Risk assets, including Turkish assets, have come a long way since our then contrarian piece “The Alchemist – One Last Hurrah”, 18 Dec”).
Since the recent momentum had been very strong, we thought it made sense to de-risk exposure in our on 22 Jan 2019 (The Alchemist – 2016?”) and wrote the following : “Thus, I think going short a global risk benchmark may make some sense. This isn’t investment advice but just for personal tracking purposes I’ll use the S&P 500 future (short at 2,655) here… the hypothetical gain would be 5.7% (assuming no slippage and commissions).”
In our last piece on 31 Jan we stuck to that stance despite being surprised by the Fed. Meanwhile, the consensus seems really bearish on the USD as weaker dollar has become a popular 2019 call for buy as well as sell side strategists. While many of the reasons seem valid, we should not ignore that FX rates represent relative prices.
To us it seems that a number of the potential positive drivers such as Fed dovishness, China stimulus and progress on trade negotiations have become consensus and thus largely in the price. With respect to the latter, the strategic and structural angles of the China US relationship suggest that the trade negotiations will represent anything but smooth sailing. Given our views that most of the positive expectations are already priced in and vols across most asset classes so low, the talks could easily create a catalyst for another risk off phase soon, even though there might eventually be a last minute “deal” just before March 1 (or the deadline gets postponed).
By Mr Murat Berk, Chief Strategist, Yapi Kredi Invest