Multi FX Program – December 2018

As we head into the new year, global economic growth is poised to moderately slow down. This deceleration is already evident in the US with fading fiscal stimulus and tighter financial conditions. Couple this economic environment with softer growth data from China, the outlook for 2019 is less optimistic for investors. However, a global growth trend is still intact with labour markets still progressing. These signs indicate that we are moving further along the economic cycle as higher wages are pushing up prices. Consequently, the global geo-political uncertainties will continue to be important drivers of the financial markets. By understanding these implications on market returns and volatility, our Multi FX Program aims to diversify risk from uncertainties. Trends in the currency majors should reveal themselves as these political risks begin to subside.

The broader indicators are pointing toward the view that the global economy is past peak growth in the economic cycle. Fundamental analysis cannot hide the fact that central bank support continues to be reduced. Furthermore, undiminished political risks continue to loom large within Europe and the US. Despite these slowing market conditions, the general view is that the risks have been priced into the financial markets. As a consequence we maintain a relatively cautious approach towards portfolio construction. Therefore by maintaining a volatility-based allocation strategy, our Multi FX Program seeks to capture market returns. Moreover, running multiple strategies aided in smoothing out the unwanted volatility spikes.

A ‘Softer’ 4^th Quarter

The last quarter of the year did not end on a positive note for the equity markets. As a fact, there were multiple factors challenging the financial markets. To start with central bank interest rates were on the rise. Political tensions in Europe became the catalyst to a slowdown in business confidence in the Eurozone. Furthermore, weaker Chinese growth output stemmed the global economic growth trend. In addition the ongoing trade conflict with the US did not help the situation. Stock markets traded lower, giving back their gains. On the positive side though the interest rate and bond markets offer refuse to the financial markets. Therefore well-balanced portfolios were able to protect against the slide of the equity markets.

Consequently for single asset class strategies however, they required a different trading approach. In order to reduce the potential downside risk the Multi FX Program was able to reduce trading expose during certain market environments. Certain strategy components remained neutral or limited exposure throughout the month.