Lyxor Weekly Brief
Typography

The cautious move toward monetary normalization led by several central banks did not throw a tantrum on markets.....

30 oct 2017 - By Lyxor Cross Asset Research - The Weekly Brief


Jean-Baptiste Berthon Senior Strategist, Cross Asset Research Lyxor Asset Management


They find support from economic prints flashing green and a much healthier load of earnings announcements since last week. The election in Japan also helped, as well as the Chinese party congress. The absence of major shifts in Chinese policies, and a focus on quality and equality rather than quantity strengthen the case for a soft landing.

Asset returns were regionally uneven. Uncertainties regarding the magnitude of tax-cuts and the next Fed chair stalled the US momentum while pushing US rates and dollar up. It boosted European and Japanese equities and cyclical commodities. EM markets reflected mild profit-taking after the Chinese congress.

Most hedge fund strategies remained in positive territories. Global Macro led the pack, benefitting from their short European bonds and from their positions in Japanese FX and equities.

We focus on Merger funds this week. The Lyxor Merger index is up +7% year-to-date. While deal spreads tightened until the summer, they widened since then. Remarkably, Merger funds remained immune.

Since the end of last year, the perception of merger risk receded. The number of deals motivated by an inversion objective dried out and very few operations broke out (less than 2%). In parallel, prospects of foreign earning repatriation and improving corporate profits maintained an attractive relative carry vs. credit or yields, with limited duration risk (M&A deal rarely last more than a year). This lured a number of non-merger specialists in the space.

As a result, a growing number of operations became priced for perfection with several months still running before completion. They were vulnerable to any surprise in earnings or a change of tone in antitrust regulators.

Instead, merger specialists focused on the most complex deals, which offer bidding war prospects and higher spreads. They also became more tactical on the richly priced mainstream operations, being short when the risk asymmetry reached a climax. We believe that this strategy should be run by experts, with prior legal reviews and careful valuation analysis. We maintain our OW on the strategy.

Source: AdvisorWorld.co.uk

ETFWorld.co.uk
BondWorld.co.uk

Newsletter

To receive our free newsletter, subscribe HERE

logo

UK Institutional Investors and Financial Advisers and Wealth Managers
Important legal information

Before accessing this website you must read and accept the following terms and legal notices. If you are not able to access the website according to these terms or do not understand their meaning you must not proceed any further and should decline to accept them.

This website includes information about financial products that are not registered for sale in United Kingdom. This information is therefore made available solely to persons meeting the below criteria. These persons must not pass on any information to third parties with whom it would not be lawful to do so according to local legislation and regulation.

Persons accessing this website must be either an Investment Professional or a High Net Worth Company or Financial Advisers or Wealth Managers as outlined below:

An 'Investment Professional' is defined to include:

(i) an authorised person (this will include banks, stockbrokers, securities houses, investment managers, insurance companies and financial intermediaries);

(ii) a person who is exempt from the requirement for authorisation under the Financial Services and Markets Act 2000 (“FSMA”) (this will include appointed representatives of authorised persons, The Bank of England, central banks of other EEA States, The European Central Bank and the International Monetary Fund);

(iii) a person whose ordinary activities involve him in carrying on a regulated activity as defined in the FSMA (e.g., arranging deals in or advising on investments) to which the financial promotion relates or who it is reasonable to expect will carry on such activity for the purposes of a business carried on by him;

(iv) a government, local authority or international organisation; and

(v) a person acting in his capacity as a director, officer or employee of a person of a type described in paragraphs

(i) to (iv) above (i.e. he must not be acting on his own personal account) whose responsibilities, when acting in his capacity as a director, officer or employee of such person, involve him in engaging in regulated activities as defined in the FSMA.

High Net Worth Companies, include:

(i) a body corporate which has a called-up share capital or net assets of at least £500,000 (if it has more than 20 members or is a subsidiary of a parent undertaking with more than 20 members) or, in any other case, at least £5 million;

(ii) an unincorporated association or partnership which has net assets of at least £5 million;

(iii) the trustee of a trust with assets (before deducting any liabilities) of at least £10 million or which were at least £10 million within the previous year; or

(iv) a person acting in his capacity as a director, officer or employee of a person of a type described in paragraphs (i) to (iii) above (i.e. he must not be acting on his own personal account) whose responsibilities, when acting in his capacity as a director, officer or employee of such person, involve him in engaging in regulated activities as defined in the FSMA.

Financial Advisers and Wealth Managers, include:

Persons that are authorised by the relevant authorities in the UK to act as a professional investor or financial adviser

Persons who do not meet these criteria cannot proceed any further and must leave the website.

This site uses cookies. Cookies help us know you better and improve your navigation experience. By continuing to browse the site you are agreeing to our use of cookies.