- We take a look at the winners so far in 2018 picking up top markets from indices, FX and commodities segments
- BraComp defied the odds and is on a double digit return already, buoyed by commodity stocks
- Mexican peso gains amid weak dollar as NAFTA hopes improve
- Cocoa has seen a stunning rally this year as output prospects deteriorate
Equity indices - BraComp (+11.4% this year)
Most of the equity indices have had a rough year so far - but not Brazil. BraComp posted a stunning 11.4% YTD rally and a February shock to the global markets was just a short set-back on this market. Morever, it’s a continuation of a huge bull market that we’ve seen here since early 2016 with index more than doubling over the past 2 years. Where did those gains come from?
BraComp has continued a massive rally so far this year. Source: xStation5
First, Brazil managed to recover from a deep recession and political mess that plagued it between 2014 and 2016 while also fighting off high inflation in the process. This is a remarkable change that restored confidence among investors. Second, China - the key export market for the country, also recovered from a yuan crisis that had a negative impact on Brazil in 2015. Finally, commodity stocks represent more than 25% of the index capitalization so a surge in oil and iron ore prices had a lot to do with the index rally as well. Can this rally be sustained going forward? Investors need to weigh high valuations against risk of slowdown in China that could be felt in Brazil - directly and indirectly. Also keep in mind that growth remains low and renders Brazil fragile against possible headwinds. Technically, the index is well within an upwards channel with a lower limit running currently below 80000 points.
FX - Mexican peso (+5.6% this year)
Mexican peso looked like a big winner in a mid of 2017 as worries over implications of Trump’s presidency on economic relations with Mexico turned out to be overstated. However, the USDMXN saw a major upwards correction towards the end of 2017 and this year’s gains (5.6% trade weighted and 6.6% against the US dollar) can be seen as a continuation of relief appreciation amid generally weakening US dollar. Investors see a hope that NAFTA talks can have a positive final and this also has been helping the Mexican currency. The key support zone on USDMXN can be seen at around 17.25.
USDMXN has been moving mostly south so far this year. Source: xStation5
Commodities - Cocoa (+38% this year)
Cocoa is an undisputed winner as prices have recovered from a major slump in 2016 and a consolidation in 2017. Let us recall that cocoa prices hovered between $2700 and
$3400 before a season of a large surplus that pushed prices below $1800. However, a massive drop of speculative positioning helped price recovery as investors were forced to unwind their short trades amid weaker output prospects this year. Cocoa prices are getting increasingly closer to the $2700 zone and investors should bear in mind that speculative positioning has now turned positive.
Cocoa prices have registered a massive rally amid weaker output prospects. Source: xStation5
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