TheChek News Flow

Generally markets remained mixed in thin holiday trade (Australia, New Zealand and Hong Kong remain closed). US dollar remained a bit firmer against most currencies, gold remained higher by nearly $3.50 throughout the session. China navy activities continue to keep the region on edge. Russian Ruble rose overnight attributed to expected corporate tax payments in Russia and higher oil. BoJ's new policy framework aimed at keeping long term interest rates around 0% will help maximize the benefits of global tailwinds for Japan's economy; Japan to take big step toward beating deflation in 2017 - speaking to Keidanren business lobby. Toshiba, 6502.JP: May take an extraordinary loss of ¥100B (prior $850M) on US nuclear ops - Nikkei; Not the source on US nuclear ops loss report; may book charge on US nuclear operations and a one time loss on CB&I Stone & Webster value.

Nikkei +0.03% Hang Seng -0.28% CSI -0.09% Shanghai -0.16%

Eur$ 1.0445 CNH 6.9576 CNY 6.9497 JPY 117.32 CHF 1.0278 RUB 60.9267 WTI $53.06 +0.08%

S&P -0.02% EuroStoxx +0.03% Dax -0.05% SMI +0.18%

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Am i Alone ?

Weekly Update

Dow +0.46% S&P +0.25% Nasdaq +0.47% Russell +0.52% EuroStoxx +0.45% FTSE +0.81% CAC +0.13% Dax +0.40% Ibex -0.48% MIB +1.74% SMI +0.06% Nikkei +0.80% Hnag Seng -2.03% CSI -1.43% Shanghai -0.41%

Macro :

- Greek Debt-Relief Measures Unblocked by Eurozone, Move eases tensions between Greece and its creditors over bailout

- Russian Military Plane Carry 100 Missing After Takeoff: Tass

- Italy Plan Gives Banks a Year to Apply for Debt Guarantee: Rtrs - http://reut.rs/2hdUNRN

- Magnitude 7.7 Quake Hits 24 Miles SW Puerto Quellon,Chile: USGS

Keep an eye on :

- BP IM : Banco Popolare, BPM Agree With Unions on 2,100 Early Retirements

- BMPS IM : Paschi Set for New Industrial Plan by January: Messaggero

- BMPS IM : Paschi CEO Confident Bank Will Be Relaunched With New Plan: Sole

- BIIB US : Biogen Estimates Seen Rising on Spinraza Approval, RBC Says

- BPOST BB : Bpost Says Avg Tariff Increase on Domestic Mail 1.5% for 2017

- PPB LN : Paddy Power Wins Bid to Run Gambling Ops for NZRB: Sunday Times

- MS IM : Vivendi public offer on Mediaset would be blocked by communications regulator - Il Sole 24 Ore

- MS IM : Mediaset and Fininvest appoint advisors in Vivendi dispute, MS app. JPM & Intesa, Finvinvest Unicredit

- VIV FP : Vivendi public offer on Mediaset would be blocked by communications regulator - Il Sole 24 Ore

- VOW3 GY : VW Workers’ Council Chief Skeptical About Electric Cars: FAZ

Why 2017 Could Be the Year of the Stockpicker

With stocks and sectors no longer moving in unison, there will be a premium on savvy investment selection.

There’s a hoary Wall Street saying about investing: It’s not a stock market, but a market of stocks. That’s been untrue, however, for the past few years, during which stock sectors have tended to move up and down nearly in unison.

Since the end of the 2008 financial crisis, correlations between sectors have averaged 82%, compared with the 50% norm, notes Nicholas Colas, Convergex’s chief market strategist. This led to the mass “risk on, risk off” trade—which made it hard for active fund managers to beat their benchmarks, often the indexes that many exchange-traded funds mimic. “If all stocks are correlated, then it’s hard to pick, say, a 50-stock portfolio that will outperform,” says Robert Turner, managing principal at Turner Investments.

Yet there are a few inchoate signs that correlations are easing. If so, it’s something that should warm the hearts of suffering active-fund managers. The reality has been grim for them. According to Morningstar, active U.S. funds have seen $478 billion in net asset outflows over the past three years, with total assets now at $5.4 trillion. Over that period, passive funds—including exchange-traded ones—have outperformed their active competitors. During that stretch, they’ve gathered a net $914 billion in assets; they now have $4.2 trillion.

Until Donald J. Trump’s election as president, investors mainly cared about central-bank policy—to the exclusion of nearly everything else. High correlation meant that stock or sector selection mattered less than where rates were going.

