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The Problem With Turkey

¿Cuál es el problema de Turquía? — Foto: Kremlin.ru. The Problem With Turkey

Since the start of July, EMD assets have bounced with local and dollar debt markets up. According to Investec Asset Management, the positive returns reflect the still solid fundamentals across most of EM and the extent of the sell-off in Q2 reinvigorating value into the asset class. However, Turkey has been the noticeable exception – it is the only country to have a material negative return.

Grant Webster, Portfolio Manager, Emerging Market Fixed Income at Investec believes that “the drivers of recent weakness have been the same drivers that have weighed on the country’s markets over the medium term; namely a lack of credibility at the central bank, an unwillingness or inability to address external vulnerabilities and, related to both these points, a troubling political backdrop of heterodox macro policy and increasing authoritarianism.”

For Webster, both domestic and foreign politics are headwinds for investors. Relations with the US have also worsened, which speaks to the ongoing deterioration in relations with the West, and “since Erdogan’s election victory in June, there have been several moves that have rattled investors including, changing the rules to make the central bank governor a political appointee. Moreover, the appointment of his son-in-law (and potential successor), Berat to head up the finance and treasury ministry.”

He also mentions how the July meeting of the central bank disappointed markets after, and despite both core and headline inflation surprising more than a full percentage point higher, rates were kept on hold and the forward-looking guidance was left unchanged – “the optics couldn’t have been much worse given the fresh concerns about the politicization of the central bank,” he states.
Webster also notes that the current account deficit remains above 5% and that net foreign-exchange reserves keep on dropping, while the currency’s weakness is exerting major pressure on corporate balance sheets.

According to Webster, Turkey is now in very challenging waters but there are some measures it can take to navigate the risk. “The major supporting factor for Turkey is that the government has relatively low levels of debt. Even under our severe scenario analysis debt levels remain manageable. However, if the government is going to take advantage of this supportive starting point, then at the very least we think they need to”:

Hike rates by around 500-700bps to take rates to 23-25%
Tighten fiscal policy including by increasing fuel and energy prices
Act to prevent more damaging US sanctions by re-engaging with the West at the highest level
Put in place plans to establish a “bad bank” which could take on non-performing loans from the banking sector in return for capital injections

“Taken together this would stem local demand for dollars, curb inflation expectations, reaffirm fiscal prudence and bolster investor confidence. However, what Turkey needs, and what the government does, are separate questions. If the government delays and the situation continues to deteriorate, we believe the government may need to source around $50bn to finance a bank bailout, as well as increase FX reserves”. As they see it there are perhaps three possible scenarios for how they may try to achieve this.

Seek IMF and Western support- The best outcome is also the least likely: a return to orthodoxy.
Seek support elsewhere: China, Russia and Qatar are potential sources of funding- Given his seeming antipathy towards the West, Erdogan might turn eastwards:
Local ‘solution’- A materially worse outcome than either would be something more akin to autarky

“Turkey is between a rock and hard place. The authorities have some tough decisions to make, but seem unwilling to recognise the scope of the fragilities or take sufficient steps to address them. Ultimately, the market will impose a reckoning. At some point the value that has opened up might start to look like an attractive entry point, but much will depend on the choices made by the authorities. For now, we remain relatively conservatively positioned across portfolios, preferring opportunities elsewhere in our universe where we see better fundamentals and more constructive policy-making.” Webster concludes.

Terry Simpson (BlackRock): “We See Macro Uncertainty Rising, Both To The Upside and Downside”

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Against a backdrop of rising trade tensions, BlackRock Investment Institute’s 2018 Midyear Investment Outlook remains pro-risk, but it has partially tempered that stance given the uneasy equilibrium that BlackRock perceives between rising macro uncertainty and strong earnings. On July 19th, at the Mandarin Oriental Hotel in Miami, Terry Simpson, Multi-Asset Investment Strategist of BlackRock’s Global Investment Strategy Team, discussed the macroeconomic environment and how investors should position their portfolios with investment professionals from the Latin American and US offshore business.

