Con-Cor Model: Long EU equities esp. Poland, India/Vietnam vs short Mideast, Mexico/Brazil, Thailand


Conviction-Correlation ('Con-Cor') Model: Long EU equities (especially Poland), India, Vietnam vs short Mideast, Mexico, Brazil, Thailand, Shcomp, oil

Our Conviction-Correlation ('Con-Cor') Model forecasts weekly returns on almost 70 assets based on our qualitative macro convictions as well as historical cross-asset correlations.

Some themes:

  • Long European equities - especially Poland: We predict a moderately bullish week for the USD (and moderately bearish one for EUR), which would be supportive for European equities, especially those with political tailwinds: Spain Ibex (+0.9%), Italy MIB (+0.9%, if Five-Star Movement indeed hast lost momentum in Sicily weekend elections), Euro Stoxx 50 (+0.3%) and Poland WIG20 (+0.7% on positive growth momentum, which would also benefit the Zloty; PLN-USD +0.5%).

  • Short Middle East equities: Geopolitical uncertainty may weigh on Saudi Tadawul (-0.7%) and Qatar DSM (-0.8%), Egypt (-0.4%).

  • Short oil, RUB, NOK: We are bearish Brent oil (-0.8%) on mean-reversion from last week as well as possible doubts over an output extension, particularly from Russia - which will use its currency as a shock absorber (RUB -0.7%). Potential weakness in the Norwegian Kroner may fall on weaker CPI (NOK-USD -0.5%).

  • Asia equity RV: In Asian equities, we prefer India Sensex and Vietnam VNI relative to Thailand SET (-0.5%) and China Shanghai Comp (-0.6%).

  • Risk-off hedge: Risk-hedging activity could benefit long VIX as well as Gold (+0.3%) and Silver (+0.4%).

  • LatAm equities: Expectations of weak data and a trough in CPI make us cautious Mexico Bolsa (-0.7%) and Brazil Bovespa (-0.5%), respectively.


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