A weekly look at the markets and why this weeks Chart is important. To receive the Chart of The Week directly into your inbox email us at info@mondialdubai.com . Podcast content is provided by Momentum Global Asset Managers, all rights reserved.
Mondial Dubai - Chart Of The Week
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Podcast Overview
A weekly look at the markets and why this weeks Chart is important. To receive the Chart of The Week directly into your inbox email us at info@mondialdubai.com . Podcast content is provided by Momentum Global Asset Managers, all rights reserved.
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Publishing Since
12/15/2023
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Recent Episodes
January 26, 2024
Keep calm and diversify
<p><b>What the chart shows</b></p><p> This week’s chart shows the calendar year returns of nine major asset classes for the last ten years in US dollar terms, giving a clear picture of the volatility within the investment sphere. Asset class fortunes clearly vary each year and there is a number of examples when one year’s star performer may falter the next (see commodities from 2021/22 to 2023), or vice versa, when the class straggler jumps to the front (see US high yield bonds from 2015 to 2016). We can see that no single asset class stays a winner forever – a notion the US equity market has been challenging recently. Only once did an asset class remain on top for two consecutive years – commodities from 2021 to 2022. However, the subsequent plunge in 2023 serves as a stark reminder that trends can change rapidly. </p><p><b>Why is this important?</b></p><p>The message from this week’s chart is a simple one: no single asset class consistently stays on top. This emphasises the need for diversification, providing a safety net against the unpredictable volatility experienced by individual asset classes each year. It is extremely difficult to select the best performing asset classes every year and winners rarely stay as winners. A key takeaway here is to avoid getting swayed by exciting stories – just because an asset class did well in the past doesn’t guarantee its future success. The best performer of one year can quickly become a laggard the next and short-term predictions often miss the mark. Even asset classes with prolonged success, like US equities, can’t guarantee perpetual dominance. Investors need to be prepared for anything, and we advocate the practice of investing in undervalued asset classes following downturns, weathering temporary setbacks and patiently waiting their comeback. After a highly unusual year in 2023, where economies and equity markets defied widespread pessimism and faced the steepest monetary tightening in 40 years, coupled with returns heavily concentrated in a narrow range of stocks, caution and selectivity are crucial in 2024. Given current valuations and uncertainties, a broad diversification approach will be maintained in portfolios, waiting for valuation opportunities to emerge in preferred assets and markets, remaining wary of extended valuations and excess leverage.</p>
December 15, 2023
Pedal to the metal
<p><b>What the chart shows</b></p><p> This chart shows the inverse of the yield on a 10-year Treasury Inflation Protected Security (TIPS)1 against the US Dollar denominated price of gold per troy ounce since 2000. The chart highlights how historically the 10-year TIPS yield, that is a real yield or net of inflation, has had a close inverse relationship with the price of gold. This correlation has been relatively consistent because higher real yields on bonds diminish the attractiveness of non-interest yielding assets, such as gold, typically used as a defensive asset and as an inflation hedge. Recently however, this relationship has broken down as the rise in real yields has not been followed by a corresponding decline in the price of gold. Remarkably, by the end of November this year, gold had returned 12.4% year-to-date for investors and in fact reached its highest recorded price level. </p><p><b>Why is this important?</b></p><p> It is important to consider the factors contributing to the breakdown of this relationship and understand the drivers behind gold’s substantial rally. Firstly, gold has traditionally been regarded as a store of value and safe haven during periods of market turmoil and has thus experienced high demand due to geopolitical instability arising from the conflict in Ukraine, and more recently the Middle East. Another key factor has been the change in markets’ interest rate expectations, with investors now forecasting earlier cuts in 2024, which has caused a weakness in the dollar. This depreciation benefits the dollar-denominated metal as it gives non-US gold buyers higher purchasing power. The final and arguably most significant reason for gold’s surge has been the persistent appetite from central banks. Q3 saw central bank gold purchases reach the second highest level on record, continuing the momentum following a record-breaking year in 2022. This has occurred as central banks, particularly in emerging markets, have sought to reduce their reliance on the dollar following sanctions imposed on dollar-denominated Russian assets. This triggered a shift into alternative stores of value such as gold to mitigate any further ‘dollar weaponisation’ risks. 2024 may also still prove to be a tumultuous year amidst ongoing conflicts, unresolved geopolitical tensions and a busy election calendar which includes the US, UK, Mexico and Taiwan. Alongside lingering recession odds, such risks have supported a perhaps overly elevated price for the precious metal. </p><p> 1TIPS are bonds issued by the U.S government which are linked to the Consumer Price Index (CPI).</p>
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