According to Simpson, a year ago, the global economy was facing a very different scenario: a very favorable environment brightened by synchronous global growth with still relatively high levels of monetary accommodation, in which everything was going well and there was an abnormally low volatility. But, these conditions have shifted, and the BlackRock Investment Institute is debating whether there is a new market regime change.

BlackRock’s base scenario sees strong US growth extending positive spillover effects to the rest of the world, sustaining the global economic expansion. The corporate tax reform has fueled US earnings surprises. However, the range of possibilities for the economic outlook has substantially widened due to US-China trade war tensions and tighter financial conditions via rising US rates and stronger dollar. This greater uncertainty argues for building greater resilience into portfolios.

Fiscal stimulus spurs US growth

With fiscal stimulus, US companies are rewarded for accelerating their expending on capex, something that could lift potential growth. According to the data provided by the Duke-Fuqua CFO Survey, the Deloitte CFO Signals survey and an average of regional Fed surveys, there is a notable pick-up in expected capex relative to two years ago. Over the next 12 months, capital spending is expected to grow about five times as much, as compared to first quarter 2016 projections.

The S&P 500 first-quarter earnings results confirmed US companies were investing at multi-year highs. “One of the struggles of this economic recovery is that it has yielded a subpar amount of capital expenditures or investment. Now, the government is willing to help finance business capex intentions, and firms are eager to invest. This could potentially extend the current business cycle as some supply side stimulus that may be very beneficial for changes on the potential GDP growth of the US economy”, explained Simpson.

“Developed market capex cycles are very beneficial for emerging markets. Specifically, it could be very beneficial for the Asian region, due to their dependency on global trade”, he added.

The range of possibilities for the economic outlook is widening

This year, the most significant development in the macro environment has been a rising dispersion in consensus forecast for US GDP growth. Economists see a wider range of potential outcomes for future economic growth, as the tails (outliers) of the distribution of the expected GDP growth have widened. On the upside, there is a chance for U.S. stimulus-fueled surprises. On the downside, that same stimulus could spark economic overheating. Resulting inflationary pressures could prompt a quicker pace of Fed tightening and bring forward the end of the current business cycle. Any further escalation in the US-China trade war also could have a knock-on effect on business confidence, hitting growth.

“Last year, forecasters were optimistic due to tax reform and fiscal stimulus. Now in 2018, forecasts have been reduced, something which could have a negative effect on sentiment, both business and households” he stated.

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With higher U.S. short rates has come dollar strength

The rising cost of US dollar financing has hurt Emerging Markets (EM), especially those dependent on external funding. “We all know the relationship between the dollar and emerging market assets, there is high sensitivity. The latest episode is proof that when the dollar rises, EM assets are tested. EM local debt and equities have gone down in aggregate. But there have also been idiosyncratic stories in places like Argentina and Turkey. But these are countries that have significant current account deficits. They are going to be challenged whenever the external cost of financing goes up. Regional and country selection is needed and can enhance investing outcomes that have relied on making an aggregate beta call on EM”, said Simpson.

According to the expert, some of this tightening on financial conditions has created new opportunities. Higher US rates have led to a renewed competition for capital and there is less need to search for yield as US dollar-based investors can get above inflation returns in short-term debt -as of midyear, the two-year Treasury was around 2,5%. The result is a higher risk premium all around. This repricing of risk free rates has made selected hard-currency EM debt look attractive again, both relative to EM local debt and to other alternatives, such as developed market credit.

“Emerging market dollar debt has widened out much more meaningfully, whereas local currency has widened out but not as much as the dollar-based debt. The historical yield advantage of local over hard currency EM debt has vanished”.

According to BlackRock, there is a case for favoring hard-currency EM debt over US credit, yet the firm remains neutral across both. The spreads have tightened in the latter asset class, paced by the outperformance of the riskiest portions of the market. Wider spreads in EM debt make valuations more attractive. They also see floating-rate bank loans having an edge over high yield bonds, given their lower duration and that they can benefit from rising income as short rates reset higher.

“We believe the Fed will raise rates four times total this year. The Fed has expressed their concern about trade tensions, but at the same time they are aware that the US economy is operating above potential. The U.S. economy is creating 200,000 jobs per month on average for the last 36 months, that is something very interesting in this given the duration of this economic cycle”.

