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Insights
Insights showcases topical observations from Qi. Pure signals highlighting where assets are rich or cheap versus macro. Or roadmaps to help provide the most efficient way to express any trade. Flags, in real time, highlighting changes in factor leadership or regime shifts.

See below for articles and analysis.

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Ferenc Horvath Skcfibu91Aa Unsplash
17.05.2022
Watch Hong Kong
Global investors should be keeping a close eye on Hong Kong.

As a small open economy with a US Dollar peg & growing Chinese influence, it is uniquely exposed to two of the biggest headwinds facing financial markets – the Fed’s policy tightening & the economic hit from China’s tech regulation & zero covid policy.

On an outright basis the Hang Seng is cheap to macro. But that valuation comes with a health warning as model confidence is rolling over aggressively. Macro’s explanatory power has fallen 25% in the last 2 weeks alone.

But Qi’s relative value model for Hong Kong versus broad Emerging Markets paints a different picture. In regime & now the Hang Seng is just over one standard deviation (2.6%) rich versus MSCI Emerging Markets relative to macro conditions. In Qi Fair Value Gap terms, this is the top end of recent ranges.
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Hs 2009 25 Hubble
16.05.2022
US Retail
This week we get a clutch of earnings from US retailers (WalMart, Target, Home Depot, Lowe’s, Macy’s) plus April Retail Sales data.
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Felix Mittermeier L4 16Dmz 1C Unsplash
12.05.2022
Qi Vol Indicator
The Qi Vol Indicator has now risen more than 15 points over the last month. That puts our alternative fear gauge into amber light territory. Back tests show one month increases of 20 points or more have often pre-empted large blow-out spikes in VIX.

As a reminder, the Vol Indicator index shows model confidence (i.e. macro explanatory power) for 6 benchmark instruments across global equity, bond & fx markets.

A rising index number means macro is becoming less influential & markets are increasingly beholden to more transient factors like sentiment, positioning & politics.
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Weightless 60632
11.05.2022
Macro Attribution
The latest upgrade to the Qi portal is the addition of model attribution. 

Users now have the ability to identify which macro factors have driven changes in macro-warranted fair value over their chosen time frame. This is available on every model page across all asset classes
See more
Anna Anikina Ath9Gmakfpe Unsplash
10.05.2022
A message from the FX market
Together, yesterday’s moves - lower oil, equities & government bond yields - speak to increased fears of a global growth slowdown. The FX market may be sending a similar signal.
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James Sullivan Eszrbtkq F8 Unsplash
09.05.2022
The real estate option
One option for asset allocators in periods of inflation is to invest in real estate. On Qi both US & global real estate are starting to look interesting.
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06.05.2022
Cyber threats
“US sent cyber team to Lithuania over Russia hacking threat” was a story on Bloomberg yesterday. It cites reports from the Ukrainian authorities that cyberattacks have increased threefold since the war started compared with the same period a year ago.
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Daoudi Aissa Pe1Ol9Olc4O Unsplash
05.05.2022
China upside without Beijing risk
Equity bulls sense a favourable policy shift. Beijing is showing signs of more aggressively supporting the economy & risk appetite. The Fed have seemingly removed the more aggressive 75bp rate hike option.
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Evgeni Tcherkasski Bfbhwj4Qafo Unsplash
04.05.2022
Not all defensive bets
are created equal
Fed day. A hawkish outcome is expected. Given beaten up equity market sentiment, tactical players may look for short term upside. However, here we consider efficient bearish bets.
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03.05.2022
Really?
The S&P500 remains cheap on Qi valuations. Even when the market bounces, Qi’s macro-warranted model value continues to move lower so the Fair Value Gap remains wide.
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Close
Ferenc Horvath Skcfibu91Aa Unsplash
17.05.2022
Watch Hong Kong
Global investors should be keeping a close eye on Hong Kong.

As a small open economy with a US Dollar peg & growing Chinese influence, it is uniquely exposed to two of the biggest headwinds facing financial markets – the Fed’s policy tightening & the economic hit from China’s tech regulation & zero covid policy.

On an outright basis the Hang Seng is cheap to macro. But that valuation comes with a health warning as model confidence is rolling over aggressively. Macro’s explanatory power has fallen 25% in the last 2 weeks alone.

But Qi’s relative value model for Hong Kong versus broad Emerging Markets paints a different picture. In regime & now the Hang Seng is just over one standard deviation (2.6%) rich versus MSCI Emerging Markets relative to macro conditions. In Qi Fair Value Gap terms, this is the top end of recent ranges.
See more
Hang Seng Vs Mxef
It has yet to trigger a RETINA™ signal but the FVG has arisen because of the divergence between the recent rally in spot & macro fair value which continues to flatline.

There is renewed optimism about a potential policy pivot on regulation & relief for Chinese tech stocks. That is fuelling the latest Hang Seng rally &, if true, clearly has the potential to be a significant game changer.

But, from a macro perspective, the model is back in regime & a fair amount of good news is now priced, at least looking at Hang Seng versus MXEF.

