The month of January owes its name to Janus, (in Latin Ianus), the god of beginnings in ancient Rome. Janus is often depicted with two faces (two-faced) precisely because he looks backwards and forwards at the same time. Inevitably, even in finance, January is the month in which balance sheets are drawn up for the year that has just ended, but already with an eye to the year to come. The traders' sentiment appears extremely cautious and also the positioning in the portfolios is consequently very light after a very difficult year both in terms of volatility and performance: it is precisely this very cautious attitude that perhaps hides the best news of the beginning of the year and also the most marked difference from the last.
In this regard, looking back and obviously facilitated in carrying out the exercise ex post, one of the pieces of evidence that could have triggered some bells from the alarm 12 months ago it was the continuous migration of investors who, perhaps for the first time in such a systematic way, had literally started hopping here and there between the different sectors and segments of the investable universe. High yield investors have turned into emerging market specialists; traditional high grade investors have begun to participate in single “B” primary market issues; those who for decades have been investors in hard currency emerging government bonds have suddenly rediscovered themselves as specialists in local currency emerging corporate bonds.
Convertibles and structured products have made their appearance in portfolios that until a few years earlier were essentially money market products, all in the name of synchronized global growth, in which the highest perceived risk was to stay out of the party ( Fear Of Missing Out). With hindsight we can clearly say that this "tourism" it did not arise from a sudden desire for financial multiculturalism, of a global "melting pot", but from the need of individual investors to push themselves to explore the neighbor's garden, given that at home everyone was struggling to find value; with hindsight we can say that the value simply and across the board was not there. The compression of the entire risk premium matrix constructed and desired by the Central Banks had as an inevitable consequence the compression of the value of the opportunities offered by the entire financial market.
In 2018 a spring that was too compressed at the moment of release (Quantitative Tightening) was violently triggered, reopening the above risk premium matrix in a brutal and substantially indistinct manner: a series of "other" factors then contributed to exacerbating the movement and how it often happens in such situations we went into overshoot: the potential elastic energy accumulated in the spring was inevitably transformed into a "sboom" of kinetic energy which generated a very violent domino effect on the markets. The beauty of the spring is that, once released, while continuing to jump in search of its balance, it should record ever decreasing oscillations, offering us the guarantee of not seeing new lows.
Indeed market behavior remains an art and not an exact science, so we have no guarantee that we will behave like a perfect spring and not break below the oversold levels of the end of December; however, we also have the reasonable certainty that in a context that certainly remains fragile and volatile, the value of assets on the markets has undergone an extremely violent repricing which allows us to look to the future with a certain optimism. In terms of fundamentals, it is evident that for several months now we have been witnessing a slowdown in the cycle at a global level. The good news is that the Fed has explicitly dispelled fears of traveling on autopilot and has reiterated that it remains vigilant and ready to adapt its policy to the changing economic and market environment: it is difficult to say whether it will weigh more negatively in the medium term a
slowing cycle or a more dovish Fed will provide more comfort.
