by Chris Black
1) Long US small cap equities: This includes small caps that trade on the Russell 2000 (R2K), but also rate-sensitive sectors like commercial real estate and regional banks.
I also think the underperformers of 2023 (like non-profitable tech… $PYPL) will do well. I think there will be a “chase” into small caps like memes in ’21 and tech in ’23.
2) Long Chinese equities: “Short China” is the 2nd most crowded trade according to the Fund Manager Survey, after “long Megacap tech”.
Not surprising considering the sentiment has been Chinadoomer all year. Funds have correspondingly low positioning in China.
3) Long US dollar: The USD short also seems crowded (only 12% of FMs expect a stronger dollar in 2024.
This one may take a couple months before it really transpires, but I think there are two macro elements to this that will strengthen $USD next year.
First, across the Atlantic I expect EA/UK to cut rates first (in about April or May), importantly before the Fed, which will weaken their respective FX as capital reallocates into USD assets .
Second, I expect the BOJ to allow the yen to weaken even further. This combination will of course send USDJPY sharply higher.
Though, again, this USD trade may take a couple of months before it gets going.
4) Home Construction: If mortgage rates come down a bit next year with longer-dated yields, you know home prices are going to explode. And that’s very positive for homebuilders .