Archive for the ‘Uncategorized’ Category

FT: A Dollar Rally Few Are Prepared to Call Time On

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.

Bloomberg: Peace in North Korea Could Cost $2 Trillion If History Is a Guide

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.

Bloomberg: The Global Economy is Rebounding, But There’s One Big Problem

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.

FT: Trump’s campaign rhetoric raises stakes in Mexico

Traders are trying to work out whether the peso is now cheap.

The problem is trying to work out how the US-Mexico impasse will unwind. The backdrop is a world of change, underlying structural tensions and trade inconsistencies, says Stephen Jen of Eurizon SLJ Capital.

“We see Mexico as being at the crossroads of many of the issues that are being discussed at present, and the only positive for the peso is its cheap valuation,” he says.

Read the original article on the ‘FT’ website.

Bloomberg: Dollar Overshoot Raises Risk of ‘Dangerous Year’ in Equities

A closer look at when the dollar appreciates above measures of fair value over the last half century suggests that the current rally has more room to run. That may not translate into good news for investors piling into U.S. equities as part of the Trump reflation trade.

“The dollar is overvalued, but currencies tend to push that,” said Stephen Jen, the London-based chief executive of hedge fund Eurizon SLJ Capital Ltd. “History suggests the overshoots tend to be very large in size, much larger than one would think are possible.”

Read the original article on the ‘Bloomberg’ website.