If markets were risk-averse ahead of last Tuesday’s US presidential election they went haywire afterwards. With a massive fall
on the S&P500 Wednesday (helped in no small part however by a risk-off move in Apple shares), Barack Obama was greeted on Wall Street with opprobrium, not joy. Nonetheless, while the reaction may have been a little dramatic – we for one don’t believe the fiscal cliff is beyond negotiation with the Republican-held Congress – it does illustrate that uncertainty is a state of mind and Obama’s re-election did nothing to change that.
Just like bad news gets dismissed in bull markets and good news in bear markets, in markets governed by a pervasive feeling of
uncertainty even major milestones of assurance are cast aside. And similarly to how markets immediately moved to the next
great question on the horizon (just as they have been doing so every time there is a political breakthrough in Europe or a piece
of positive data elsewhere), we expect the same will happen once China’s political transition is finished this week.
Not that there were ever any questions on this of course – in a Communist-run state there is generally only one party to vote for
– but macro investors are now asking whether China’s vested interests will prevent reform or promote it. It’s the trillion yuan
question, with non-performing loans and shadow debt lurking in the corner. It’s the question we asked this week as well.
This week our model portfolios rode the storm nicely with MacroTrades bouncing from its recent draw down to be above accumulated returns on the ASX (that is, including dividends). MacroGrowth is tracking nicely towards an annualised return in double digits with far less volatility that the wider bourse and MacroIncome is rising steadily as designed.
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