BCA Research upgrades Canada and Australia amid Hormuz closure

Investing.com -- BCA Research has aggressively upgraded its outlook for energy-surplus nations as the effective closure of the Strait of Hormuz reshapes global trade terms, according to a Tuesday note. Chief Strategist Juan Correa acknowledged that "the closure of the Strait of Hormuz, one of the key risks we had flagged to our sanguine view on risk assets, has come to fruition."

The firm has officially upgraded both Canadian and Australian equities to overweight, moving them from neutral and underweight positions, respectively. This pivot reflects a strategic shift toward "countries that have energy surpluses" to diversify away from the immediate fallout of the conflict.

In a significant tactical move, tail-risk hedging strategies have been elevated from overweight to a "max overweight" recommendation. Correa explains that "our tail risk protection should continue to prove useful" as the firm targets SPY September 30th puts with a 610 strike price.

Currency allocations have also seen a major shift, with both the Canadian Dollar (CAD) and Australian Dollar (AUD) upgraded to overweight at BCA. These currencies are expected to benefit from favorable shifts in the terms of trade as global energy prices remain elevated.

The strategist’s "base case remains a quick resolution to the war," which would allow for a potentially violent rally in risk assets. However, the firm maintains a cautious stance on expensive consumer stocks, which face significant pressure from rising oil prices and shrinking disposable income.

BCA advised investors to maintain an overweight position in global equities while utilizing convex instruments to protect against further drawdowns. This balanced approach aims to capture a potential recovery while insulating portfolios from "American military recklessness" and its impact on global energy costs.

You May Also Be Interested In

• Is the global equity rally broadening? UBS weighs in
• BofA's Hartnett sees dollar slump, risk selloff if bond intervention fails
• Volkswagen CEO says overhead costs exceed rivals by over 30%