US-listed firms that derive a significant share of their revenue in China have significantly underperformed their peers in 2018. Fathom’s China Exposure Index (CEI) peaked at 117.3 on 22 March, the day that the US first announced that it would impose tariffs on imports from China; it has now dropped to 100.1, meaning that firms in the CEI have underperformed their US-listed peers by 15% since then. Sino-US trade tensions, a weakening renminbi and China’s slowing economy explain the underperformance. An easing of such trade tensions, and a firm commitment by China to open its markets to US firms, would

Investors have heeded our advice and adopted a risk-off approach over the last quarter — the yields of core government bonds have fallen, equity markets have had a mixed performance and emerging market assets have sold off. We attribute the decline in core government bond yields to a fall in the term premium, rather than a lower expected path for interest rates. Given investor uncertainty, in part related to simmering trade tensions, and our expectation that a global recession is on the horizon, our top-level asset allocation is unchanged in Q3. Refresh the chart in your browser | Edit chart in Datastream

Since the turn of the year, and more broadly over the full timescale of our indicator, Italy’s ESI has been considerably more volatile than that of other euro area countries. After peaking at 1.3% in January, the indicator has now more than halved to 0.6%.  It fell 0.3 percentage points in August alone, as uncertainty over the composition of the upcoming budget continued to unnerve investors and undermine economic sentiment. Among euro area countries, Italy’s government debt is second only to that of Greece, hovering around 130% of GDP. The country can ill afford to add to this burden. Nevertheless,

The S&P 500 has been making headlines this summer, posting its longest ever bull market despite growing volatility elsewhere in the world. Indeed, it remains on course to beat other developed-market equity indices by more than 5% for the second successive quarter. However, it is US small caps that have attracted our attention. While on the face of it, investors have been reducing their equity exposure in favour of fixed income, we would argue that portfolio risk may not have come down significantly as investors remain heavily invested in riskier types of equity, with a small overweight to small caps

According to Fathom’s China Momentum Indicator (CMI), China’s growth slowed slightly in July to 6.6%, having peaked at the end of last year close to 7%. The slowdown reflects weaker growth in credit and in retail sales, with most of the other components of the CMI holding up. Refresh the chart in your browser | Edit chart in Datastream This is ‘old-model’ growth: lots of heavy materials being shifted around the economy; lots of commodities being used in infrastructure investment; weak currency supporting exports; consumption squeezed through tighter credit conditions. China abandoned the ‘new model’ (rebalancing towards the consumer) at the end

In this Research Note, we’ll explore in more detail the validity of the adage “flight to quality.” The hypothesis is that during times of fear or uncertainty in the markets, institutional investors typically have to maintain market exposure as part of their mandate, but may shift their holdings toward lower-risk securities. In this paper, we’ll examine if this behavior actually occurred during several market sell-offs. We use the StarMine® Earnings Quality (EQ)1 stock ranking model throughout this Research Note as the measure of “quality.” In this study, we performed a test examining the performance of a quality factor from the

At long last inflation is beginning to rise in the advanced economies and it is now above target in the US (2.9%), euro area (2.1%) and UK (2.4%). Looking forward, Fathom expects these headline rates to remain relatively close to target but for varying reasons. In both the US and euro area, the output gap should exert greater upward pressure on prices next year and broadly offset a diminished contribution from energy prices. By contrast, UK inflation is likely to weaken slightly from here and slip below 2.0% by the end of this year as the effects of sterling’s post-Brexit

Fathom’s measure of economic activity in China — the CMI — stood at 6.5% in June, unchanged from the revised May reading, but below both its recent peak and official GDP estimates. After months of waning momentum, this steadying may reflect China’s recent efforts to support the economy through monetary stimulus, a sign that it is again doubling down on its old growth model. Refresh the chart in your browser | Edit chart in Datastream Faced with slowing growth and escalating trade tensions, we correctly predicted that China would also allow its currency to weaken, with a forecast of 6.8 against the

This August, American consumer confidence, as measured by the Thomson Reuters/Ipsos Primary Consumer Sentiment Index, ticked up by 0.9 points to 62.7. All four sub-indices considered in the Primary Index also saw an increase this month. The Investment Index saw the greatest increase, up 1.5 points. The Current Index saw a similar increase of 1.1 points. “This month’s consumer confidence measurement is the first since tariffs took effect on China as of July 6th,” reported Chris Jackson, VP at survey research firm Ipsos. “We’ve seen slight increases across the board in our indices so it appears consumers are relatively unfazed

Fathom’s UK Economic Sentiment Indicator (ESI), which distils information from a wide range of business and consumer surveys, eased from 0.6% in May to 0.5% in June. Optimism among manufacturers remained high, but there was a further deterioration in sentiment among consumer-facing service sector firms. Refresh the chart in your browser | Edit chart in Datastream At its meeting on 2 August, the Bank of England’s Monetary Policy Committee voted, as expected, to increase Bank Rate by 25 basis points to 0.75%. In our judgement, with Brexit-related uncertainty continuing to weigh on economic activity, UK growth will turn out significantly weaker than

As the drive towards ESG investing continues apace – how can Investors quickly understand the CO2 impact of their assets? The current heat-wave in the UK and related national disasters in the Northern Hemisphere –Sweden, Greece, and United States – are once again putting climate change and the constantly increasing average temperature of our Globe to the forefront of public attention. As greenhouse gas emissions (including CO2) are one of the main contributors to global warming, we expect higher scrutiny into CO2 emissions of corporations in the near future. BlackRock’s letter to CEOs on strategy for long-term growth, and the

Fathom Consulting’s proprietary liquidity indicator, the FLIQ, points to a drop in market liquidity amid Federal Reserve rate hikes and quantitative tightening. The FLIQ is calculated by looking at the price of closed-end funds (CEFs). It is designed to provide a timely and intuitive assessment of aggregate financial market liquidity risk. By their nature, CEFs will tend to trade at a discount to the value of the underlying assets (their net asset value, or NAV). By measuring the size of this discount, relative to its historic average, we can obtain an estimate of the abundance, or the scarcity of market