The market has been quiet in the last week of the year, with S&P500, Gold and Oil were up another 0.58%, 2.2%, and 2.1% respectively while the US-10 yr yield dropped for a mere 4 bps.
US stock index has been peacefully climbing up in the absence of geopolitical tensions in the mid of festive and holiday season. S&P500 index’s return is barely below 30 percent up for the year, with all sectors are practically in the black (see below).
This year indeed has been a glory for the funds that focus on equity and beta risk-premia. And this also holds true in the emerging market space, especially in the Asia market where the resilience in China’s economy this year has provided buffer and stability to its neighboring countries.
If we look from macro spaces throughout the year, the performance we see in the equity index is somewhat aligned with the carry-trade strategy performance in the currency this year, whereas the trend-based strategy has relatively underperformed.
In fact, by properly selecting the carry-trade funding currency, one can employ a robust performance. For example, investing in Indonesian IDR bonds funded with Indian Rupee would result in a stable positive carry-trade performance for the year. While it may seem only good in hindsight now, it has been quite a popular trade among EM investors this year, along with SGDCNH trade a few months ago.
These trades, however, were based on actual opportunities privy to the speculators familiar with the respective markets [e.g. IDR outperformed INR due to better political stability around the election, the introduction of DNDF for IDR vs INR bond trades – on the other hand – there’s an influx of money going to Singapore due to HK protest and hence created SGDCNH trade opportunity on the correlation breakdown].
We expect next week to be very quiet as the year 2020 just about to start and many market participants are still enjoying their holidays. The US and China PMI will be the important market data next week, though we don’t expect any reaction during the week.
