Bank of America Merrill Lynch has named its top ten trades for this autumn as investors prepare for a tapering of QE in the US and a possible jump in interest rates.
In its latest investment strategy update, a group of strategists at the global bank have listed their top trades for the anticipated higher rate environment.
1. Long Chinese banks
The strategists said Chinese banks are currently the cheapest they have been versus US banks since October 2005. Ben Bowler, global head of equity derivatives, said investors may want to hedge exposure by selling downside on Hong Kong Property stocks (HSP).
2. Buy Chinese property high yield
Joyce Liang, vice president at Merrill Lynch in Hong Kong, suggests corporate bonds of high quality property developers in China as an alternative way to gain exposure to the local growth story. She points out BB-rated developers offer yields of 6%-7%, while B-developers offer 8%-10%.
3. Buy EU miners
Analyst Jason Fairclough tipped out-of-favour EU miners as a catch-up-trade on the back of China restocking its iron ore and copper supplies, and expects these stocks to rally in Q4.
4. Long UK banks
Meanwhile, European investment strategist John Bilton said EU financials are the best way to play a further rise in rates. UK banks in particular have recently seen a pick-up in credit formation, surge in mortgage demand and improvement in balance sheets.
5. Long Russia and Korea
Michael Harris, head of EEMEA strategy, has moved to an overweight in Russian equities on positioning, stimulus potential and higher oil prices, while equity strategist Ajay Kapur favors Korea, calling it the 'Germany of emerging markets'.
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