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Noteworthy Articles About International Stocks

By January 10, 2023No Comments
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After a brief break, Michael Hartnett launches his first Flow Show note (available to pro subs) for 2023 with a chart we showed this morning: specifically, the end of the era in in negative yielding debt. As the BofA CIO puts it, “monetary tightening caused collapse in value of negative yielding debt from $18tn in Nov’21 to zero today” a period during which NYFANG (Big Tech) market cap sank $5tn in value.
Looking ahead it’s rather binary: with US/Japan/EU/UK governments all set to issue $6 trillion in bonds in 2023, the Fed will either step in and resume monetizing this debt, keeping yields manageable, or it won’t… and there may be a big problem in the coming months when we may see a far more serious “end of an era.”
Yet while this week has seen the end of the negative-yielding era, it was also the start of another era: according to Hartnett’s calculations, the past 2 months Europe stocks outperformed US by 1500bps
… driven by lower price of oil ($100/bl to $80/bl), natural gas (-50%), China reopening, peak CPI/PPI
… and a big credit rally (€ IG spreads 60bp tighter).
This “new era” is certainly notable in the context of the Big Picture, as US stocks had constantly crushed global stocks for 15 years: consider that $100 invested is US stocks in March 2008 is now worth $288, while $100 invested in Global (ex.US) stocks is down to $94.
And as this new era rolls out, Hartnett expects the US to underperform the World in ‘23. Which, not accidentally, is why the title of Hartnett’s first note of the year is simple “buy the world.”
Before we dig deeper into Hartnett’s latest investment thesis, a brief detour into the latest fund flow data where there have been some major reversals, namely: $112.3bn to cash, $6.5bn to bonds, $3mn to gold, $4.6bn from equities.
These are the main flows to know:
  • Biggest inflow to cash ($112.3bn) since Apr’20;
  • Biggest inflow Treasuries ($6.50bps) since Oct’22;
  • Biggest inflow to IG bonds ($3.6bn) in 5 months;
  • Inflows to IG/HY bonds ($5.8bn) past 8 weeks reversing $261bn outflow in ’22;
  • Inflow to EM debt ($2bn) in Dec was first monthly inflow since Aug’21 (small outflow this week);
  • Outflows from stocks ($32.6bn) past 8 weeks reversing $175bn inflow of ‘22 (contrast with credit);
  • Same story in tech (currently longest outflow streak since June’21 );
  • But most notably perhaps, there was a “teeny-tiny” $45MM outflow from European equities, the smallest in 47 weeks:
  • inflows to Japan equities ($3.5bn) past 5 weeks, longest streak since Jul’21;
In 2022 flow leaders were: US Treasuries ($170bn inflow = 23% AUM)
… passive equity funds ($540bn), and tech ($20bn);
In 2023 flow laggards were: credit ($235bn – 2nd consecutive year), active equity funds ($370bn outflow), EM debt $80bn outflow = 17% AUM) and European equities.
* *  *
Which brings us to the punchline: why should traders “buy the world”? Well, according to Hartnett, global stocks will outperform the US in 2023 driven by…
1. Interest Rates – US “secular growth” stocks substantially outperformed during QE/zero rates “secular stagnation”; non-US “cyclical value” stocks to outperform in backdrop of higher rates “secular stagflation”
2. China – bull market in credit began in days following Communist Party of China (CPC) Politburo…. China HY $ bond spreads halved from 2900bp on 27th Oct to 1360bp today, and speedy Zero-Covid policy exit will unleash years of precautionary savings in boost to households consumption
3. Tech – in Q4 all tech as % US equity market was 40% vs 19% in EM, 13% in Japan, 7% in Europe; derating of tech driven by regulation, penetration, rates well underway (Big 8 stocks already down from 30% to 21% of US market ), yet investor rotation out of tech sector yet to begin, hurts US more
4. Buybacks – US stock market has enjoyed $7.5tn of stock buybacks since GFC (corporations rather than investors have powered the US stock market past 15 years – mostly tech & financials); 1% tax on buybacks now introduced (and will inevitably rise in coming years) + higher rates = less self-serving debt issuance to finance buybacks
5. Energy – higher oil prices mean “oil exporters” e.g. US, Saudi Arabia outperform, lower oil prices mean “oil importers” e.g. Japan, China, India, Europe outperform (see German trade balance),
6. War & the US dollar – dollar falls in ’23 as geopolitical tensions ease, US domestic political tensions rise, global governments & investors diversify from reserve currency,
7. Positioning – compare $160bn US equity inflows to $107bn EU equity outflows in ’22, note US hit all-time high (63%) as share of global market in 2022.
Hartnett concludes his weekly note by recapping his Top 10 trades for 2023 (the full breakdown is here)
  1. Long 30-year US Treasury
  2. Long Yield curve steepeners
  3. Short US$, long EM assets
  4. Long China stocks
  5. Long gold & copper
  6. Barbell credit
  7. Long industrials & small cap stocks
  8. Short US tech
  9. Short US private equity
  10. Long EU banks, short Canada/Aussie/NZ/Sweden bank