EQUITY RISK EXPOSURES: SOLUTIONS FOR REDUCING HEDGING COSTS

Our views for H2 remain resolutely bullish on equities, against a backdrop of solid macro growth, a further catch-up effect in some sectors/geographies and central banks concerned foremost about maintaining accommodative monetary and financial conditions so as to consolidate the recovery. The fact remains , however, that the dynamics of the growth/inflation/tapering triptych through which the market is navigating is becoming less legible . These three factors are in transition, with inevitably more uncertainty: what landing for US growth in 2022? Is the recent de - pricing of inflation justified? What will be the operational framework , scope and timing of the Fed's tapering? These factors of uncertainty suggest that the risk of equity correction s will be higher in H2, especially given the valuation levels reached ( by both equities and bonds). We propose two option-based hedging strategies on the S&P 500 out to the year-end, which draw on our views and current market configuration to reduce significantly costs incurred compared with the purchase of basic puts. The first monetises the pronounced skew, the second is based on the very low level of US interest rates. Both strategies are transposable to the European market (Eurostoxx 50).