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Printed: 21 June 2024 11:42 AM


24 May 2024 - Hedge Clippings | 24 May 2024



Hedge Clippings | 24 May 2024

Taking a look at the charts, major markets around the world, with the exception of China, are close to, or at record levels. Those in the US, where much of the impetus is coming from, are what would seem to be "fully priced" while the tech sector, concentrated though it is, is eye-watering, and Nvidia is at what can only be called "nose-bleed" levels. Hedge Clippings is not a market analyst, but a combination of standing back from the noise, and talking to some globally focused fund managers, would suggest everything is "under control".

Inflation is half what it was, most economists (and for that matter, Central Bankers) are predicting a continuing reduction, albeit slower than they'd like. Employment is strong, unemployment is low by historical standards, and most expect interest rates, while staying higher for longer, to eventually start to ease either later this year, or in the first half of 2025.

Generally the feeling is that while the task's taking longer than hoped for, it's under control. If the VIX (currently trading around 12, down from a 52 week high of 23) is anything to go by, there's nothing to worry about. In fact, Chris Watling from Longview Economics in the UK is "outlining the idea that a 'new cycle is dawning', as over the coming quarters the economies of the UK, the Eurozone and the US will re-accelerate, kickstarted by rate cuts from respective central banks."

We're a fan of Longview and their frequent "outside the square" thinking, but... when the VIX is low, and markets, while not cheap, seem underpinned by improved earnings, one has to wonder what might upset the proverbial apple cart?

Talking to Monik Kotecha from Insync Funds Management during the week, who manages the Insync Quality Global Equity Fund, the first thing that came to mind was geo-political risk. In fact, when quizzed, it seemed to be the only major known, or unknown risk, short of an unlikely US recession, which could derail markets.

However, Russia's invasion of Ukraine, and the risk of it spilling over to Europe, seems to have been factored in. The October 7 Hamas attack on Israel, and their subsequent retaliation in Gaza, with the risk of that spilling over into the wider Middle East, as well as causing a rift with the US, hasn't stopped new highs on major equity markets.

The risk of conflict between China and Taiwan, which has been brewing for the past 5 years, hasn't either, in spite of China this week surrounding the island of Taiwan with military exercises.

Possibly Hedge Clippings is being excessively cautious, but we're reminded of the old adage: "If everyone in the room is thinking the same thing, someone isn't thinking!"

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