London – Sterling might rally to a three-year high of $1.55 if a cliff-edge Brexit is avoided by the United Kingdom, Stephen Jen, co-chief investment officer of Eurizon SLJ Capital, a London-based hedge fund said on Wednesday.

With a lot of short positions rife in currency markets due to a rush by investors and corporate treasurers to hedge against Brexit risks, the British pound is one of the most undervalued currencies among its developed market peers, Jen told the Reuters Investment Outlook Summit.

“I think we’re going to see an inactive ECB for much of next year versus an active Fed,” he said, adding even if the European Central Bank were to raise interest rates, they would remain in negative territory.

Read the original article on the ‘Reuters’ website.

As the $220 trillion global housing market starts to cool off in some places against a backdrop of monetary policy normalization, economists at Eurizon SLJ Capital offer a reason for calm. Because price declines are hitting extremely expensive cities, they might not drag down consumption the way standard theory would predict.

“Modest declines in property prices in Mumbai, Hong Kong, Shanghai, London and even New York City may not lead to a significant weakening in consumption,” write Stephen Jen, CEO of the London-based hedge fund, and economist Joana Freire. That’s good news, because they think global property prices may have peaked for the cycle, noting that they’re in decline in London, New York, Stockholm, Hong Kong and many other cities.

“Since property prices had gone too high, the incipient price correction — assuming it remains modest and gentle — may perversely lead to an increase in consumption,” they write.

Read the original article on the ‘Bloomberg’ website.

Emerging markets currencies have regained some tentative stability lately, but the outlook clouds quite dramatically if the Fed commits to faster interest rate increases.

“Emerging markets are very vulnerable to the Fed,” said Stephen Jen of Eurizon SLJ Capital, a hedge fund. “The cheap capital that pushed in after those years of quantitative easing was never loyal. The stronger the US economy, the quicker dollars are sucked out.”

Read the original article on the ‘FT’ website.

How much would it cost to keep the peace on the Korean Peninsula? Around $2 trillion over ten years.

That’s according to Stephen Jen and Joana Freire at Eurizon SLJ Capital Ltd. in London who estimated what resources would be needed to ensure a denuclearized North Korea is economically viable. They drew on the example of Germany’s unification, noting that transfers from the West to East totaled more than 1.2 trillion euros, or around 1.7 trillion euros using today’s value.

By population, the relative size of North Korea to South Korea is meaningfully larger than East Germany was to West Germany. North Korea is also much much underdeveloped compared to East Germany, which had a well established industry base.

“Given the threat presented by the nuclear arsenals, Mr Kim Jong Un is in a position to demand a very large financial commitment from the rest of the world to secure complete denuclearisation,” Jen and Freire wrote in a note. “We stress that we are not arguing that North Korea should or will demand such a large financial assistance. We are merely thinking out loud about what the order of magnitude of that figure might be.”

Read the original article on the ‘Bloomberg’ website.

There’s a dark cloud building behind the world’s best period of synchronous growth among developed and emerging economies this decade — one that in time could rain down volatility in global markets.

The problem, identified by strategist and hedge fund manager Stephen Jen, is a deepening imbalance in the lack of new safe-haven assets as the world’s output expands.

“The local capital markets in EM still lack the sophistication to match the real sectors in these economies,” Jen and colleague Nicolo Bandera wrote in a note last week. The continued growth of emerging markets while their financial systems lag behind produces “a situation whereby the genuine safe-haven assets such as the U.S. Treasuries, German bunds, and the British gilts become increasingly rare and in short supply,” they wrote.

Read the original article on the ‘Bloomberg’ website.