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More volatility

Global financial conditions are tightening as US rates rise. Monetary policy is shifting, with the Fed pushing on with normalization and the European Central Bank (ECB) set to wind down its asset purchases by year-end. Additionally, US-China trade tensions have added new worries to the market. However, BlackRock still has a very positive risk stand stance, valuations have corrected enough in global equities and with 2018 earnings across the global coming in positively, there is still room to maintain equity exposure with a preference of equities over bonds.

“Most global investors are still positive on equities over bonds, even with all the risks the market is facing this year. According to EPFR funds flows, investors are putting more money in the equity funds than in bond funds. In 2018, we are seeing negative Sharpe ratio on a traditional 60/40 global portfolio, with higher volatility and negative returns. Going forward we are going to maintain risk on in our portfolios, but there is a need to adjust client expectations; it is unlikely we obtain the same returns that we gathered over the last few years of this bull market. Meaning, we now have to think where we want to take the risk in our portfolios”, he said.

Commodities

Oil prices are still at good levels, though they have already decreased a 10% from their recent peaks. Most of the worry was whether the OPEC was going to deliver a tremendous amount of supply back into the market, but BlackRock maintains their base scenario of global oil inventories remaining in a deficit into year-end; from a fundamental supply-demand view they do not think there is enough oil production to add back. In the next six months. If this view proves correct, oil prices should remain supported at these levels.

The metals picture looks a bit different. Copper prices, considered a barometer of global growth along with other industrial metals, have weakened on slowing global growth momentum and global trade tensions that are likely to persist for a while.

Allocation

BlackRock sees factors like momentum in equities outperforming, giving preference to quality exposure. They prefer US equities over other regions, as US stocks have outpaced other global markets on strong earnings growth, but they are also positive on Emerging Markets Equities, particularly on Asian equities including China. They are also neutral on Japan and underweighting Europe.

In fixed income, they are favoring short-term bonds in the US and taking a bias towards quality in credit. They are favoring Emerging market debt denominated in dollar versus local currency and selected private credit and real assets for diversification.

Turkey’s Crisis: Policy Response Disappointing So Far

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La respuesta política a la crisis en Turquía decepciona a los mercados — Pixabay CC0 Public DomainPhoto: xxoktayxx. Turkey’s Crisis: Policy Response Disappointing So Far

Turkey is in the midst of an economic crisis. On August 10th their assets suffered greatly and their currency has fallen to historical lows after President Trump said last week he was doubling the amount of steel and aluminum tariffs on the country. On Wednesday, Tayyip Erdogan doubled import tariffs on some US imports (cars, alcohol, tobacco, cosmetics) and a Turkish court rejected an appeal for the release of a jailed American pastor at the center of the spat between Ankara and Washington.

The Turkish economy remains vulnerable as its current account deficit is the widest among emerging markets (The United States had a trade surplus with Turkey in 2017 of nearly 330 million dollars) and inflation levels are nearly three times the central bank’s target. Aneeka Gupta, analyst at WisdomTree mentions: “The perception from the investment community is that monetary policy in Turkey is not independent as President Erdogan is opposed to higher interest rates, so the central banks would need to defy the president and raise rates to defend the currency and avoid a default scenario.”

According to Delphine Arrighi, fund manager, Old Mutual Emerging Market Debt Fund, Old Mutual Global Investors, the worsening of political tensions between the US and Turkey has been the final blow to an already dire economic situation, with the collapse of the lira now rapidly fuelling concern of a full-blown currency and debt crisis given the amount of USD-denominated debt in the private sector. More over, the meetings between the banking regulator and the central bank over the weekend haven’t yielded the results the market was expecting. “Although the recent measures announced by the Central Bank of the Republic of Turkey (CBRT) will aim to ease onshore liquidity, they will fall short of restoring investors’ confidence. At this stage, the lack of credible policy response is pushing Turkish asset prices into a tailspin” Arrighi mentions adding that “given the reluctance of the CBRT to hike rates at its previous meeting and President Erdogan’s recent comments blaming an international conspiracy rather than acknowledging the real economic crisis resulting from an overheating economy faced with tighter global financial conditions, there is little hope for a return to orthodox policies at this stage”.

