Americas Asset Class Strategy: Lessons From 2013
Between shifting monetary policy trajectories, volatile global commodity markets and elevated political risk, 2013 was a challenging year to navigate all asset classes in the Americas region, to say the least. However, viewed through the lens of global economic rebalancing and leveraging off of BMI's expertise in covering political risk in Latin America, we feel that our Americas Asset Class Strategy, on balance, performed well last year. In particular, evidence of slowing economic growth in China against the backdrop of a strengthening recovery in the US has remained an important theme for the region, and we expect this to remain the case in 2014.
Having identified a mispricing of interest rate trajectories at the beginning of the year, and an overly eager marketplace for Venezuelan sovereign debt amid former president Hugo Chávez's declining health, we would argue that the first half of 2013 was characterised by major moves in the fixed income space ( see 'H113 Asset Class Strategy Review', June 27 2013). Our views on interest rates in Brazil and the cost of insuring against a default in Venezuela have been arguably the best-timed and most successful of our market views of the first half of the year. This coincided with an inflection point in regional bond yields, particularly in domestic debt markets ( see 'Temporary End Of The Bull Run In Local Bonds', May 28 2013), making some of our predictions outperform even our own expectations.
The second half of last year, meanwhile, belonged to our more targeted Macro-Industry strategies, as short-term capital fled EM, and identifying growth opportunities required careful selectivity. Our ability to combine BMI's macroeconomic analysis with key trend views from our Industry research, enabled us to hand pick several sectors in the Americas region, which outperformed benchmark indices even at times of heightened volatility. With growth opportunities starting to become increasingly abundant in developed markets (a key global theme of 2013 and 2014), we believe that foreign capital will become more scarce in EM this year. Being selective, therefore, will remain a key approach to our Asset Class Strategy and we expect to see more activity in our Macro-Industry strategy.
|Playing The Divergence In Macro Fundamentals|
|BMI Americas 2013 FX Views - Spot Returns, %|