MH Model Portfolio – Long 2m CNH/INR Into Year End
- By Bilal Hafeez
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We added one new trade to our portfolio this week.
New positions:
- Long 2m CNH/INR (target 12:20; stop 11.15) – read here.
Flows are not supportive of INR as the RBI lost reserves in recent weeks, after valuation effects. Meanwhile, seasonality support kicks in for CNH in December-January. Our estimate of corporates’ FX exposure suggests an above-average conversion this year.
Open Trades
Below is a comment on the performance of some of our existing trades.
GCK4 $1,850 put option – Gold spiked above $2,050 yesterday. However, we continue to hold our put option on gold the downside is capped. Waller’s comments yesterday added further upside to gold as it rallied on the sharp move lower in rates. Rate moves have become increasingly important for gold, which has been a slight shift from what we’ve seen in recent months where the dollar was the largest driver.
Long Feb 24 Brent is up 1% since last week to around $82 /bbl today. Traders look to be positioning at least an extension of the unilateral production cuts enforced by Saudi Arabia. Meanwhile, a weaker dollar and lower US rates have also helped.
Pay April 2024 EUR OIS has moved 9 bps against us this week as weaker than expected inflation data in Germany and Spain resulted in slightly more cuts being priced into the EUR curve. We think there is potential for upside risks in the next Euro area outturn however as accommodation prices bounce back.
Historic Performance
Our portfolio has returned +8.0% YTD, down 0.1% since last week, and has returned +51.2% since inception (+11.0 % annualised) with a 1.1 Sharpe ratio. This continues to place it above the average discretionary macro hedge fund (Bloomberg: BHDMAC Index; Chart 1). Our largest risk positions (VaR) are in rates, followed by FX, with the smallest positions in commodities then equities. Note: Our P&L are paper returns so will be overstated relative to a real invested portfolio.
Current Trades
DM
Rates
- Long 10Y Bund vs 10Y BTP (target 200 bps; stop 155 bps) – read here.
- Long 1y1y vs 2y3y SOFR – read here.
- Receive May 2024 SONIA (target 25 bps cuts) – read here.
- Long 10Y Gilt (FX hedged) vs short 10Y OAT (target -100 bps; stop -25 bps) – read here.
- Pay Apr-24 EUR-OIS (target 0 bps) – read here.
- SONIA and SOFR Mar24/Mar25 calendar box (target 0 bps) – read here.
- 5s10s UST steepener (target 15bps) – read here.
- Pay 1Y1Y US OIS (target 5%) – read here.
- Short US10Y vs USD hedged 10Y JGBs (target -450bps) – read here.
Equities
- Long homebuilders and regional banks – read here.
EM
FX
- Long 2m CNH/INR (target 12:20; stop 11.15) – read here.
- Long EUR/CZK (target 25:60; stop: 24:00) – read here.
Rates
- Receive BRL DI K25 (target 9.50%; stop 10.80%) – read here.
- Receive 5Y ZAR swap (target 7.50%; stop 8.75%) – read here.
Commodities