Arrighi suggests to include capital controls, “which seem more likely than an appeal to the IMF, but that would certainly not be the least painful and would most likely precipitate a recession while postponing the return of portfolio inflows. Hence a sizable rate hike followed by drastic measures of fiscal consolidation still appear as the most viable option to re-anchor the lira and pull the Turkish economy from the brink. This is very much like what Argentina had to deliver. We doubt the political will is there in Turkey and so more pain might be needed to force policy action. Some resolution of the political spat with the US could lead to some near-term relief in the currency, but this is unlikely to be sustainable if not accompanied by credible economic actions.”

Ranko Berich from Monex Europe mentions that “Normally when a currency falls 10% in a day, political and monetary authorities scramble to promise fiscal discipline and central bank independence. Instead of doing this, Erdogan has reached for the crazy stick and given the lira another whack in a rambling speech that focussed more on combative rhetoric than addressing market concerns… The lira’s issue now isn’t if the central bank is willing to raise rates high enough to combat the coming inflationary shock, but one of credibility. Erdogan’s son in law and economy chief, Berat Albayrak, also gave a speech in which he spoke in favour of central bank independence, so this may represent a sliver of hope for the lira. But the pressure is now on the TCMB to announce a drastic tightening of monetary policy in the order of a 5-10% increase in rates to demonstrate that it has the political mandate to fight inflation and stem the lira’s losses.”

Dave Lafferty, Chief Market strategist at Natixis Investment Managers, adds that: “This risk to EM contagion is sentiment, not fundamental. Turkey has limited trade and economic ties to other EMs. However, market reaction can throw the baby out with the bathwater as we see with other fragile EMs like Argentina and Hungary, who both saw steep currency losses in sympathy with the lira. Argentine CDS also spiked although Hungary CDS held reasonably steady.”

Dick Weil, Named Sole CEO of Janus Henderson Group

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Dick Weil is now the solo Chief Executive Officer (CEO) of Janus Henderson Group. In this role, he is responsible for the strategic direction and overall day-to-day management of the firm. He also leads the firm’s Executive Committee. Prior to this, Weil was Chief Executive Officer of Janus, a position he had held since joining the firm in 2010. Weil spent 15 years with PIMCO. He has 23 years of financial industry experience.

According to the company, while not an easy decision, due to having two highly qualified candidates, the CEO decision was based on a very rigorous process over several months, supported by expert advice from external consultants. “This decision was made with the full support of the Board, and the Board believes Dick is most appropriate to take Janus Henderson to the next level,” they mentioned in their earnings release.

“Now that our integration plans are significantly progressed, our Board has determined that the co-CEO structure has achieved its goals, and now is the appropriate time for Janus Henderson to be led once again by a sole CEO. Dick brings a breadth of skills and experience from prior roles in his career where he successfully led organisations through challenge and change”, said Richard Gillingwater, Chairman of the Janus Henderson Group plc Board.

The Board wishes to thank Andrew Formica for his tremendous leadership over the past 10 years, and especially for the dedication and collaboration he has demonstrated since announcement of our merger. While Andrew will resign his co-CEO role and Board seat effective immediately, he has agreed to continue on as an advisor to assist with final integration efforts through the end of the year”.

Commenting on his appointment as sole CEO, Dick Weil said: “I am honored and excited to have the opportunity to lead Janus Henderson. We have established a strong platform from which Janus Henderson can continue to drive deeper client relationships”.

Andrew Formica added: “It has been a pleasure to work with Dick in the creation and formation of Janus Henderson this past year. I am also proud of what we achieved at Henderson over the 10 years I was CEO. Janus Henderson is an outstanding business with a fantastic and talented workforce. I wish Dick and the team the very best going forward”. In connection with the Board’s decision, the firm will take a severance charge of approximately US$12 million, including the acceleration of long-term incentive compensation, that will be reflected in the third quarter results.

