We believe that the current market correction is driven by technical factors rather than macro and fundamentals. The unwinding of the yen carry trade was an accident waiting to happen (see our June 2022 FOCUS note “Has Japan’s central bank created a monster?”). The heavy net long positioning by CTAs, the traditional low liquidity of August and the high valuation ratios of some crowded trades (e.g Mag 7) created the perfect “summer cocktail” for pullbacks of major global equity indices and a spectacular spike of the VIX. As explained in our FAQ, there is no reason to panic as macro and fundamental conditions remain favourable to equity markets. Still, history shows that stock markets remain bumpy in the 4 to 6 weeks which follow a spike in the VIX. As such, we’re keeping the current equity allocation unchanged (neutral vs. SAA) and adding some long duration bonds to portfolios as a diversifier.

No summer break for US politic and central bankers

Ever since the launch of ChatGPT, the words “Generative AI” have taken over headlines, earnings releases, and everyday conversations. While the birth of AI can be traced back to the 50’s, it is the recent momentous advancements in this space that have opened the layman’s eyes to the potential AI has of transforming different aspects of life and industry.

Through his speeches and writings, Warren Buffet's late ‘right-hand man’ left a legacy of real life and investment lessons. Excerpt below (source: Compounding Quality on X)

Key takeaways: • After a strong first half of the year for equity markets, we believe that there are 5 key themes to watch in the coming months: 1) Normalisation of global economic growth; 2) Labour market normalisation; 3) Central banks kicking off their easing cycle; 4) The normalisation of the equity market leadership and; 5) A pick-up in volatility. • On a more tactical basis, our view on risk assets remains constructive but there are indeed a few indicators which lead us to become slightly more prudent as we head into Summer. As such, we have been rebalancing our clients’ portfolios to reflect our neutral view on equities. We recently decreased our slight tactical overweight on equities back to neutral. We remain underweight fixed income and overweight alternatives and Gold. We also decided to downgrade our view on the JPY from NEUTRAL to negative vs USD and all major currencies. We remain positive dollar against EUR, GBP and CHF.

Economic growth is soft, external challenges rise, but China stays the course. This is essentially the conclusion that can be drawn after the Third Plenum and the most recent economic data. The focus of Xi Jinping is not on trying to maximize short-term economic growth, but rather on continuing the transformation and modernization of the economy. As Donald Trump looks set to return to the White House with a new set of tariffs in his MAGA cap, as Europe eventually raises trade barriers of its own, as sanctions on Russia redefine energy and commodity trade flows, China is central to the ongoing emergence of a new world economic order.

One of the spiritual fathers of behavioral finance passed away in March this year. Below, we pay tribute to Daniel Kahneman by highlighting 10 of his main empirical studies in the field.

“ Creativity is just connecting things.” Steve Jobs

New technologies linked to blockchain are likely to play an important role in the luxury goods industry in the coming years. Overview below with a few case studies.

Brace for elections in Europe and keep a close eye on inflation.