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Raphaël Gallardo

Investment & Client Solutions Strategist

The triumph of Abenomics

30.10.2017 - Raphaël Gallardo

Read market analysis by Raphaël Gallardo, Multi-asset strategist at Investment and Client Solutions investment division:

-Strong, synchronized and ongoing non-inflationary world growth (4%).
-Central banks are still concerned over sluggish inflation, yet are planning to implement significant monetary tightening in 2018 – for the Fed it’s a case of financial stability, while technical reasons are motivating the Bank of Japan (shortage of JGBs), political reasons are behind ECB moves (issue share limits), and external factors explain the Bank of England’s actions (current account deficit, household debt).
-Risky asset valuations are incompatible (equities, credit, real estate) with the steepening on the yield curve in G4 countries implied by the scenario of seamless monetary normalization. Yet these valuation levels have become vital in ensuring continued strong world growth via wealth effects.
-Either the yield curves bear-steepen and asset prices and world growth take a severe dip, or yield curves continue to flatten maintaining the current pace of strong growth and inflation in the asset prices, but marking a clear sign of mistrust of normalization scenarios from central banks. 2018 will see a choice between ongoing world growth and credibility for central banks.
-Twofold rise in cost of capital for countries with dollar debt (Turkey, Argentina, etc.) or that are subject to capital outflow risk (China), with the hike in the Fed funds rate and the rise in the premium on dollar funding (cross-currency basis swaps). Canada and Australia, which depend on dollar-denominated inflows to maintain their real estate bubbles, are also vulnerable.
-Maintaining an offensive stance in our portfolios but cutting back risk on our equity overweight position:
o Neutralization of our emerging Asia long position
o Neutralization of our US short position
o Shift of part of euro area long equity positions to European high yield debt
o Bolstering our currency hedges in the dollar

 

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Raphael Gallardo graduated from the Ecole Nationale Supérieure des Mines de Paris, civil engineering course.

Raphael Gallardo began his career as a financial Engineer at Paribas in 1997, before joining the Economic Research division of BNP Paribas in 1999 and the Asset Management in 2005. In 2007, he became a Chief Economist at Axa IM.

He joined Natixis Asset Management in 2013 as an Investment & Client Solutions Strategist.