![\"much_greater_stress_required_to_unsettle_hedge_funds.jpg\"](\"http:\/\/www.next-finance.net\/http:\/\/beta.next-finance.net\/wp-content\/uploads\/2017\/04\/much_greater_stress_required_to_unsettle_hedge_funds.jpg\")
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The accumulation of (geo)political risks sent markets on the haven side. Ten days before the first French election round, the outcome remains ever more uncertain. The advance in polls of the two lead contenders is eroding. Meanwhile, the resilience of the center-right and the breakthrough of the far-left candidate suggest a speculative four-players-game. In
\nAsia, stress also rose ahead of a possible new missile test in North Korea. The US strike in
\nSyria and the routing of warships toward the Korean shores put pressure on China to
\nresolve the issue. A greater US involvement in this area probably aims to make the balance
\nof power too detrimental for China vs. keeping the status quo in North Korea. In parallel, a
\nnumber of turnarounds in key axes of the Trump\u2019s program led investors to further question
\nthe magnitude of the reflation that will actually be delivered.<\/p>\n
In response to these uncertainties, the French OAT spread reverted to its January highs,
\nthe implied Kospi volatility rose 5 points, safe havens outperformed cyclical assets, US
\ntreasury yields receded along with other typical reflation trades.<\/p>\n
Hedge Funds proved resilient with most strategies being positive. CTAs were the downside
\nexception, dragged by their long in equities and shorts in energy. Merger funds, on the
\nupside, were boosted by the end of the legal battle over the Abbott acquisition of Alere, and
\nby the bidding war over the generic drugs producer Stada.<\/p>\n
Funds at Lyxor did not meaningfully alter their positions this week. CTAs remain long
\nequities, Macro funds keep limited and relative exposures, L\/S Equity US funds are more
\nexposed than their European peers, who added safeguards.<\/p>\n
We are comfortable with our positioning. We see lesser prospects for macro players until
\nsome uncertainties are lifted this summer. We see greater micro opportunities for L\/S
\nEquity and Special Situation funds, supported by a recovery in earnings (in for another test
\nas the season starts) and intensifying corporate activity.<\/p>\n