Photo: Frédéric Janbon, new Head of BNP Paribas IP. Frédéric Janbon Appointed Head of the Asset Management Business of BNP Paribas
BNP Paribas announced the appointment of Frédéric Janbon as Head of BNP Paribas Investment Partners (IP), the Group’s asset management specialist. He succeeds Philippe Marchessaux, who will support and advise him during a transition period before taking on, at his request, another project within the BNP Paribas Group.
After successfully steering the integration of various asset management teams from ABN Amro AM, Fortis IM and BNP Paribas Investment Partners to build a global-scale asset management business, Philippe Marchessaux worked further to simplify its structure, consolidate its client base and prepare the business for tomorrow’s challenges.
Frédéric Janbon is to take up his new responsibilities on 20 October 2015. His main task will be to further accelerate the development of BNP Paribas Investment Partners as a benchmark player in institutional asset management and client service. Having started his career in 1988, Frédéric has over 25 years’ experience in financial markets. With the BNP Paribas Group he served in various management positions in the interest rate, derivatives and options markets, before being appointed global head of Fixed Income in 2005, an activity which he successfully steered until the end of 2014. Frédéric Janbon will therefore bring to BNP Paribas Investment Partners his long experience in managing relationships with international institutional investors and in the development of client solutions.
BNP Paribas CEO Jean-Laurent Bonnafé said: “BNP Paribas Investment Partners is a key business for the BNP Paribas Group, both in terms of serving our institutional clientele and providing savings & investment solutions to individual retail customers. This business is very much a part of our growth strategy, which focuses on developing businesses where we are able to achieve high performance in order to offer our clients the best products and services.”
Jacques d’Estais, BNP Paribas Group Deputy Chief Operating Officer and Head of International Financial Services, said: “I would like to express my sincere thanks to Philippe for his contribution to the growth of BNP Paribas Investment Partners over these past six years, particularly the international institutional business line. I have every confidence in Frédéric’s ability to reinforce our range of investment solutions for institutional clients, distributors and individual customers in what is a highly strategic business for the BNP Paribas Group.”
Photo: Prefeitura de Olinda
. Brazil: The End of the Carnival?
For months positive headlines about the Brazilian economy have been scarce. Real gross domestic product (GDP) is contracting, inflation has soared, and the Real has now lost over 50% of its value since 2014. The country is also facing one of the most pervasive political scandals in recent memory. At present, Brazil is a far cry from being the paragon of Latin American growth.
The economic malaise facing the country is the culmination of long-term structural issues accentuated by short-term cyclical and political factors. A series of policy mistakes has resulted in an imbalanced economy, formerly disguised by the positive effects of booming commodity prices. Brazil’s aggressive taxation regime has discouraged business investment and quelled productivity, while a sprawling social security system has redirected funds away from infrastructure.
The end of the commodity super-cycle has exposed Brazil’s deteriorating fiscal position and dependence on cheap borrowing. It has also undermined confidence in a political system still digesting the fallout from the Petrobras scandal. In a recent poll, President Rousseff’s approval rating had fallen to just 8%.
A tough nut to crack
From a monetary perspective, the central bank is unable to loosen policy for fear of stoking inflation that is already running at over 9%. Fiscal measures are also unlikely as the government embarks on a period of reform to repair past excesses. The current political dislocation, atop an already fragile coalition government, is proving an impediment to substantive economic policy action. In short: a solution remains elusive.
From a market perspective, some commentators argue that the rapidly depreciating exchange rate will provide economic stimulus via exports. We don’t think this sufficient to significantly increase growth. Brazil’s export markets are relatively price inelastic and are largely dependent on a revival in commodity demand. We feel that only a recovery in China can really help the Brazilian economy right now. China is Brazil’s largest trading partner and its thirst for raw materials has been a key driver of Brazilian growth in the past.
Feeling hot, hot, hot
Such stresses are already evident in bond markets. The yield on Brazil’s 10-year local currency debt is over 16% and corporate bond spreads have widened. This pressurises financing requirements for the government, companies and households alike. Households are particularly vulnerable given the recent rise in private sector debt. Equity markets are also struggling as falling company revenues and rising interest rates erode net profit margins.
The speed of the deterioration may catch market participants off guard; Brazilian government yields have already increased by a third over the past two months (see chart) and the potential spillovers may not be fully reflected in markets. One area we are monitoring is the Spanish banking sector, which has a significant exposure to Latin America.
Brazil has fallen a long way since its ‘momento magico’. It must now embark on the long path to fiscal and political reform if it wishes to restore investor confidence and the belief of ordinary Brazilians in the political system. We remain cautious on Latin America and emerging markets in general, particularly of the potential for a systematic event. We await an improvement in cyclical headwinds and political stability in the short-term, as well as a commitment to structural reform over a longer horizon.
CC-BY-SA-2.0, FlickrPhoto: Aaron Goodman. The Evolution of China’s Capital Markets
There is little doubt China is going to play a major role in determining the trajectory of global markets. So with the world’s second-largest economy going through a period of profound change, says Investec, it is crucial for investors to gain an understanding of the challenges and opportunities inherent in this transformation.
For the past five years or more China has been rebalancing to make consumption a bigger part of the domestic economy than investment, and services a more important driver of growth than manufacturing. The People’s Republic is also seeking to become better integrated into the global financial system by allowing greater foreign participation in its domestic capital markets and encouraging its companies to invest abroad.
“The recent turmoil in China’s onshore markets was further evidence that this rebalancing process was not going as smoothly as planned, while the global reaction highlighted the fact that many investors have not understood it or the challenges it represents”, points out the firm.
But Investec believe such gyrations should be expected as structural adjustments play out. “As the rebalancing process continues, we anticipate a wealth of opportunities may be uncovered for investors who are prepared to take a disciplined, bottom-up approach with a long-term time horizon”.
