QAS DATA INPUT IN QUANTAMENTAL MODELS
Quantamental Approach by QAS’s strategic partner in Europe
At QAS, we always encourage our clients to use QAS research as an input for their own investment research: whether it is a fundamental, quantitative, technical, behavioral, non-financial like ESG, or any combination of the above.
Over the years, we’ve created various forms of data input that can fit any investment approach. We’ve always been very flexible and tried to create truly customized solutions that can satisfy the various styles of investment managers around the world.
Our key differentiating factor is that we offer a granular “phase-by-phase” view on investment instruments in the form of “easy-to-read”, “less time-consuming” comprehensive data reports. We crunch a lot of price momentum data to provide our clients with a focused view on the entire spectrum – from a “big picture” long-term perspective to “short-term” bias changes.
Today, we wanted to introduce one of our strategic partners in Europe – GATE Capital Management, and its founder and CEO Jacques Lemoisson. Jacques is a well-known investment expert, portfolio manager and a newsletter publisher, who specializes in global macro research and thematic strategies.
We asked GATE Capital Management to describe their investment approach and provide our professional network with their view on the capital markets going forward and into the 2nd half of 2022.
Overview of the GATE Capital Management and their “Quantamental” approach
“GATE Capital Management is a Geneva-based asset manager that specializes in global macro thematic.
GATE’s specificity is that we rely on a quantamental approach, combining global macro fundamentals and quantitative signals. This particular approach is helping us build our portfolios and hedging strategies. We have designed a hedging module called DRIVE (Dynamic Risk Investment Value Engine). The DRIVE module complements all our long-only thematic funds and allows us to timely hedge the portfolios during market turbulences.”
QAS’ input
“QAS Inc is a crucial quantitative input. We designed effective analytical tools with QAS, capturing both, a macro and micro-universe. By combining QAS’ signals and our macro views, we are able to feed our DRIVE module and make timely hedging decisions. Our process uses a non-linear approach, meaning we need a multidimensional time frame (long term, intermediate term, and short term), which is the exact setup of QAS.”
Why we believe in the Chinese capital markets? What investment theme should benefit the most?
“We believe the Chinese A-share market has hit a bottom and that the worst is likely behind us. The H-share market is likely to remain bumpy due to on-going regulatory uncertainties. Among the several catalysts that should drive the Chinese market this year, we think two elements stand out.
First, while most central banks are tightening, the People’s Bank of China (PBOC) is acting in the opposite direction. After three years of tightening, the PBOC is finally unleashing easing measures. Assuming that the statement “Don’t fight the FED” is symmetrical, we see the risk of investing in Chinese assets as asymmetrical: a potential -10% downside and a +40% upside, while the amplitudes is the opposite for American assets.
Our second point is that China is significantly underrepresented in most global portfolios while the country generates roughly 20% of global GDP and ranks first in many industries.
We are convinced that one of the best investment vehicles in China is the trend for decarbonization. That is why we have designed a “China Decarbonization 2060” fund that benefits from China’s ambition to become carbon neutral by 2060. Since China has complete domination in most green technologies (solar, wind, hydrogen…), this thematic benefits from global clean energy investments following the Ukraine invasion.”
Weight of evidence we collected in April and May (CNY/USD, Yields, Commodities, Inflation, Supply Chain, US stocks/ bonds)
“We believe that forex, bonds, and commodities are leading the way. Stocks are just keeping pace.
In April, the weakness of the CNY was the signal that Chinese authorities were ready to act while credit spreads in the USA were deteriorating. These thoughts were also confirmed by QAS analysis on the CNY. The compilation of these signals made us call the bottom on Chinese equities on April 27th. Conversely, we pushed for a “sell the rally/ hedge” on US stocks. Moreover, our in-depth coverage of the supply chain in Asia allowed us to determine that demand was starting to decrease for tech products and that supply chain constraints may not be the only reason for weak earnings. This analysis reinforced our “sell/hedge” position on US stocks.”
Source: QAS Production/ Graphs
Mid-May observation – literally nowhere to invest
“Mid-May, the situation changed regarding US stocks. The USD became weaker, and the US 10Y yield retreated from 3.20%. The analysis of High Yield flows in mid-May was interesting. They reversed the negative trend initiated in January 2022. In 2020, this signal was helpful to time the bounce after the Covid-crash.
We detected the new grip of calls advocating for an inflation peak in March. The base effect will artificially act as a positive catalyst for these calls.
Global investors are not paying attention to the high level of inventories and a potential CAPEX slowdown, which is not a tasty cocktail if stagflation or a recession occurs.
Effectively, there was no strong investment ideas across all asset classes at that time.
The strength of the CNY (after a drop vs. USD) is the first signal that foreign investors will consider in regards to Chinese assets before the summer.”
Optimal portfolio rotation (macro view) for the 2nd half 2022:
- US is likely flat/ negative bias
- China shows promising turnaround/ upside potential
“If short-term bear market rallies occur, the long-term configuration does not support occidental equities, except if the Ukraine war ends.
We think that an inflation shock could happen this summer driven by food and salary inflation components. Combined with weak demand and high inventory levels, corporates may experience strong margin pressure leading to profit warnings in Q2/Q3.
The FED could pursue its hawkish policy this summer while the ECB would start hiking rates.
In China, officials are not downplaying the GDP growth objective, meaning vast fiscal and monetary plans. Xi Jinping wants to be reelected without questions, and everything will be done to reach the targets established at the beginning of the year.
The TINA effect (“There Is No Alternative”) will become Chinese mainly if the Ukraine war is still engaged. We reiterate that Chinese ADRs are not the best vehicle to invest in China.
For US equities, quality should be the main criteria in selecting companies. In bonds, the duration could hit books in Q3 when investors realize that the FED won’t stop its quantitative tightening.”
Summary
QAS’s advanced momentum quantitative ratings and risk zones information was successfully integrated into the GATE Capital Management’s investment process including their new “DRIVE” hedging infrastructure.
We believe that our multi time frame momentum solutions can add value to “Quantamental” research models by providing various unique points of analysis.
For more information about QAS’s customized solutions:
Please feel free to connect with GATE Capital Management to learn more about their Quantamental approach, newsletters and thematic strategies.
