The Intelligence Report

22 May 2017

  • VIX: the only thing to fear? – offering some potential explanations of the surprising persistence of low volatility, and suggesting possible catalysts that may eventually drive volatility higher.
  • Is a renewed China slowdown a major risk to emerging markets? – examining the current selective credit tightening we are witnessing in China, against the context of a fading fiscal and monetary expansion.
  • Technology: can the outperformance continue? – looking at the continuing strong outperformance of the technology sector, sounding an optimistic note on the longevity of this trend.

The very low level of asset class volatility, as exemplified by the VIX (a measure of the implied volatility embedded in S & P index options), has been puzzling investors for some time now, and confounding expectations of mean reversion to historically normal levels. Although volatility ticked up somewhat last week as markets reacted to the risk of a Trump impeachment, it remains close to multi-year lows. In the first of this week’s articles, Matt Joyce and Daniel Morris offer some potential explanations of this surprising persistence of low volatility, and suggest possible catalysts that may (eventually) drive volatility higher.

In the second of our articles, Guillermo Felices and Lydia Rangapanaiken examine the current selective credit tightening we are witnessing in China, against the context of a fading fiscal and monetary expansion. They explore the implications for growth and asset prices of a continued deterioration in the credit impulse, and link their conclusions to recent tail risk hedging strategies implemented in Multi-Asset Solutions portfolios.

In our third article, Pamela Hegarty looks at the continuing strong outperformance of the technology sector. Although strong outperformance naturally invites comparisons with the 1999-2000 “tech bubble”, valuations are not stretched and the move is well underpinned by compelling secular growth themes. Pamela sounds an optimistic note on the longevity of this trend.

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