por VALUE ADVICE
Daily – 22 de Septiembre 2020
Value Advice Daily – Tuesday September 22nd 2020
Market Action: The S&P500 started out the week down 1.2%, the fourth consecutive down day. Evidence of a second wave of COVID infections in Europe, plus the absence of any progress on the fiscal front in the US Congress, weighed on the market. Also, the allegations regarding dubious transfers between global banks that we reported on yesterday weighed heavily on bank stocks. The market is back in Risk Off mode with defensives and “work from home” stocks outperforming. The Russell 2000 slumped 3.3%. Asian stocks were weaker overnight, with airline stocks particularly weak as a result of the virus concerns. South Korean equities were down over 2%. After falling 3.2% yesterday, European stocks are higher this morning. The STOXX600 is up 0.5% so far.
Chile: The IPSA index lost 2.3%. The peso for the first time in a while weakened 12 pesos to 774 to the USD. Copper prices were also lower. Yields on the benchmark BCU-5 bond fell 2bp to -0.91%.
News:
COVID 19: UK becomes the latest European country to tighten lockdown restrictions on entertainment (pubs) and encourage work from home again, after having waged a campaign to get people to return to work.
US-Sino relations: appear to continue to deteriorate with Chinese state press reporting that China is unlikely to approve the Oracle/TikTok deal as configured. It was also reported that China could name the first companies that will be placed on its “Unreliables” blacklist. Cisco is rumored to the be the first in line.
Nikola Corp: EV truck maker fell 19% after the founder and Chairman was forced to step down after recent allegations from short sellers.
Tesla: Today is Tesla’s “Battery Day” with Elon Musk have promised tech and cost developments which would “blow your mind”.
Value View
After a period of outperformance, the rotation trade into cyclicals went into reverse yesterday on the back of fears of second order virus impact on growth. We continue to advise clients to be modestly underweight. We have cut our overweights in the US and Emerging Asia, in part because of stretched valuations for technology stocks. We have increased European weightings and we expect to see further rotation into cyclicals as the market broadens and consolidates. We expect to see significant volatility in the run up to the US election in November. We nevertheless caution against excessive bearishness for global equities. There are a number of factors which remain potential catalysts for equities: 1) the probability of further fiscal stimulus, particularly in the United States, is still on the cards even though the probability of significant fiscal stimulus has fallen in recent days. 2) With massive global efforts to find a vaccine against COVID 19 well underway, this could be a major catalyst ahead. 3) Gradual reopening continues and economic data have generally been more positive than expected, although recent second wave fears in Europe are now calling this into question. Earnings expectations have been moving up after troughing in Q2. 4) Sentiment indicators remain weak, which has historically been a contrarian positive for equities.
Having been absent from Chilean equities, we are now recommending investors return to a neutral position. Although market participants are clearly positioned for a weaker dollar globally going forward, we think this trend could remain in place for longer and we expect this to have an impact on commodity prices and the outlook for countries which export commodities to the rest of the world. While we remain cautious about political developments in Chile over the longer term, we expect a period of relative stability through to the plebiscite at a minimum and so are taking a tactically more bullish view of Chile.
Chart of the day
Chart of the Day: CFTC (Chicago Futures Trade Commission) data show net long positions (against the USD) for all but one of the major global currencies. USD bearishness is a consensus view. We see modest USD depreciation going forward, which should be supportive for Emerging Markets, Commodities and companies with significant global earnings (tech especially).