Here are the top five ideas from CIO last week.
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Snap elections in Japan
PM Shinzo Abe has announced a snap general election in October. Though the market is reacting positively, CIO believes it will soon realize the implications of an early election may not necessarily be totally positive. CIO is neutral on Japanese equities. Investors should focus on stocks that are likely to benefit from increased spending on education and workforce training, driven by a serious labor shortage and an improving inflation trend.
Uptrend for crude oil
Strong oil demand and high compliance to the OPEC+ deal have sent Brent crude oil prices to US$59/bbl, the highest level since July 2015. Physical market tightness has also shifted the Brent futures curve sharply into a level of backwardation last seen in 2014. A futures curve in backwardation may attract more interest from investors, which may push prices to above USD 60/bbl in the very short run.
Where are the global housing bubble risks?
In Munich, Toronto, Amsterdam, Sydney and Hong Kong, prices rose more than 10 percent in the last year alone. Annual price-increase rates of 10 percent correspond to a doubling of house prices every seven years, which is not sustainable. Bubble risk seems greatest in Toronto, where it has increased significantly in the last year. Stockholm, Munich, Vancouver, Sydney, London and Hong Kong all remain in risk territory, with Amsterdam joining this group after being overvalued last year. Valuations are stretched in Paris, San Francisco, Los Angeles, Zurich, Frankfurt, Tokyo and Geneva as well. In contrast, property markets in Boston, Singapore, New York and Milan seem fairly valued, while Chicago remains undervalued, just as it was last year.
CIO recommends investors to short USDCAD
CIO has opened a short US dollar, long Canadian dollar opportunistic trade recommendation at 1.24 with a target of 1.18 and a stoploss at 1.27. CIO's opportunistic recommendations have an expected investment horizon of about one month, and may deviate from CIO's global tactical allocation. The drivers of further CAD appreciation against the USD should be Canada's monetary policy tightening and rising oil prices. Also, solid global growth and
political uncertainty in the US should keep investor demand for USD limited.
A sturdy aging bull market
Bull markets don’t die of old age; it usually takes a catalyst for a change in trend. There are currently no obvious signs of an imminent market downturn. CIO has reduced its overweight in global equities in its global tactical asset allocation. CIO is maintaining an overweight stance in Eurozone equities versus an underweight in UK equities. At a global sector level CIO is overweight energy, financials and technology.