Home Analysis The Contrarian Equity Investor

The Contrarian Equity Investor

Stockholm (Ekonamik) – As we shifted our focus from emerging to equity markets this week, we caught up with Jonas Thulin, Head of Asset Management at Penser Bank in Stockholm to hear his view on the path of equity markets ahead of the summer break.

Betting on the Equity Market

“We went very overweight on equity markets between Christmas and the New Year. We started on the first of January betting that the equity market would rebound and we have held this position since then,” the head of Asset Management explains. “We remain very bullish about the equity market.”

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According to Thulin, there is no good reason to blindly follow the traditional market advice to sell ahead of the summer break. “We don’t really do ‘sell in May and go away’. We look at the statistics and see if this makes sense. I’m not sure where the quote comes from, but strictly speaking there is not statistically significant result showing this to be an accurate insight,” he comments. The view, he argues is supported by serious research. “Based on our analysis, at best one can say that it may hold conditional on the performance of the markets leading up to the summer. If the equity market is up in the spring, you should not sell. However, there seems to be some evidence that if the market is down in the spring you should do that. Given that the market had a strong spring we are holding our position.”

Focus on the Data not Trade War Tweets

Another concern prevailing in the market that Thulin is keen to dismiss the effect of the trade war. “We are not very concerned with the trade war. Looking at the impact it has had on US consumers the effect seems very negligible. Trade is still growing. This is not to say that it won’t change, but it has been a winning strategy so far this year.” The issue is one of policy pass-through according to the asset manager. “The cost is not being passed on to the US consumer. It is staying with the Chinese companies which get assistance from the Chinese government. For this reason, it has also been a good year for the Chinese equity market.”

For the head of asset management, the issue seems to be one of a narrative driving the market. “The trade war has fooled investors into taking defensive positions. However, this was the best start to the year for the equity market since 1999.” Going forward, Thulin remains bullish. “We are long equities going into the summer and we really have no reason to change our view.”

Cyclical Rebound and the Yield Curve

Underlying his bullish view is Thulin’s understanding of the macroeconomic position of the US economy. “We are in a cyclical rebound in the global economy, including in the USA,” he explains pointing to recent economic data from the USA. “We just follow the data and we think that people are missing the economy’s momentum and the bullish confidence of the US consumer. People are paying attention to tweets rather than focusing on the data.”

Discussing the popular insights that can be gleaned from the US yield curve, he acknowledges the power of this indicator but is keen to emphasise its timing and structure. “We give some weight to the yield curve, but if you look at the data there’s still 20% gains to be made in the next 330 days before a recession hits. Moreover, if you actually take the term premium into account, the yield curve has not even inverted yet. Then you end up with a view that the problem might not even be there in the first place,” he explains.

“We did not really set out to be contrarians, but we do seem to have ended up in a minority position,” he concludes.

Picture © HedgeNordic

Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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