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Christopher Wood, global head of equity strategy at Jefferies, reduced his exposure to Indian stocks by one percentage point in the Asia Pacific ex-Japan relative return portfolio; and Australia and Malaysia by half a percentage point each in favor of China, which saw its exposure increase by two percentage points.
The rally in China, Wood wrote, was accelerated by the approach of a seven-day holiday with the CSI 300 index up 8.5 percent on Monday and 25.1 percent in five trading days. The next trading day in Shanghai will be October 8.
“As a result, China’s neutral weightings in the MSCI AC Asia Pacific ex-Japan and MSCI Emerging Markets benchmarks jumped 3.4 and 3.7 percentage points, respectively, over the past five trading days , to reach 26.5 percent and 27.8 percent. This highlights the difficulties faced by fund managers in these asset classes in a country where key policy decisions are, apparently, essentially made by one man,” Wood said.
Chris Wood’s portfolio
Geopolitics, a risk
A deterioration in the geopolitical situation poses the biggest risk to global stock markets, Wood said, which he said is not yet fully addressed. In the event of an escalation of the crisis in West Asia and/or Russia and Ukraine, he said, all global markets, including India, would be hit hard, which they are not yet at. prepared.
Earlier this week, Iran, the Israeli military said, fired missiles at Israel – a sign of a deepening geopolitical crisis in West Asia. The Israeli government, according to reports, had warned of serious consequences in case Iran escalated its involvement in the conflict.
Boiling oil
One of the immediate casualties of geopolitical developments was the rise in crude oil prices (Brent), which jumped almost 5 percent from a level of around $70 per barrel on October 1 to more than 74 dollars per barrel.
However, in recent weeks crude oil (Brent) prices have cooled from a level of $75 per barrel to $68 per barrel.
The biggest factor, analysts said, was the announcement of weaker-than-expected Chinese demand data, confirming that the world’s largest crude importer was still mired in economic weakness that was seeping into construction markets , maritime transport and energy.
The oil market, Rabobank International analysts wrote in a recent note, remains exposed to the risk of oversupply if OPEC+ continues its plans to return part of its sidelined production.
They expect Brent crude oil to average $71 in the October-December quarter 2024 (Q4-CY24), and forecast that prices in 2025 will average $70, in 2026 they will increase at 72 dollars and in 2027 they will trade around the 75 dollar mark.
“We still expect the flattening and decline of US tight oil production in 2025, alongside reductions in Russian offsets, to inject some price appreciation later in the year and into 2026, but in the Taken together, the market appears to be on a flat, longer-term trajectory. Geopolitical issues in the Middle East still support the risk of higher prices in the long term,” wrote Joe DeLaura, global energy strategist at Rabobank International, in a recent note co-authored with Florence Schmit.
First publication: October 2, 2024 | 9:29 a.m. STI