Asset Allocation Road Map (Hedgeye’s GIP Model) (4/11/19)

Remember Hedgeye's GIP model?

It's the model that maps growth and inflation macro data for the US and other countries, which is used as
a road map for asset allocation (i.e. what asset and sectors to bet on), well, hoping to come up with
something like this for the PH.

With @Les's help, was able to put this simple time series model for PH growth and inflation.
Next step is to backtest what PH sectors do best under each QUAD.

#QUAD1 is the best time to invest in the stock market. Growth bias.

#QUAD2 is also a favorable environment for stocks, but you need to focus on stocks less affected by
inflation.

#QUAD3 is a dangerous place for investors because growth is slowing while inflation is pushing higher.

#QUAD4 is equally challenging for investors because of growth slowing and slowing inflation, but this is
also the time when central banks turn dovish, which tends to provide some support for equity prices.

So in hindsight, now we know why 2018 was a difficult year. The Philippines was in QUAD 3.

From QUAD 3, we're now teetering to QUAD 4. I think the 2Q19 data will push us inside QUAD4 before
going back to QUAD3.

The next step for this type of model is to map estimate growth and inflation trajectory three quarters
ahead.

Such forecasts will help us figure out how to position our portfolios moving forward.

Again, we're focusing on growth and inflation because if we nail this forecast, we'll know yung reaction
function ni BSP, which influences interest rates, fx rates, and stock market prices.

According to Hedgeye's backtest, here are the sectors to go overweight/underweight when in QUAD3 and
QUAD4.