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).
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.
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)
Global tactical trade ideas to play key macro themes or exploit relative value opportunities – with a 6 – 9 week investment horizon. (Weekly on Wednesday)
Highlights important market drivers and summarises our key investment conclusions across all the major asset classes. (Monthly)
Flagship overview essay of EMs, relative asset allocation views for each asset class; our high-conviction total return views, heat map presentations of our FX and fixed income market views, as well as an accessible one-page summary for each of the 10 EM countries we cover. (First week of each month)
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.
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.
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.
Turkey approaching a hard landing. Turkish inflation is currently running above 15%, a 15-year high, and the effective bank rate is 20.75%. Despite this positive real rate of more than 5 percentage points, the currency continues to weaken and the current account deficit continues to widen. Fundamentally, since the GFC Turkish corporates have become too reliant on overseas funding, which was a lot cheaper than borrowing at home. The overhang of FX debt means there is a persistent domestic bid for USD to cover debt-servicing costs.
Erdogan has appointed his son-in-law as the new economy minister and has effectively ended the central bank’s independence by scrapping the minimum term for its governor and claiming the exclusive power to appoint central bank policymakers. As such, Erdogan, who is on record as saying high interest rates are the cause of high inflation, is likely to exercise more influence on monetary policy. His election victory is unlikely to lead to a more orthodox economic policy in Turkey.
Hard currency debt means further TRY weakness. From a valuation and carry perspective, TRY looks attractive. It is one of the cheapest currencies in the world and offers carry gains of 18% a year. Bouts of currency weakness may be interspersed with periods of consolidation as speculative investors attempt to pick up a few percentage points of carry. But the lira’s weakness is now being driven by domestic corporates. Bloomberg puts the foreign asset/liability mismatch at $221bn at the end of April; non-financial FX debt is more than twice Turkey’s FX reserves. We downgrade TRY from 0 to -1.
Our Asset Allocation calls have a 3-6 month time horizon. TRY/USD was at 0.21 when we published this piece and fell 29% to a low of 0.15 on 3 September 2018. A huge rate hike of 625bps to 2400bps on 13 September 2018 has so far only stabilised the TRY/USD at 0.17.
We are not bearish on the euro area economy overall. Growth is slowing, but from well above trend to slightly above trend. We see US tariffs and Brexit as rising risks to the auto sector, and we judge the German stock market to be the most exposed in such circumstances. The French stock market has a similar sectoral composition to Germany, but its consumer discretionary sector is not dominated by autos. In addition, it has a beta to the DAX around 1. By selling the DAX and buying the CAC we attempt to isolate the risk of tariffs without taking a negative view on the broader economy.
Trade closed on 15 August 2018 for a quick profit of 1%. Since the Trump-Juncker meeting in July 2018 the threat of US tariffs on European autos had diminished.
There is no soft patch in the US. The OECD indicator is slowing, but this masks divergence on a country-by-country basis. The US indicator has just made a two-year high and is firmly in the 'expansion' quadrant. It matches our US economist Steve Blitz's view of the US expansion. The 'soft patch' is temporary and not global. Logically, therefore we should regard the current retreat in risk as a buying opportunity. Employment is improving, particularly in higher-wage industries. Wage growth also looks set to continue rising. Tax cuts and fiscal stimulus are doing their job. We reckon easing fiscal policy at this stage of the cycle is imprudent, but it is what it is. The experiment of running the US economy hot is beginning to show results. It looks like the next stage of the US expansion will be driven by personal and business capex. Households are feeling more confident.
Consumer discretionary (CD) stocks should perform well in this environment. We buy the XLY ETF, which tracks the consumer discretionary sector, at $104.10 with a stop at $99.50 and target of $115. The sector includes Amazon, whose p/e ratio of 68x forward earnings distorts the sector’s overall valuation. But given Amazon’s global reach, rising market share and policy of investing profits in capex, one can justify a sky-high price: the p/e ratio is not an appropriate measure of value for the stock. Valuations in the rest of the sector are a reasonable 16x forward p/e (compared to 20x for the S&P500 index), and buybacks – running at $22bn/quarter in this sector and $60bn/quarter in the S&P500 as a whole – should continue to support prices.
