckon the balance of risks is the other way around: either the Fed cuts rates this year or does nothing.

We expect that once the pace of QT is slowed, the market will move to discount a greater chance of rate cuts in future meetings. If the pace is slowed at the March meeting, this puts a timescale on discounting cuts starting in Q2. We expect the rate cut to come after it becomes evident that data has not improved – thanks to the government shutdown, this means the cut will most likely take place in Q3.  

We buy the October fed funds future at 97.53 with a stop below 97.40: the current price reflects a market expectation that the fed funds rate will be 2.47% on average in October (it is currently 2.4%). We reckon October is the optimal entry point given our expected timing of the rate cut and the shape of the fed funds curve: the December price is a little higher than the October price. We reckon there is a better chance of it averaging 2.15%, equivalent to a futures level of 97.85.

Outcome:

We took profit of 27bp on 27 March as the contract hit our target of 97.80. By that time markets had completed a 180 degree U- turn in 3 months and were pricing an 80% chance of a Fed cut in 2019, and 60% by end of Q3. 

Markets
21 Aug 2019

2019: Long US transportation, short aerospace and defence

We said:

We have written how weakness in US new goods orders reflects sagging world trade. EU data releases have further darkened the global outlook, with confirmation that Germany’s economy, the EU’s largest, shrank in Q2. We have also highlighted the extent to which the rest of the world is slowing more abruptly than the US.

We add a trade to the theme of US growth outstripping the RoW. We go long US Transportation and short US Aerospace & Defence. With momentum in the global economy lagging that in the US, we believe Aerospace & Defence will be a relative loser as it is very dependent on non-US earnings. China is a particularly important market. Earnings growth has been strong in the past few years, but we doubt this can be sustained in the current global trade climate. Valuations are also expensive at 21.6x forward earnings.

Conversely, US Transportation is leveraged to the US domestic economy. The sector encompasses freight as well as last-mile delivery. Ahead of the potential increase in tariffs on Chinese imports later this year, not to mention the year-end holidays, we expect significant stockpiling in coming months, which will be positive for freight. At the same time, relatively buoyant consumer spending remains a tailwind for last-mile delivery companies.

We therefore buy the IYT ETF (iShares Transportation Average) and sell the ITA ETF (iShares U.S. Aerospace & Defence). Transportation’s p/e is 13.3x forward earnings (2.7 points below the 10-year average). The differential with Aerospace’s 21.6x valuation provides a good margin of safety for the trade.

Outcome:

We closed the trade on 23 October for a profit of 6.58%.

Markets
28 Jun 2019

2019: Still more upside for Gazprom stock

We said:

Gazprom's shares will continue to emerge from their long-standing valuation trap. 

Far from it being a once-in-a-decade break, last April's announcement of a 'proper' dividend - and this month's guidance on the new dividend policy in the works - are part of a broader improvement in the outlook for shareholder value creation. As we have seen, this encouraging trend spans business strategy, management quality and tighter procurement procedures. For the most part, this boils down to better corporate governance, where potential gains are all the greater for coming off a notoriously low base. In short, the favourable valuation rating trend looks sustainable. 

Outcome:

Having already gained 50% since our call in March, Gazprom's stock gained a further 10% rising from 232.83 ruble at time of publication to a peak of 255.35 ruble on 4th of July. MICEX gained 4% over the same period. 

Markets
29 May 2019

2019: TIPS Tipping Point

We said:

Real yields are more likely to fall than rise from here. Even if the trade confrontation were to be resolved tomorrow, we would still project US growth to decline in mid-year and end 2019 below consensus expectations. The longer the trade row drags on, the greater the downside risk to our view.

Sharp fall in breakevens masking the recent stability of real yields. As we noted above, the large drop in nominal yields this quarter has been paced by inflation rather than growth. Real yields are currently at the bottom of their recent range; any further fall in yields could tip them into a new, lower range.

We buy TIPS via the TIP US ETF (which tracks the performance of the whole TIPS market; note there is no “s” in the ticker) at 114.20 and set an initial stop 2% away, just below 112.

Outcome:

Growth and inflation expectations faded. We closed the trade on 24 July for a total return of 29bps. 

Our Team

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Andrea Cicione

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Ollie Brennan

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Jon Harrison

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Andrew Lawrence

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Nikol Hearn

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Stephen O'Sullivan

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Martin Shenfield

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ECONOMICS

Through our analysis of the forces that drive economics at the global, regional and country level, we have a joined-up picture of the world economy and a deeper understanding of the countries that investors care about. This gives us a unique perspective that allows us to present courageous, fresh, long-term thinking and forecasting with high conviction.

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POLITICS

With political drivers and government policy playing an increasingly significant role in determining economic and market outcomes, our world-wide team of political analysts are able to provide critical, timely insights into political shocks and policy developments that will influence investment performance – both regionally and globally.

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