Greece is back from the brink and now it is like the latest leg of the Greek saga was just a bad dream. The 85% probability of Grexit which some prominent commentators predicted a few days ago is now forgotten and market conditions in Europe have normalized in the wink of an eye. During the period under review, the Eurostoxx 50 was up 9.5%, equity volatility fell 10% (VSTOXX), high yield spreads tightened 26 bps in Europe and the 10-year bund yield rose by the same order of magnitude.

Philippe Ferreira

Head of Research - Managed Account Platform

Click here to download the full report.

Greece is back from the brink and now it is like the latest leg of the Greek saga was just a bad dream. The 85% probability of Grexit which some prominent commentators predicted a few days ago is now forgotten and market conditions in Europe have normalized in the wink of an eye. During the period under review, the Eurostoxx 50 was up 9.5%, equity volatility fell 10% (VSTOXX), high yield spreads tightened 26 bps in Europe and the 10-year bund yield rose by the same order of magnitude.

The sharp improvement in risk appetite in Europe has benefitted the Global Macro managers who maintained their long European equities stance during the turmoil. The Lyxor Global Macro Index is up 1% this week. Meanwhile, short term CTAs underperformed as a result of their short stance on European equities and commodities. They were also hurt by the rise in sovereign bond yields in both core European countries and the US. Their long GBP vs USD stance was supportive following the hawkish comments from Mark Carney, the governor of the BoE.

Finally Event Driven and L/S Equity funds experienced a healthy rebound. This reflects the improving risk appetite but also the strong support provided by Chinese authorities to propel the local stock market. The measures that have been adopted since end-June are impressive. Yet, they also have the potential to deter foreign investors that may find these market interventions unsettling. For instance, regulators have banned company shareholders with stakes of more than 5% from selling for the next six months...

From a global strategy standpoint, we upgraded our stance on European equities and peripheral bonds to overweight but refrained from changing our recommendations on alternatives. We maintain our preference for EU and Japanese long biased L/S Equity managers (vs US & EM). We remain neutral Event Driven and overweight long term CTAs and Global Macro.

Click here to download the full report