By 23 May 2018 the trade had made 0.8%. We raised the stop-loss to $102.90 to add some protection.
By 6 June 2018 the trade had made 4%. We raised the stop-loss to $104.75 to lock in some of the profit.
By 13 June 2018 the trade had made 6.3%. We raised the stop-loss to $106.5, locking in 2.5% profit to date.
By 20 June 2018 the trade had made 7.4%. We raised the stop-loss to $109 to lock in more profit.
On 27 June 2018 we closed the trade for a total gain of 4.7%. Over the same period a long SPX position would have delivered zero return.
BRL has been beaten down by political risk. We expect a Bolsonaro relief rally to support Brazilian but the FX market continues to hedge against a big fall in the real. The 25 delta risk-reversal/at the money ratio is two standard deviations above its long-term average, a sign that investors remain long USD/BRL. Instead, we reckon there is time and space for the ratio to fall and the currency to rally.
In the LSR View “The bull case for Bolsonaro”, we lay out the three main pillars of a bullish outlook: the outsourcing of economic policy to his economic advisers; the formation of a supportive coalition to enable passage of legislation; and the appointment of experienced political operators to push reforms through Congress. It is still early days – the second round vote still needs to be won – but optimism over the outlook for Brazil should spur a rally for the next few months.
Seasonally, BRL tends to weaken in November, particularly against USD. While we reckon there is room for USD/BRL to fall, we prefer to buy BRL/MXN at 5.06 with a stop at 4.93 and target of 5.30. BRL/MXN is less subject to weak BRL seasonality in November.
Trade gained almost 4% in one week as BRL rocketed. Ahead of the second round election we chose to be prudent and cashed-out at 5.25 for a profit of 3.6%.
Market pricing was extremely short USD against 6 major currencies.
Since hitting a 14-year-high back in January the dollar has traded on the back foot. Most of its depreciation has been against DM currencies, primarily the EUR which has gained 14% so far this year. Because of geopolitical risks the dollar looks set to decline in August for the sixth consecutive month. But we think there are at least six reasons why the risk for the dollar is skewed to the upside heading into Q4.
1 Policy rate expectations. Market expectations for policy rate hikes over the next two years discount more increases from Canada and Australia than from the US. But we think the probability of a 25bp Fed rate rise in December is 80%, not less than 25% as the market currently discounts. That would leave traders anticipating less than one more hike in the subsequent 15 months, which we judge to be far too dovish considering inflation is effectively on target and the market is forecasting GDP growth above 2%.
2 FX valuation. Thanks to prior Fed policy tightening the dollar has been rich for the last few years; thanks to ECB policy easing the euro has been cheap. This is changing. Valuation can provide only a moderate headwind or tailwind at the best of times, but now the tailwind for the euro is fast turning into a headwind. On a different valuation assessment – the IMF’s FEER methodology – the euro is now 3.5% above fair value. Euro appreciation (and therefore dollar index depreciation) is no longer a foregone conclusion.
3 Balance of payments dynamics. As the euro strengthens so the euro area’s current account surplus declines. By contrast, the US’s balance of payments is driven by fundamental change and is less sensitive to currency strength. After running an energy trade deficit for most of this century, the US has an energy trade balance close to zero. Despite the dollar’s strength in the last few years net exports have halved from -6% of GDP in 2005 to -3% of GDP now. The US will continue to exploit its strong energy export position while a more traditional currency/trade dynamic is likely to stay the euro’s hand, once again supporting the dollar.
4 Data divergence. In our view global growth is pulled along by three locomotives – the US, China and Germany. The lead changes amongst the three. In the last few months Germany has been ahead, as strong survey data and last week’s GDP report confirmed. But market pricing compares outcomes to expectations. In that regard the US has begun picking up again. Economic data have, on average, beaten expectations in the last couple of months after a soft patch in H1. Meanwhile the Li Keqiang (LKQ) indicator for China peaked in February and suggests a pause in growth, in line with our post-Congress view. This divergence should lead to a repricing of monpol expectations and support for the dollar.
