Top Down Signals - Markets

Top down view of global equity markets

World Markets

The above chart provides a historical perspective of global growth expectations priced in by financial markets (iGDP, see section on global macro score), and in turn the global equity return that is implied purely from a top-down perspective (iEMR), after accounting for the other 2 macro indicators (iEMC and iLCI). Both are detailed in the section on global macro score. The right-hand side of the picture above represents the current level and trend for iGDP along with the top 3 drivers of the trend (in the above case, for instance the rise in Merrill Lynch’s Global Financial Stress Index is the 2nd top contributor to a negative trend in iGDP), while for equity returns, the global iEMR is complemented with expectations of relative out/under-performance by region.

Regional Technical Indicator and Performance by Macro Profile

Regional Technial Indicator and Performance by Macro Profile

Like the one calculated for each stock, the regional technical indicator detects whenever a regional index is experiencing a break up or down trend, and if so, informs on its strength and significance (ie. the extent that historically such trend has been persistent enough to be able to benefit from trading it). The other graph tracks the performance of all stocks belonging to each of the 7 macro profiles described in section 2b, so that investors can spot and interpret when specific profiles tend to meaningfully outperform or underperform others.

Country index exposure recommendations

Country Exposure Recommendations

These recommendations are generated as guidance only – they are based on a specific model that is independent from the rest of the app and whose output is not used in any other section of the app, so users are free to decide on their portfolio’s country exposure. The model looks at 6 structural country factors and 6 cyclical ones:

Structural factors

  • policy cushion (forecast nominal GDP minus current repo rate)
  • net growth (nominal GDP minus incremental debt)
  • excess savings (current account plus budget surplus as % of GDP)
  • net debt (total debt net of international reserves as % of GDP)
  • country risk (EIU ranking)
  • size of equity market (% of world market capitalisation)

Cyclical factors

  • real effective exchange rate (REER)
  • REER deviation relative to long-term trend
  • forecast consumer price inflation
  • country equity index earnings yield relative to long-term history
  • country equity index earnings yield relative to MSCI ACWI
  • macro momentum (based on country index betas vs. iGDP, iEMC, iLCI)

Passive money flows

Passive Money Flows

The large money flows into passive products over the past few years have been an important driver of (lack of) market liquidity and in turn of price swings affecting whole regions or sectors. This chart tracks the money flows into and prices of major regional and sector-specific ETFs to keep investors aware of any significant region/sector rotations.