Phil Wagstaff, Global Head of Distribution, has decided that now is the right time to take a career break, given that the integration work is significantly progressed and the distribution team is well in place. Phil will work closely with Dick Weil over the next 6 months to ensure a full and smooth transition. Commenting on Phil Wagstaff’s departure, Richard Gillingwater said: “Phil has been instrumental in the development of our global distribution team, first at Henderson following the acquisition of Gartmore and then with the merger of Janus and Henderson, where he has played a key role in welding the two distribution teams together, creating a world-class distribution organisation. We are grateful for all Phil’s efforts”.

Alejandro Di Bernardo and Joel Ojdana Joined Jupiter

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Jupiter Asset Management has added two new analysts to its Fixed Income Team. Alejandro Di Bernardo and Joel Ojdana have joined Jupiter this Summer as the firm continues to broaden its Fixed Income capabilities.

Katharine Dryer, Head of Investments, Fixed Income and Multi-Asset commented: “Fundamental credit research is very much at the heart of our Fixed Income approach and we are delighted to be able to add two new analysts of such high calibre to the team. The ongoing development of our regional credit expertise is a key step in Jupiter’s initiative to strengthen and broaden the capabilities we offer clients in Fixed Income.”

Alejandro Di Bernardo, who is relocating from New York for the role, joins from Deutsche Asset Management where he worked as a High Yield and Leveraged Loans Analyst since 2012. Prior to that, he worked at Citigroup and Accenture in South America. A CFA charterholder, Alejandro will be joining the team as an Emerging Market Debt analyst focusing on Latin America. Alejandro will primarily support fund manager Alejandro Arevalo on the Jupiter Global Emerging Markets Corporate Bond fund and the Jupiter Global Emerging Markets Short Duration Bond fund (SICAVs).

Since 2015 Joel Ojdana has worked as a credit analyst at Balyasny Asset Management and Seaport, having previously spent seven years in investment banking working for firms including Mizuho Securities and BNP Paribas. A US Citizen based in London, Joel will work alongside Charlie Spelina and the broader Fixed Income team in generating US focused ideas for Jupiter’s unconstrained bond strategy, led by Head of Strategy Ariel Bezalel.

Natixis appoints Jean-Philippe Adam Senior Country Manager, Corporate & Investment Banking, Spain and Portugal

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Natixis nombra a Jean-Philippe Adam director general de Banca Corporativa y de Inversión para España y Portugal — Wikimedia CommonsCourtesy photo. Natixis appoints Jean-Philippe Adam Senior Country Manager, Corporate & Investment Banking, Spain and Portugal

Jean-Philippe Adam has been appointed Senior Country Manager, Corporate & Investment Banking (CIB), Spain and Portugal at Natixis, since July 24, 2018. He retains his current duties as Head of Natixis’ CIB business in Latin America and coordinator for CIB business in Canada. He reports to Luc François, Head of EMEA, CIB and Head of Global Markets, and to Stephane About, Head of Americas, CIB.

Jean-Philippe Adam has over 30 years of banking experience in the Americas and Europe. He began his career at Société Générale in Buenos Aires before moving to Crédit Lyonnais in Buenos Aires and Paris, then to Crédit Agricole Securities in New York where he was Head of Debt Origination for Latin America. He joined Natixis in 2013 in New York as Head of the CIB Latin America platform and in 2017 was made responsible for the coordination of Natixis’ CIB operations in Canada.

Marc Vincent, Global Head of Corporate & Investment Banking, said: “Jean-Philippe has shown great success over the past five years, building our franchise in Latin America and implementing our client-focused and innovative approach in the regions he oversees. He will bring the same dynamism and ambition to our business in Spain and Portugal, ensuring that we provide our clients in the region with the full benefits of Natixis’ Corporate & Investment Banking expertise.”

Asset TV Announces “The ETF Show,” Sponsored by the NYSE

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NYSE lanza un programa de televisión sobre ETFs — Wikimedia CommonsAsset TV . Asset TV Announces “The ETF Show,” Sponsored by the NYSE

Asset TV, a global online video platform for investment professionals, proudly announces the launch of “The ETF Show” sponsored by the New York Stock Exchange (NYSE). The ETF Show includes coverage of new ETF launches, interviews with issuers and strategists, and investor education. With 5 episodes so far The ETF Show has already become the most watched program ever by Asset TV’s over 240,000 registered viewers. The NYSE will sponsor The ETF Show to further promote investor education about ETFs.