5 FX positioning. Total short-dollar CFTC IMM positioning is close to a record high. Although stretched positioning is not necessarily a sufficient condition for a reversal, it is a necessary one. Investors are particularly short dollars against the euro, the Swiss franc, Mexican peso, New Zealand dollar and Canadian dollar.
6 Seasonality. Seasonal strength in Q4 has seen the dollar rally by 2% on average over the last 10 years. Although the hit rate is only 50% (in half the years it has fallen into year-end), the skew is positive with rallies twice as big as sell-offs. The balance of risk on seasonality is towards a dollar rally.
DXY index rises from 92.81 at time of publication to peak at 94.39 on 29 October. We also expressed this view through a USD/CAD call spread.
USD liquidity pressures have eased over the last few months. Financial conditions have stopped tightening, providing some respite for stocks. But somebody forgot to tell EMs: countries with low resilience scores (i.e. large current account deficits and low FX reserves) continue to see outflows. But now liquidity pressures are set to rise again, and financial conditions are at risk of tightening.
EM assets remain vulnerable. In recent weeks, the threat of trade wars has hogged the headlines. But liquidity strains are likely to come to the fore again. Externally vulnerable EM countries (see our recent Global Financial Trends and Daily Note on EM FX reserves) are likely to suffer further losses due to both liquidity and trade risks. We retain our strongly negative stance on EM risk in EM Strategy Monthly, as trade frictions remain intense and Chinese growth is still slowing. This week we add a relative value short MSCI EM / long MSCI DM position to the model portfolio.
By 10 October 2018 the trade had made 8% as markets woke up to the reality and effects of trade war and tighter liquidity conditions. We believed the theme had further to run but introduced a stop-loss to lock in 4% profit. Trade closed off on 21 November 2018 for a profit of 4%.
Andrea joined TS Lombard in August 2012 and is currently Head of Strategy. He concentrates on providing advice on medium-term asset allocation as well as developing tactical investment and trading ideas. His main focus is cross-asset macro strategy, with a particular emphasis on the global fixed income and equity markets.
Andrea spent over ten years in financial markets on both the buy and sell side and his experience covers corporate bonds, credit derivatives and equities. He holds an MBA from the London Business School with a specialisation in finance. An engineering graduate, he spent the first years of his career developing chassis systems for Alfa Romeo cars.
Ollie joined TS Lombard in April 2017 and is part of the Macro Strategy group, working on medium-term asset allocation and shorter term tactical investment ideas with a particular focus on currencies and fixed income.
He has ten years’ experience in financial markets on the buy- and sell-side, most recently as FX strategist in a large macro hedge fund. At State Street he helped launch the new inflation product “PriceStats”. As well as being an experienced market strategist he has been closely involved in portfolio construction, risk management and trade structuring throughout his career.
Ollie holds an M. Phys in Physics from Oxford University and before joining the financial market was a high-school physics teacher.
Jon joined TS Lombard in May 2014 as a senior Macro Strategist in the EM Macro Strategy team to deepen coverage in the FX, fixed income and credit markets. Jon brings a wealth of strategy experience backed by quantitative skills. His mandate at TS Lombard includes driving the formalisation of the process of translating views on the political economy into market strategy and investment conclusions.
Jon has an M.Sc. Finance from University of London and is a CFA charterholder. In many years of experience as an Emerging Market Strategist, he has covered FX, fixed income and credit at Deutsche Bank and Dresdner Kleinwort. Immediately before joining TS Lombard, he spent four years at Commerzbank as a salesperson in their EM/FX Sales team covering hedge funds and asset managers where he gained a different perspective on the asset management business while continuing to engage with all aspects of research and leveraging his previous strategy experience.
