Summary

In this presentation, Callum focused his discussion into four parts. Firstly, he explained his research process, and how he approaches markets. Then he moved onto his core views, with his big picture macro/market outlook and asset allocation views. Thirdly, he offered some specific short- and medium-term views and lastly he offered a summary of views across the asset classes. Topdown Charts’ three key objectives include risk management, idea generation and to help their clients gain perspective in order to help manage money and communicate with clients and stakeholders. Callum moved on to discuss his core views. During times of great uncertainty in the short-term, Callum reverts to basics to help make medium-term asset allocation decisions. COVID has driven an extension of the monetary easing policy of 2019 (following the 2018 policy mistake). While the immediate impact has been a surge in stocks, multiple growth tailwinds are building up in the system. Global trade volume growth has rebounded from the brink, and trade orders point to a further recovery in global trade headed into 2021. With the price of oil down, cheap fuel costs are also a tailwind to growth, albeit more so in a vaccinated, reopened world. He discusses the big picture growth vs. defence allocations, given the still wide valuation gap: defensive assets are extremely expensive, but growth assets are no longer cheap. He believes this is indicative of crowding into defensive assets and central bank buying, and that it tilts the odds towards growth assets medium-term. Callum suggests investors maintain overweight on global equities, given solid expected returns potential, monetary tailwinds, economic/earnings green shoots. However, given the divergence in valuations, He prefers global ex-US relative to US. Over 90% of countries trade at least 20% cheaper vs. the US on a blended P/E ratio. The bullish global ex-US view is also consistent with Topdown Chart’s bearish medium-term outlook on the US dollar, with elements of overvaluation persisting and yield support waning. Callum remains bullish on commodities in the medium-term, with cheap valuations, weak capex and the likelihood of benefitting from a prospective global growth rebound. Similarly, He also remains bullish on EM equities on the basis of reasonable valuations, cheap ERP and easy monetary conditions. Lastly, Callum discussed his recent interesting ideas. On EMFX, he has a bullish medium-term bias given their composite valuation indicator for EM currencies. EM Ex-Asia has lagged EM Asia and are trading on cheap valuations. ETF AUM allocations suggest investors are under-allocated and excessively bearish. On Frontier Markets, these look good and on a strategic basis look to outperform other global equities, so he recommends remaining bullish. With the pandemic disrupting agriculture, and record low capex, there has been a surge in Agriculture related commodities and a jump in food price inflation is a credible risk/opportunity.

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