“We are thrilled to launch The ETF Show, the first weekly program about ETFs delivered from the NYSE trading floor. ETFs offer investors exposure to a diverse range of assets and are currently one of the fastest growing investment products in the world,” said Neil Jeffery, Asset TV EVP – Head of Americas. “The launch of The ETF Show demonstrates the growing importance of these investment vehicles, and Asset TV’s and the NYSE’s commitment to advancing education on ETFs.”

The NYSE is the world’s leading exchange for ETFs, with $2.8 trillion in assets under management (AUM) representing 83 percent of U.S. AUM and 22 percent of U.S. ETF trading volume in 2017.

To watch weekly episodes of The ETF Show follow this link.

According to Robeco, Sustainable Investment Gains Sense Within a Context of Erratic Returns

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La inversión sostenible gana sentido en un contexto de rentabilidades erráticas, según Robeco — CC-BY-SA-2.0, FlickrMasja Zandbergen, Head of Sustainability Investment and Integration of ESG criteria at Robeco / Courtesy Photo. According to Robeco, Sustainable Investment Gains Sense Within a Context of Erratic Returns

In 1999, Robeco launched the Robeco Sustainable Equity Fund, one of the first sustainable funds in the market. Since then, and almost 20 years later, the asset management company continues to insist that we are not facing a trend, but rather a new way of understanding investments and the environment. “The time has come to take advantage of the wave of popularity of sustainable investment to make a real change in the way we invest,” says Masja Zandbergen, Head of Sustainability Investment and Integration of ESG criteria at Robeco.

For Zandbergen, sustainable investment is a response to the reality surrounding us, which explains the success it’s having among investors. “There are certain megatrends which justify the weight gain of sustainable investment. Climate change, increasing inequality, and cyber security are three clear trends. To these we must add the great change suffered by consumer behavior, something that is also transferred to finance. Investors not only want profitability, but to be responsible with their current environment and with that of future generations”, she points out.

In this regard, Zandbergen argues that just as there has been a change in the investor, there has also been a change in the way in which this type of investment is approached: “Whereas previously investment was sought in certain activities and when a company did not act in a sustainable manner, investors tended to sell those assets, the current approach is to help companies to meet their challenges in terms of ESG criteria, something that investors also value more because they consider that it has a greater impact and greater capacity for change,” she says.

Evidence of how sustainable investment has changed is the evolution of the common investment strategies. “Exclusion continues to be the most common strategy, but the strategies that grow most among investors are those of integration of ESG criteria in impact analysis and investment, proof of which is the popularity of the thematic funds,” explains Zandbergen. In fact, these grew by 13.3% and 20.5% between 2014 and 2016, according to Robeco’s global data.

The management company argues for a comprehensive vision of sustainable investment because it provides valuable data to the non-financial analysis they carry out. “We looked at the ESG fundamentals and criteria and, in 35% of cases, we found that these had a significant impact on the financial analysis. In an erratic world of profitability, I believe that sustainable investments have earned their place,” she concludes.

Another trend observed by Zandbergen regarding sustainable investment is that there is increasing evidence that ESG criteria are an engine that drives the good behavior and profitability of an asset. In her opinion, “it’s clear that sustainability is a factor that influences the valuation of an asset simply because of the risks it avoids”. One further step would be, according to her criteria, that you could come to consider a factor when investing. “We are still far from something like that, but there is growing evidence of the fact that, in the long term, these criteria add value,” she insists.

Bordier & Cie Acquires Majority Stake in Helvetia Advisors

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Bordier & Cie anuncia la adquisición de Helvetia Advisors en Montevideo — Wikimedia Commons. Bordier & Cie Acquires Majority Stake in Helvetia Advisors

Bordier & Cie announced the acquisition of a majority stake in Helvetia Advisors, based in Montevideo Uruguay, an investment advisor regulated by the Central Bank of Uruguay, which was founded by its current shareholders in 2010. Helvetia Advisors provides investment advice to private clients in the Southern Cone region. The team consists of 3 senior bankers plus support staff with extensive experience in wealth management.

