Forming a view on equities is akin to juggling many balls in the air. One has to take into account company-specific news, sector re-ratings and de-ratings, individual country risk, the behavior and irrationality of crowds… The interaction of all these factors can lead to successful, or loss-making, outcomes. At Gavekal Research, our aim is to help equity investors navigate this complexity.
In our experience, of all the factors driving individual equity performance, country risk is usually the most important and the one most likely to trip investors up. And this for obvious enough reasons: an individual country’s market performance can be driven by political change (after 2016, that much is obvious enough!), geopolitics, valuations, changes in structural growth, cyclicality, the inflation/deflation trade-off, monetary policy decisions, momentum and investor behavior, rise and falls in commodity prices, etc…
Needless to say, a number of these research fields (politics, geopolitics…) cannot be processed with a rule-based approach. But a number of them can, and for most of his career, Charles has tried to identify, test and implement investment rules that work not only in individual markets, but that also span a range of markets (diligent readers may recall Charles’s various pieces on the importance of spreads, or of real rates, or of the growth in central bank reserves, etc)… In a bid to modernize and refine this research, in 2014 Gavekal teamed up with a team of French quants with over 15 years’ experience in artificial intelligence to create Gavekal Intelligence Software. Charles then sat down with the quants and together, they spent the next two years testing, re-testing and ranking the hundreds of investment rules that Charles had picked up and developed over the years. The result was a hodgepodge: some of Charles’s rules worked sporadically, others worked well in certain markets but not in others (and thus could not be considered universal), others were not reliable enough, or simply re-enforced the message provided by other existing investment rules, etc… So a good dose of "weeding out" was necessary to narrow down, and program, the rules that worked.
This is what we have now done with a new software program, entitled TrackMacro, whose purpose is to track country risk among the world’s 40 largest equity markets. In addition the software incorporates a portfolio simulator tool. Users can plug in their own geographical constraints and see a portfolio optimized to these constraints as well as the current macro environment.
On this webpage you will find a brochure and user guide to the software. In essence, countries are ranked along seven criteria:
1) Four quadrants (or whether a country is experiencing an inflationary/deflationary boom/bust)
2) Liquidity growth
5) Competitiveness of the exchange rate
6) International trade (trade is often one of the more volatile parts of growth)
7) Impact of commodity price changes
The program is both easy to download (PC users can download from www.gavekal-intelligence-software.com, while Ipad users can download from the App Store under the name TrackMacro) and easy to use. Users facing installation issues on their PC due to their firewall are welcome to contact our support team (firstname.lastname@example.org).
Each user will receive a password by e-mail to access the software on one PC and one iPad.
Of course, we would welcome any feedback any clients might have as to how to make the product even more user friendly.
The product's price after trial is US$5,000 per annum for the first user/license and US$1,000 per user thereafter. Along with that, users will receive reports every other week on changes in the signals, explaining the rules that lie behind the software, updates on individual countries’ readings, etc…
Needless to say, the first reason we are releasing this software tool is that we believe that systemically mapping Charles’ investments rules, themselves a result of Charles’s years of experience, will be useful to our clients. Please do download the TrackMacro software to your PC or iPad and try it out. Naturally, we remain at your disposal should you have any comments, questions or suggestions.