At TS Lombard, Jon has produced strategy publications on top down themes across all asset classes and also on specific market views. Jon is responsible for our weekly EM Watch publication, in which he writes on global themes relevant to emerging markets and produces market strategy analysis supporting our asset allocation and high-conviction views; as well as editing contributions from our in-country specialists analysing the implications of key fundamental developments. He also contributes to our flagship EM Strategy Monthly publication and to our fundamental guide to emerging markets: The GRID.
With over 20 years in Asia, Andrew has a wide range of experience across the real estate and financial service sectors. Andrew 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.
As a leading Asian real estate analyst with banks such as Kleinwort Benson, Deutsche Bank and Barclay’s Capital, his research has been highly rated in industry surveys, consistently recognised by international investment institutions and received wide international media coverage. Andrew is the author of the Skyscraper Index. Andrew has direct investment experience, investing across the capital structure of both public and private real estate companies on behalf of investment hedge funds. Prior to moving to Asia, Andrew was head of property strategy for a major UK PLC and spent seven years in real estate advisory.
Andrew holds an MBA from Cranfield University.
Nikol joined the company in 2018 as a macro strategist, covering quantitative and active investment strategies. Prior to this, Nikol spent 4 years working in front office asset management in South Africa covering global multi-asset investment strategies. Her experience in macro-driven investment strategy was founded at Saffron Wealth, a boutique hedge fund and traditional investment manager, specialising in quantitative multi –asset investment techniques. Nikol subsequently worked at Definitive Capital Management, specialising in the construction of global balanced portfolios utilising a top down and quantitative investment style approach.
Nikol has an MCom (distinction) in Economics from the University of Cape Town in South Africa. She was awarded a bursary in her masters year and her dissertation was used to assist the Kwazulu-Natal government through its affiliation with the Metals to Minerals organisation at UCT. Additionally, she has passed CFA Level 2 and speaks fluent German and Afrikaans.
Stephen O’Sullivan began his oil & gas career with several years’ experience as an oil trader, economist and corporate planner in the downstream and trading divisions of BP as well as the North Sea upstream and gas divisions of Total. In 1989 he joined Coopers & Lybrand as a strategy consultant in the oil & gas consulting business, working on the privatisation and restructuring of the energy sectors across emerging markets as well as in the nuclear power and transport sectors. He lived and worked in China, Russia, Central Asia, Eastern Europe, Southern Africa and the Middle East.
In 1995, he was appointed Head of Research and Oil & Gas Analyst at MC Securities in London, where the team was ranked number 1 in EMEA oil & gas. Following the sale of that business to JP Morgan in 1998, he moved to Moscow as a Partner and Head of Research at United Financial Group, where he and his team were ranked the number 1 oil & gas research team and the number 1 Russia country team for seven years in a row.
After the sale of UFG to Deutsche Bank in 2005, Stephen became Head of EMEA and Latin American Research where his research team was ranked the number 1 team across all sectors, in Russia & South Africa and across the broader EMEA region in 2006 and 2007. In 2007 he moved to Hong Kong as Head of Asian Research for the Australian bank Macquarie. In 2009 he joined Barclays to lead the build-out of its Asia ex-Japan equity research business.
In 2013 he joined Trusted Sources focusing on China energy and based in Hong Kong. His major research themes include China’s gas sector reform and China’s nuclear renaissance. In 2016 following the merger between Trusted Sources and Lombard Street Research to form TS Lombard, he took on an additional role as CEO of TS Lombard Research Partners, our market-facing independent analyst platform.
He is currently a Senior Visiting Research Fellow at the Oxford Institute of Energy Studies, the world’s number 1 ranked energy think tank.
Martin Shenfield joined TS Lombard in October 2014 to promote and communicate the firm’s Macroeconomic and Strategy views. He works closely with the analysts and complements the sales team in presenting and interpreting LSR’s core insights and recommendations.
He has 36 years of broad international fund management experience managing various long-only institutional, mutual and absolute return and hedge funds as well as undertaking CIO & global asset allocation responsibilities.
Having worked in financial centres such as London, Hong Kong, Tokyo and Singapore, Martin has accumulated a deep knowledge of global macro analysis and asset allocation, complemented by fundamental stock-picking.
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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.
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.