Grégoire Bordier, Senior Partner of Bordier & Cie says: “We have been present in Uruguay for many years and this acquisition confirms our commitment to the region and our interest to grow in Latin America’s Southern Cone, a region with great potential in terms of wealth management business”.

Daia Feigenwinter, Head Latam & Iberia at Bordier & Cie: “We are excited to welcome Helvetia Advisors’ team and their clients to Bordier & Cie and look forward to serving and growing our client franchise together. We consider it of strategic importance being physically close to our client base while offering an independent open architecture product platform through multiple digital channels. With almost 175 years of experience in wealth management, we are certain Helvetia Advisors’ clients will greatly benefit from our global expertise.”

Bordier & Cie is an independent, international private bank established in 1844 as an unlimited liability partnership. It is owned and managed by the fifth generation of its founders. Bordier & Cie has offices in Singapore, London, Paris, Geneva and Zurich among others and has been present in Montevideo, Uruguay since 2007.

From Mexico and Chile, Amundi Sees a World of Opportunities in Latin America

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Desde México y Chile, Amundi ve un mundo de oportunidades en Latinoamérica — Photo: Jean Jacques Barberis. From Mexico and Chile, Amundi Sees a World of Opportunities in Latin America

Amundi, the only European asset management company in the top 10 worldwide, with almost 1.5 trillion Euros in assets under management, is seeing a world of opportunities in Latin America. While it is the fifth most important for the firm after Europe, Asia, the US and the Middle East, with the acquisition of Pioneer, and taking advantage of its local presence in both Mexico and Chile, Amundi plans to grow within this region.

According to Jean Jacques Barberis, Head of Institutional Clients’ Coverage for Amundi AM, the global asset management industry will continue its consolidation, “we believe it will be divided between huge firms and boutiques, so that among the largest there will be only 5-6 mega managers, most of them from the US, and Amundi… We present an alternative to US managers.” He believes that being able to generate custom passive products, and that all its strategies have an ESG filter are two of its strong points.

“Although ESG investment is just beginning in emerging markets, it’s experiencing very significant growth. Socially responsible investments start with a theme of securities, followed by one of risk, and finally they are expected to provide better returns,” he mentions, adding that at Amundi, they recently launched the largest green bond fund in history with 1.5 billion Euros, which “reflects the world’s appetite for this type of investment.”

According to Barberis, “the green bond is the perfect asset class so that money from developed countries flows to emerging countries, which is why an important growth in issuance is expected”. However, he considers that the greatest risk lies in investing resources too quickly since “the worst thing that could happen is to lose the investor’s confidence in the quality of the bonds”.

Opening the investment range for Afores

At present, Amundi already has investment mandates in operation with Afore XXI Banorte, Afore Citibanamex and Afore SURA, but is looking to offer other alternatives. On access to mutual funds, Gustavo Lozano, Head of Amundi Mexico, mentions that this will make Afores question whether to use active or passive strategies for their tactical decisions and complement their diversification through active management in a more tactical way, especially those that already have mandates. While for those Afores which as yet have not initiated mandates, it opens a window of access to international diversification.

Something of importance worth mentioning is that in Amundi’s case, regardless of the type of strategy that the client chooses, the firm is willing to join the Afore in providing the support they require “regardless of whether it’s active or not; once there is a relationship, Knowledge Transfer capabilities are included,” Lozano points out.

Recently, Amafore authorized some Amundi ETFs, including a Low Carbon ETF that the firm plans to continue broadening their offer to the Mexican investor. According to Lozano, “When your investment is long-term, as in the case of Afores, ESG investments make more sense.”

For Barberis, however, “one of the challenges is the current regulatory framework,” which is why the firm is actively working with Amafore, CONSAR, CNBV and the Treasury to resolve the concerns of the regulators and help them lay the foundations, so that they can help the industry develop.