For Asian tech bulls, it may be worth instead focusing on ChiNext which is in a strong macro regime, is at fair value & where macro-warranted model value is showing signs of turning higher.
Chinext1
Felix Mittermeier L4 16Dmz 1C Unsplash
12.05.2022
Qi Vol Indicator
The Qi Vol Indicator has now risen more than 15 points over the last month. That puts our alternative fear gauge into amber light territory. Back tests show one month increases of 20 points or more have often pre-empted large blow-out spikes in VIX.

As a reminder, the Vol Indicator index shows model confidence (i.e. macro explanatory power) for 6 benchmark instruments across global equity, bond & fx markets.

A rising index number means macro is becoming less influential & markets are increasingly beholden to more transient factors like sentiment, positioning & politics.
See more
Qi Vol Indicator
There are two potentially interesting observations to highlight.

Every cycle is different. The Qi Vol Indicator moved ahead of the initial equity sell-off / VIX spike in January. More recently in April / May the two have moved higher together.

But, while VIX is consolidating somewhat, our Vol Indicator seems to be launching a fresh move higher. Should we see a one month increase of 20 or more, the chances of another leg in this “risk off” move could be imminent.

Put differently, to date, the 2022 bear move has felt generally quite orderly. Until this week that is when a sense of panic & capitulation has crept in.

The Qi Vol Indicator could be speaking to that next (potentially last?) & most aggressive phase of the bear move. Eyeballing the chart we are approaching levels which typically mark blow-out tops before reverting lower.
Weightless 60632
11.05.2022
Macro Attribution
The latest upgrade to the Qi portal is the addition of model attribution. 

Users now have the ability to identify which macro factors have driven changes in macro-warranted fair value over their chosen time frame. This is available on every model page across all asset classes
See more
The new attribution tab allows users to:
  • customize the period they want to search
  • to identify the magnitude of the move in macro model value in that time
  • to isolate which macro factors were primarily responsible for the move
For example, Qi's fair value for the S&P500 model is down almost 9% year-to-date. The market itself is down 16.5% YTD, hence the Fair Value Gap. The chart below enables users to quickly identify which macro drivers are responsible for the move lower.
Macro Attribution
  • The biggest single headwind for SPX has been the widening of corporate credit spreads. They accounted for a 2.6% decline in S&P500 model value.
  • The rise in real rates is the second biggest mover. The back-up in real yields accounts for a 2.0% decline in macro-warranted fair value.
  • Then VIX & other measures of risk aversion come in third. 1.7% of S&P500 model decline can be attributed to "risk off" conditions. 
  • The positive contributions are smaller in number & magnitude but it is interesting to note inflation expectations are the top factor. For all the second derivative fears about inflation compressing margins & prompting a hawkish policy pivot from the Fed, in raw terms they have, in isolation, been a tailwind for US equity performance. The rise in inflation expectations YTD has contributed to a 0.5% increase in S&P500 model value.
Note, running the same exercise for the NASDAQ reveals a 14% decline in macro-warranted model value. The profile of macro drivers is largely the same but this time higher real yields are the biggest driver - they've contributed to a 4.7% decline in tech stocks model value.

This has clear benefits for risk managers looking at exposures & gaining an understanding of how their macro risks have evolved.

But it also provides valuable insight to Portfolio Managers with their pre-trade analysis. See the quick 3 minute video attached to get a sense of the typical workflow a discretionary PM might employ in their investment process.
Daoudi Aissa Pe1Ol9Olc4O Unsplash
05.05.2022
China upside without Beijing risk
Equity bulls sense a favourable policy shift. Beijing is showing signs of more aggressively supporting the economy & risk appetite. The Fed have seemingly removed the more aggressive 75bp rate hike option.
See more
There are good reasons to question both those assertions but, for the optimists, one consideration is how to gain exposure to China for any tactical upside.

Chinese equities have badly lagged China’s economic expansion. Since 2000, Chinese real GDP in USD is up 17x; but the CSI 300 total return has only been 3.4x. With only 3% of Chinese equities foreign owned & political / regulatory risks still prominent, onshore Chinese equities do not efficiently capture China exposure.

But a number of US & European blue chips generate significant revenue from China. It may be more effective to access China’s enormous economic growth via US/European stocks.

Qi’s optimizer uses Ai to find the combination of S&P500 and EuroStoxx 600 stocks that best tracks China exposure (using the Shanghai Shenzen Stock Exchange, CSI 300) without use of hindsight or backfitting, providing a true out-of-sample simulation of what would have happened.
China Basket
The only constraints are we remove the 10 largest SPX / SXXP stocks by market cap & a 5% cap for any one holding. The result is a long only vehicle of liquid western stocks that are not yet another FAANG product.

Full details are available on request but note from Jan’16 to end Q1’22:
  • Great tracking - total period correlation of 93%
  • Higher total return versus CSI 300 (165% vs. 11%) and S&P500 (165% vs. 124%)
  • Lower volatility (15% vs. 17%)
  • Lower max drawdown (30% vs. 32%)
Qi baskets are executable now via our partner investment banks; & watch out for exciting news pending about a new, even easier trading format.
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