Derailment Residue

A good start to 26, prices held in spite of lofty valuations and some big ticket events ended benignly.

What lies ahead –the pace of capital flight, its dollar impact and global convergence dynamics.

What country discounts / premiums are sustainable, how will partners react to terms of trade, and which security strategies in defence, technology and governance are likely to prevail.

Markets will consider that conditions remain positive for asset allocation until something derails consensus.

Productivity credits need to show in balance sheets in Q2 and 3 to confirm tech valuations. Both Japanese, Korean and many EM traders continue to reallocate domestically, with associate capital inflows. The EU response to trade barriers has currently been benign, it may not remain so long term. The defence industry now has the budget allocation required for higher GDP contribution but stocks are building. Do they need to be utilised to maintain momentum?

There is much to be positive about, all types of political landmines appear to have been contained or defused sensibly, inter country negotiations whilst more aggressively pitched still appear to consider peace and prosperity as their principle goals. Emerging markets are still competitive in most arena. A glass half full not empty.

What positioning will pay best? Take a chance on market volatility, hold carry opportunities; higher credit bank bonds, structured products and some EM equity or fx exposure. Commodities have already moved substantively, further longs will likely require tight supply and continuing demand growth.

Best route to positive returns is to remain on board until derailment residue is visibly a problem.