Latest from BCA Research

We are upgrading Europe Private Equity, predominantly driven by Buyouts, from underweight to neutral. Our outlook towards Global Buyouts is improving, with Europe benefiting from enhanced credit availability and an earlier recession. Non-domestic investors may also be advantaged by an appreciation in the EUR and GBP over the next market cycle.

Supply and demand shocks in markets critical to the renewable-energy and defense industries will continue to play havoc with prices, which will negatively impact capex. In the short run, this benefits China given its already-dominant position in these markets. Longer term, investors already are providing capital for long-term projects needed for the energy transition. We remain long the XME ETF, given its low exposure to lithium and nickel holdings.

The disinflation to date has been benign because it has come almost entirely from improving supply. But the supply-side tailwind has exhausted, so the last mile of the journey to 2 percent inflation will be the hardest, especially in the US and the UK. We discuss the investment implications. Plus, we highlight an interesting sector pair-trade.

The stars have aligned for a major outperformance of Chilean stocks versus the EM equity benchmark. Plummeting inflation in Chile will push monetary authorities to continue their aggressive rate cuts, engineering a quick economic recovery this year. We maintain our overweight stance on Chilean stocks and fixed income, and recommend investors go long Chilean banks / short the overall EM index, buy 10-year government bonds, and go long CLP / short COP.

Our Portfolio Allocation Summary for February 2024.

Special Report

Indonesia will not revert to dictatorship. Yet the guardrails against authoritarianism are also constraining the actions of the next government in tackling near term domestic and regional challenges. For long-term positioning, use potential selloff from a “dictatorship scare” to build position as structural outlook for Indonesia is positive due to the China-West divorce and the global energy transition.

The USHQ Large Cap portfolio outperformed its benchmark by 2.5% and the USHQ SMID 2.4%. The BCA Score L/S started the year off strong with positive contributions from Safety, Technicals, and Quality for January.

Special Report

We do not believe that NYCB is a canary in the coal mine for a new round of bank distress. The MidCap 400 Regional Bank Index’s subsequent 10% decline looks to us like a juicy opportunity for stockpickers who can separate the wheat from the chaff. Our Special Report is meant to assist them with their initial winnowing.

The soft landing and rate cuts narrative is being priced out, and the S&P 500 is overvalued and getting overbought. The Magnificent Seven are about to get a new moniker on the back of performance dispersion. However, without the cohort, S&P 500 earnings would have been even deeper in the red.

Our Central Bank Monitors support European central bankers’ decision to hold rates steady. Find out what it means for European fixed-income portfolio allocation.