Your portfolio
area I’m looking at most closely to
see how aggressive this recession is
ultimately going to be.”
Beyond PMI data, “Dr Copper” is a
common measure of global economic
health due to its use in everything from
construction to cars, so typically when
the price of the base metal stops falling,
you can assume the worst is over.
Mould points to junk bonds, which
have equity-like characteristics. When
markets are frightened, junk sells off
hard, but when confidence returns,
it is the first to pick up in activity.
“Follow the ETF flows; they tend to be
at the vanguard,” he says.
Conducting business
The investment director
says the Philadelphia
Semiconductor Stock Exchange
(PHLX) is also worth watching. “The
semiconductor industry is worth
$400bn,” he adds. “Semiconductors
are in everything from cars and
toasters to mobile phones and laptops.
They are ubiquitous and mainly made
in Asia so are a good guide to global
economic activity and trade flow.”
While the leading economic
indicators have their place, senior
macro strategist at Nordea Asset
Management Sebastien Galy believes
equity markets offer a better lead on
information, though he concedes they
bring an element of self-fulfilment.
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20%
– fall in the price of
copper, a strong
economic bellwether,
in 2020
[ RECOVERY SIGNS ]
“If you go back to try and
compare with previous
crises, you are basically
comparing apples and
pears”
Bear down
He identifies two signs that suggest a
bear market is on its way out.
“The first is that volatility starts to
recede, as seen across the variance-
swap derivative markets, and the
second is that the higher beta plays
– emerging market debt, US growth
stocks and high-yield bonds, for
example – will see their range trading
narrow.
“As the liquidity premium starts to
disappear and stocks move up, then
stabilise, as the range becomes tighter,
that will form trends, which assumes a
good reaction from the fiscal side and
the central bank.
“That is generally what you see
during a bear market.
“Having said that, we learn more
every time, so our responses become
more aggressive, more comprehensive
and smarter than they used to be. If
you go back to try and compare with
previous crises, you are basically
comparing apples and pears because
things have changed so drastically, as
have the tools of the central banks.”
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