Regional Equity Strategy

  • Our preference for playing the regional pickup in growth through equity markets is bearing fruit, with our E urozone over US equities view (played through the ratio of MSCI US to MSCI EMU indices ) moving 1.6% in our favour over the past week.

  • We have added another way to play the improving German domestic demand story, initiating a bullish Spanish Small Caps (IBEXS) view to our asset class strategy, which has gained 4.0% since its entry on September 13.

  • Our bullish German autos view (played through Daimler) looks technically very strong, moving 11.4% in our favour, and we see potential for further gains as German consumption gathers steam.

  • Irish stocks look to be gaining momentum, with Ryanair making significant gains after losing 12.2% on September 4, leaving our bullish Irish stocks view up 0.8% since initiation.

  • We believe Romania's BET equity index could offer a further way of playing our Central European economic recovery and improving German demand story ( see below chart), and we would be tempted to adopt a bullish stance towards the index if the bourse breaks through long-term technical resistance.

Having highlighte d attractive technical pictures in a number of eurozone equity markets, most recently through adding a bulli sh Spanish Small Caps view to our asset class strategy ( see 'Equities: Bullish Small Caps', September 16 ) , we now turn our attention to emerging European equities , where we believe Romania's BET equity i ndex offers significant potential. Our previous view that Romanian stocks would head modestly lower over the short-term has played out ( see 'Equity Rally Looks To Be Over', August 21 ) , with the index losing 2.6% since August 21, on the back the county's new precautionary loan agreement with the EU/IMF being priced into markets and a regional pullback in stocks. However, we would now be tempted to adopt a bullish stance towards the index if the bourse breaks through a key level of long-term technical resistance at 6,000, as the country's improving economic outlook and exposure to the German domestic demand story increases earnings potential for a number of Romanian stocks. While we note that the country's banking sector continues to look shaky, a break through resistance would imply that investors are willing to overlook these concerns for the time being.

Waiting For A Break
Romania - BET Equity Index
  • Our preference for playing the regional pickup in growth through equity markets is bearing fruit, with our E urozone over US equities view (played through the ratio of MSCI US to MSCI EMU indices ) moving 1.6% in our favour over the past week.

  • We have added another way to play the improving German domestic demand story, initiating a bullish Spanish Small Caps (IBEXS) view to our asset class strategy, which has gained 4.0% since its entry on September 13.

  • Our bullish German autos view (played through Daimler) looks technically very strong, moving 11.4% in our favour, and we see potential for further gains as German consumption gathers steam.

  • Irish stocks look to be gaining momentum, with Ryanair making significant gains after losing 12.2% on September 4, leaving our bullish Irish stocks view up 0.8% since initiation.

  • We believe Romania's BET equity index could offer a further way of playing our Central European economic recovery and improving German demand story ( see below chart), and we would be tempted to adopt a bullish stance towards the index if the bourse breaks through long-term technical resistance.

Waiting For A Break
Romania - BET Equity Index

Having highlighte d attractive technical pictures in a number of eurozone equity markets, most recently through adding a bulli sh Spanish Small Caps view to our asset class strategy ( see 'Equities: Bullish Small Caps', September 16 ) , we now turn our attention to emerging European equities , where we believe Romania's BET equity i ndex offers significant potential. Our previous view that Romanian stocks would head modestly lower over the short-term has played out ( see 'Equity Rally Looks To Be Over', August 21 ) , with the index losing 2.6% since August 21, on the back the county's new precautionary loan agreement with the EU/IMF being priced into markets and a regional pullback in stocks. However, we would now be tempted to adopt a bullish stance towards the index if the bourse breaks through a key level of long-term technical resistance at 6,000, as the country's improving economic outlook and exposure to the German domestic demand story increases earnings potential for a number of Romanian stocks. While we note that the country's banking sector continues to look shaky, a break through resistance would imply that investors are willing to overlook these concerns for the time being.

BMI EUROPE ASSET CLASS STRATEGY TABLE
DATE INITIATED ENTRY LEVEL GAIN/(LOSS) * RATIONALE
CURRENCIES
NA
FIXED INCOME
Spain over Italy 5-Year CDS 31-Jul-2013 1bps 15bps Italy's political and fiscal position to deteriorate, chance of coalition collapse. Spain moving along improving trajectory, Rajoy government likely to survive.
EQUITY INDICES
Eurozone Over US Equities (Ratio of MSCI US to MSCI EMU) 15-Aug-2013 17.3 1.6% Though we still like the US, eurozone underperformance has reached extremes, and the eurozone economy is picking up momentum. The MSCI EMU looks attractive on a technical basis and is increasingly cheap versus the US. Targeting a move down in the US/EMU ratio to 14.0x.
Bullish ISEQ Index 13-Aug-2013 4,230 0.8% Successful EU/IMF bailout exit looking likely, Fine Gael/Labour Coalition comitted to austerity, improving consumer sentiment and growth outlook, reduced proportion of financials on index, house prices stabilising, strong technical picture.
Bullish Spanish Small Caps (IBEXS) 13-Sep-20103 4,000 4.0% Cheap valuations, competitiveness gains for Spanish economy and large composition of exporters mean Spanish small caps index is our preferred way playing an improving German domestic demand
MACRO/INDUSTRY STRATEGY
Bullish German Autos (Daimler) 15-Jul-2013 51.18 11.4% Expectation for strong H213 sales, ongoing cost reduction continuing to bearing fruit, and an attractive technical picture.

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