全球-股票策略-美元和债券收益率方向是关键.docx

Equity Strategy USD and bond yields direction holds the key - reiterate EM upgrade and the rotation into beta sectors Our two main working assumptions remain: That the bulk of ytd USD bounce is behind us – see HYPERLINK /research/content/GPS-2752823-0 report. The growth differential between the US and the RoW is now extreme, and is unlikely to get bigger. The convergence into year-end is likely. The same could be true for interest rate differential. Speculative positioning is long dollars now, and USD has already performed a reasonable counter trend rally, of 9%. We believe that bond yields will make a renewed attempt to break out higher – see recent HYPERLINK /research/content/GPS-2776052-0 report for details. The yield curve could steepen first, before it ultimately inverts. The combination of rising bond yields, and at the same time weaker/stable USD, is reflationary, and it supports our bullish view on the equity market. Over the last few days market internals have clearly improved, with Cyclicals outperforming, which is consistent with the above setup. Mining, Autos, Semiconductors and Capital Goods are our preferred plays in this backdrop, and we expect Defensives – Staples, Pharma and others – to fade away, post their summer bounce. Returning to the USD direction, we believe that it holds the key for the EM-DM trade – see top chart. We were cautious on EM entering 2018, mainly due to fears of a USD rally and China activity slowing, but have upgraded the region in the summer – see HYPERLINK /research/content/GPS-2729220-0 report. Signs that DXY is not making new highs, nor that CNY is making new lows, are welcome. Importantly, the USD funding fears are, so far, not materialising – basis swap remains well behaved. EM FX positions are already low and EM equities have derated, to currently stand at 11.2x forward P/E. The consensus is clearly bearish on EM now – worrying about systemic contagion, CNY selloff and the repeat of ‘15. We think one should be contr