Thematic Report

Theorality – Half-time review

by Shaun Cochran / Jul 30, 2019


Tallying our 2019 global perspectives
We entered this year with a cautious macro outlook, and while we have been directionally correct, the pace of deterioration surprised us and we believe investors should not bank on a major recovery. Buoyant equity markets are celebrating expected rate cuts, which will steepen the curve and so is not as bullish as anticipated. At this late stage of the cycle, we transition from the wavering (formerly leading) tech sector towards value, property and financials. Our reduced tech exposure is now cheap or 5G-oriented.

Macro headwinds
We retain our expectations of a lower global growth and inflationary trajectory. Our cautious macro outlook proved reasonable, albeit the deterioration was faster than we expected. Microstrategy’s defensive bond-proxy call has played out amid falling global yields. So did our retained call to own the long end of the US treasuries curve. However, inevitable declines at the short end will now steepen it, which consensus is wrong to welcome.

Asian markets robust despite trade concerns and slowing growth
The first half saw all markets post strong absolute performances despite trade concerns. The US-China spat was acutely felt in tech and semis, with our gurus suggesting waiting well into 2H19 to bottom-fish. The expected relative breakout in China has taken place and we give it the benefit of the doubt despite our correction concerns.

Global surprises in line with our 50% accuracy target
Reviewing our global surprises, a banner year for robotic-process automation looks likely as it is rapidly scaling in industries from banking to healthcare. We concede near-certain defeat in predicting Trump’s resignation and serious risk to the transient trade war call. The outlook is largely encouraging for the remainder.