Gavekal Capital: MSCI Cyclical and Counter-Cyclical Baskets

Tuesday, October 8, 2013

MSCI Cyclical and Counter-Cyclical Baskets

We divide the MSCI World index into cyclical (including materials, industrials, technology and consumer discretionary, financials and energy) and counter-cyclical baskets (including consumer staples, health care, telecom, utilities). The relative performance of cyclicals vs. counter-cyclicals generally improves when the economic news is improving and contracts when it is deterioratinig. The relative outperformance of counter-cyclicals is a one week old trend taking place alongside a one month trend in the deterioration of the Citi Economic Surprise index.

The drop in the non-manufacturing ISM last month (right scale inverted) could suggest a continuation of counter-cyclical relative outperformance.

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