David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Quant Shock That 'Never Could Happen' Hits Wall Street Models

    This article by Justina Lee for Bloomberg may be of interest to subscribers. Here is a section:


    As money managers rushed to price in stronger economic growth, factor investors who dissect stocks by how much they’ve risen or fallen saw this strategy, known as momentum, crash on Monday like never before. Equities more sensitive to the economic cycle like value and small-cap names skyrocketed.

    So while the S&P 500 is just shy of its record high, it’s been a wild week for quants even by the standards of this wild year, with many enduring violent moves rather than capitalizing on the risk-on mood.

    All this recalls long-standing worries that freakish cross-asset gyrations are getting more common thanks to cheap money and investor crowding.

    Quigley’s estimate for the odds of this week’s shock is in part tongue-in-cheek, based on a rule of thumb for a normal distribution of statistical data. Asset moves are not known to reliably obey this convention that says 98% of all data points occur within three standard deviations of the mean.

    But even with the knowledge that market prices are more prone to outlier moves, a rotation of the magnitude seen this week was still a shock to risk models.

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    Japan's Biggest Profit Beat in Years Seen Boosting Stock Appeal

    This article by Kurt Schussler for Bloomberg may be of interest to subscribers. Here is a section:

    “The number of positive surprises in first-half results has been greater than expected, so gains in earnings revision should accelerate and we expect more funds to flow in from overseas,” strategists led by Masashi Akutsu said in a note this week.

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    Brexit Talks Hit Make-Your-Mind-Up Time as Deadlines Pass

    This article by Ian Wishart, Alberto Nardelli and Dara Doyle for Bloomberg may be of interest to subscribers. Here is a section:

    The exit of one of Johnson’s top aide less than 50 days before the U.K. is due to leave the single market, and the planned departure of another, has injected fresh uncertainty into the process. EU officials have been left speculating whether the departure of two of the most senior figures from the Leave campaign increases or reduces the likelihood that the prime minister will walk away without a deal.

    “I see what is happening now in Downing Street and see this as quite a chaotic situation,” Manfred Weber, leader of the largest group in the European Parliament and an ally of German Chancellor Angela Merkel, told BBC Radio on Friday. “We need a clear idea from Boris Johnson now, and I think it’s now time for leadership.”

    In the negotiating room, there was little movement this week on the three key issues that have bedeviled the talks for the past eight months -- the level playing field for business, access to U.K. fishing waters, and how any accord is enforced.

    Progress on the first has been hampered by the U.K.’s reluctance to make specific commitments to abide by any future changes in the bloc’s rules, EU officials said. While both sides are inching closer to agreement on how any deal will be enforced, the U.K. is resisting EU calls for disagreements over the level playing field and fisheries to be included in any wider dispute-resolution system.

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    Can Marijuana Help Biden Heal a Divided Nation?

    This article by Tara Lachapelle for Bloomberg may be of interest to subscribers. Here is a section:

    What’s more notable is that unlike in the past, all of this happened without much of a public uproar. To be fair, there have been bigger concerns on Americans’ minds these days. But this is the moment that cannabis companies and their investors have been waiting for: to be considered a legitimate industry rather than a hot voting issue. From here, the goal is to make weed every bit as normal as junk food, wine and other vices long found in stores across America.

    In order for the industry to flourish it needs the federal government’s help, and the prospects of that are suddenly looking better. Two-thirds of U.S. adults are in favor of marijuana legalization — 91% if you include those who support it at a minimum for medicinal purposes, according to Pew Research Center. That’s more than the number of Americans who support abortion rights or who think human activity contributes to climate change.

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    Email of the day - on Asia ex-China

    With your comments yesterday on the video commentary about investing in China, I would appreciate some assistance. Bearing in mind your comments, and David's mantra that "Governance is everything", I do have some concerns about my investments in China. They are all through ITs (such as Aberdeen Asian Income and Schroder Oriental Income) but all have high exposure to China + Hong Kong (16% and 30% for those 2 ITs). Do you know of any income funds that invest in Asia excluding China? Many thanks for your continuing excellent service.

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    World Energy Outlook 2020

    This summary report from the IEA may be of interest to subscribers. Here is a section:

    Renewables grow rapidly in all our scenarios, with solar at the centre of this new constellation of electricity generation technologies. Supportive policies and maturing technologies are enabling very cheap access to capital in leading markets. With sharp cost reductions over the past decade, solar PV is consistently cheaper than new coal- or gasfired power plants in most countries, and solar projects now offer some of the lowest cost electricity ever seen. In the STEPS, renewables meet 80% of the growth in global electricity demand to 2030. Hydropower remains the largest renewable source of electricity, but solar is the main driver of growth as it sets new records for deployment each year after 2022, followed by onshore and offshore wind. The advance of renewable sources of generation, and of solar in particular, as well as the contribution of nuclear power, is much stronger in the SDS and NZE2050. The pace of change in the electricity sector puts an additional premium on robust grids and other sources of flexibility, as well as reliable supplies of the critical minerals and metals that are vital to its secure transformation. Storage plays an increasingly vital role in ensuring the flexible operation of power systems, with India becoming the largest market for utility-scale battery storage.

    …but the downturn creates risks for the backbone of today’s power systems
    Electricity grids could prove to be the weak link in the transformation of the power sector, with implications for the reliability and security of electricity supply. The projected requirement for new transmission and distribution lines worldwide in the STEPS is 80% greater over the next decade than the expansion seen over the last ten years. The importance of electricity networks rises even more in faster energy transitions. However, the financial health of many utilities, especially in developing economies, has worsened as a result of the crisis. There is a disparity in many countries between the spending required for smart, digital and flexible electricity networks and the revenues available to grid operators, creating a risk to the adequacy of investment under today’s regulatory structures.

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    Covid Hot Spots Show Signs Europe's New Wave May Be Cresting

    This article by Thomas Mulier and Chris Reiter for Bloomberg may be of interest to subscribers. Here is a section:

    The encouraging signs are emerging after many European countries enacted new restrictions, including closing non-essential shops, bars and restaurants, in an effort to slow the pandemic. Ireland, one of the first to reimpose curbs, cut the number of new infections to about 360 in the latest 24 hours from more than 1,200 a day in mid-October.

    Progress is mixed, with some countries still seeing big increases. Austria reported a record 9,262 new cases in the past 24 hours on Thursday. The government will meet on Friday to discuss whether further restrictions are needed after a second lockdown began earlier this month.

    German Health Minister Jens Spahn said the new numbers in his country are encouraging but that it’s too early to speak of a new trend. The effect of the new measures can’t be evaluated yet, a spokeswoman said. Hospitals are still straining under the backlog of patients with existing infections.

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