2019 Cash chasing assets or assets chasing cash?
Looks like the symbiotic relationship between central banks and markets is a bit under stress. Many investors have felt the pinch in 2018 and the good news is that central banks can act upon. How much more pain is needed for central bankers to take action? Will 2019 be a year for cash chasing assets or assets chasing cash?
Just keep in mind one thing. The impact of central bankers ’actions might deliver temporarily reliefs only. Why? Look at Japan, the BOJ has done more than any other central banks.
So, if we do a quick ranking of Central Banks fire power and balance -sheet quality we have:
- The FED has room to lower interested rates (limited), good quality balance-sheet and much fire power
- POBC: Hard to have a clear understanding of the situation but it seems that China will have a delicate (political?) choice to make. China could once again become a “reflating” agent, but its targeted exchange rate policy will probably soften (many implications)
- ECB: No much room to maneuver and a non-pristine balance-sheet. The EU Sovereign Bond-Backed Securities (SBBS) is a potential tool in the making.
- BOJ: The case of Japan is maybe a blue print for its peers. It has become to me a kind of monetary laboratory. The BOJ is the largest shareholder of japanese equities and treasuries. A potential outcome could be, one day, a loss of confidence in the Yen currency.
- SNB: a case apart and a minor role on the international scene. The Swiss National Bank balance-sheet has become a kind of hedge fund which might bring some unexpected results. Negative interest rates policy and balance-sheet size have drastically reduced SNB options.
SGG expects volatility increase in the FX market in 2019. In addition, SGG’s investment approach is an invitation for investor to think about their asset class allocation and how to manage it. SGG ETFs portfolio (as proxies for asset classes) seeks annual absolute return and has returned 5% since May 2018. SGG main’s view is that we live in a macro investment environment which does not favor traditional risk profiles asset allocations. 2018 has been a year where investors have raised their awareness about the deep macro issues which will impact investment decisions for years to come.
