A couple of charts from HSBC about correlation and the macro/market backdrop since the US election that surprised so many observers…
« Our analysis shows a dramatic decline in correlations amongst both sectors and countries.
At the sector level, correlations between long and short duration names have turned negative for the first time since the 2008 financial crisis, whilst certain sectors such as Healthcare are now uncorrelated with the wider market. And in terms of countries, the clearest change is that emerging markets are again moving independently from developed, and even within these blocs there is greater variation between countries.
This increased fragmentation of equity markets suggests that there is now greater scope for diversification and greater opportunities to outperform. And we believe markets will remain fragmented in an environment where the Trump administration’s policy agenda is likely to impact certain stocks and sectors more than others.
This suggests that country and sector calls are increasingly important. The market, which was previously very macro-driven, is likely to be much more responsive to micro-themes. »