The low-interest-rate environment and muted U.S. economic growth tended to decrease stock-return dispersion, says David Kostin, chief U.S. equity strategist at Goldman Sachs. When equities aren’t moving in unison, the opportunities for good stockpickers are better, he observes. Since the election, uncertainty has increased, and there is less slack in the economy, both of which suggest that dispersion will continue to rise in 2017, he adds.

Colas observes that in recent weeks, sector correlations have dropped dramatically, to 56.8%. Sectors have finally broken away from the broad market trend, he says.

Additionally, notes Bespoke Investment Group in a recent report, since the election there have been just two “all or nothing” days during a period in which the market rose 5%, an unusual combination. (Such days occur when the daily advance/decline reading for the Standard & Poor’s 500 index exceeds plus or minus 400, meaning stocks are moving up or down in unison.)

Kostin, Colas, and BIG agree that stock-picking is likely to take on added importance in 2017 and beyond. Interest rates won’t remain an on-off market toggle switch, they say. Instead, other factors will create both uncertainty and opportunity: tax reform, infrastructure spending, deregulation, and better economic growth. “Active managers will have a target-rich environment filled with stocks and sectors that will trade very differently from the market as a whole,” Colas predicts.

Can these managers breathe a sigh of relief? Hardly. The popularity of passive investment funds, which typically offer lower fees and are easier to understand, is here to stay.

“The barn door is open, and the cows are out,” says Turner. To compete, active managers will have to improve portfolio construction, he says. In addition to picking the right stocks, they must harness technology and add more quantitatively-based factors, which tend to be more predictive, to their investing arsenal.

Think of ETFs as the market’s version of a wolf pack picking off and weeding out the slower and weaker active fund managers in the herd, those with consistently poor returns and high fees. Santa might bring a year of opportunity in 2017 for portfolio managers—but only to the good ones.

EXPECT SHARE BUYBACKS to make a big comeback in 2017.

During the third quarter, S&P 500 companies spent $116 billion on stock repurchases, 28% below the total a year earlier, according to FactSet. Blame that partly on management uncertainty ahead of the elections.

However, if the past is any guide, should taxes on repatriated cash be reduced, as markets anticipate, many companies will bump up their buybacks. And if earnings growth perks up, as Wall Street expects, that would be another reason for more repurchases. A recent BIG research note says the average S&P 100 index member—among the very biggest market-cap stocks—has seen its total shares outstanding fall by 7% in the past five years, with 20 having 15% drops.

Companies that have shrunk their share base the most have outpaced the market, BIG says. Atop that list of 20: American International Group (ticker: AIG), Lowe’s (LOW), Allstate (ALL), and Home Depot (HD), whose stocks are all up roughly 200% in the past five years, more than double the market’s rise.

Hard to see why repatriated money would go anywhere else but buybacks.

The governments of Russia, Azerbaijan and Venezuela have also spent billions from their sovereign-wealth funds in this manner.

Venezuela’s Fund for Macroeconomic Stabilization is essentially empty after the government spent almost $7 billion from the fund since its inception in 1998, according to the Venezuelan government.

Russia, the world’s biggest oil producer, has spent about $195 billion from its Reserve Fund since it was created in 2008, leaving $31.3 billion in it as of Dec. 1, according to the government. Russia also has savings in its National Wealth Fund. It has spent about $1 billion of this fund since 2008, leaving it with $71.3 billion as of Dec. 1, according to the government. A Russian government spokesman declined to comment.

Azerbaijan has spent $89.7 billion from a sovereign-wealth fund created in 1999. The fund said it had $35.8 billion left as of Oct. 1. Money was used for “strategically important infrastructure and social projects,” a spokeswoman said. The government plans to draw less money from the fund as it develops new industries, she said.

Middle Eastern nations are also under pressure to tap savings. The Saudi Arabian Monetary Authority, the nation’s central bank, said its reserves fell more than 25% to $543 billion in the two years through the end of October. Spokesmen for the Saudi and Venezuelan governments didn’t respond to requests for comment.

The size of the withdrawals threatens the existence of the funds, potentially leaving oil-producing nations more vulnerable to an extended period of low oil prices. Norway, which owns the world’s largest sovereign-wealth fund, has a rule that the government shouldn’t spend more than the fund earns from investments, to “lessen the risk of overspending.” Norway has so far spent less than 1% of its fund. There is no such rule in Kazakhstan.

Mr. Nazarbayev, Kazakhstan’s president, wrote in his autobiography that the fund he created is a “particular source of pride.” It was inspired by Norway’s fund, he wrote, and “its aim was to safeguard the country’s stable social and economic development by accumulating financial funds for future generations.”