According to the Investec´s experts, while many investors may not yet be ready to invest in China’s onshore markets today, there is growing recognition of the importance of developing a more nuanced understanding of the changes taking place in China and the country’s role in the evolution of the global financial system. “We believe that the sharp global reactions to China’s stock market volatility and devaluation of the renminbi over the summer of 2015 make clear that we are embarking on a new era in global markets, one that has China’s increasing integration into the global financial system at its core”.
“This process is only just beginning and the road is likely to be bumpy. Beijing’s policy response to steering the country through its major economic and financial transitions, is not going to be familiar. China is taking an alternative path to financial regulation than that traced by the West by choosing to experiment to find an appropriate position. Beijing will likely make small, regular adjustments to various policy levers to find out what works”, state Investec.
Since the firm established our Hong Kong office in 1997, Investec Asset Management has invested in both onshore and offshore Chinese securities. “Over the past two decades we have learned to navigate the country’s complex and evolving regulatory processes, and understand its unusual market dynamics. We hope to share this insight with our clients and use our knowledge and expertise to help them understand the impact of events in Beijing on their portfolios, wherever they are invested”, conclude.
From left to the right: Jaime Gilinski, main shareholder of Banc Sabadell; Juan Manuel Santos, President of Colombia, and Josep Oliu, Chairman of Banco Sabadell. Courtesy photo. Josep Oliu, Chairman of Banco Sabadell, Opens Representative Offices in Bogota and Lima
Last week, Josep Oliu, Chairman of Banco Sabadell, opened the entity’s new representative offices in Bogota and Lima. Both Colombia and Peru represent key markets in the consolidation process of the entity’s international project in Latin America.
The representative office in Bogota was opened last Wednesday. Some 150 guests in total attended this event, including the President of the Republic, Juan Manuel Santos, and representatives of the business, economic, political and social sectors in Colombia. Among these guests was Jaime Gilinski, with whom Banco Sabadell has recently formalised the acquisition of 4.99% of the local bank BGN Sudameris and signed a strategic cooperation agreement.
Colombia, with an average growth of over 4% since the beginning of the last decade, has become the fourth largest economy in Latin America. Its per capita income has more than doubled, and is now close to the average levels of the region.
The representative office in Lima was opened on Thursday, and over a hundred people attended the event. Peru has experienced an average growth rate of over 5% since 2000, and is now one of the most dynamic economies in Latin America. There has also been a marked improvement in the country’s rank in global competitiveness indices.
The office in Bogota is located in the Stock Exchange building and is managed by Victor Leaño, a Colombian specialist in corporate banking who has worked at Banco Sabadell for over 16 years. His latest role has been as Head of International Development for the Entity in Mexico, Colombia and Peru.
The office in Lima is located in the Umayuq building, on Avenida Victor Andrés Belaunde, in the San Isidro district. The office manager is Juan Ignacio de la Vega, who also has extensive experience in Latin America, having worked in countries like Guatemala and Ecuador. For the last seven years, he has been further developing his professional career in Peru.
The network of Grupo Banco Sabadell’s representative offices and international branches, including Global Corporate Banking activities, are coordinated by the Directorate-General for the Americas & Global Corporate Banking, led by Fernando Pérez-Hickman. At present, Banco Sabadell’s turnover in America is already in excess of 16 billion dollars.
Photo: Arek Olek. Navigating The Storm: In Risk Budgeting and Alpha We Trust
Sailors and mountaineers know it: weather can vary all of a sudden and change a nice family journey into a dangerous endeavour. 2015 started like a beautiful year, blessed by as many as fourteen central banks’ simultaneous efforts to support the economy, with the BoJ and ECB at the forefront. The family picture on 31 March was great: equities and bonds were up during the first quarter; European equities were finally catching up with US equities (up 22%), while Asian stocks were also posting double digit gains, led by China and Japan.
Then, storm clouds gathered. Having bottomed out at 7 bps on 20 April, the 10-year bund yield soared unexpectedly to 98 bps in just a month and a half, generating an unprecedented loss in value of 8.3%. As soon as bond markets stabilised, the Grexit drama came back to haunt investors and policymakers. These clouds dissipated eventually after another marathon all-night summit. But this was a short term relief. Concerns over China’s foreign exchange regime and uncertainties over the Fed’s stance caused unprecedented movements in equity markets in August.
There are fundamental weaknesses that justify market jitters. The economic recovery in Europe and in Japan is weak, large emerging markets ranging from Brazil to China and Russia are experiencing a severe growth deceleration and deflation risks remain significant across the board. Meanwhile, the Federal Reserve will sooner or later have to reverse an unprecedented accommodative stance. The valuation of US equities signals that they are now historically expensive, whether measured by the price-to- book ratio or by the cyclically adjusted price-earnings ratio.
That said, it seems to us that in the medium term, the positive developments on the US recovery front will outweigh the negative implications of the above. Overall, the world economy is likely to be supported by buoyant growth conditions in the United States. However, the sharp growth deceleration in emerging markets implies that aggregate demand will likely remain depressed. In this environment we continue to prefer European and Japanese equities. Their valuation remains attractive in relative terms and earnings momentum has recently been supportive. For the reasons listed above we maintain a neutral stance on fixed income: a low growth environment and deflation fears are supportive but valuations are expensive.
It is precisely because there are bad times that there is a long-term premium in investing into markets. If our scenario is correct, markets will keep on conveying the value generated by the growth of the global economy, possibly in a perturbed manner.
More than ever we believe that combining risk-budgeting and alpha strategies delivers returns in the long run. Risk- budgeting generates sound risk-adjusted returns. Aside from this Market Premia harvesting, diversified Hedge Fund portfolios contribute to smoothing the ride. Let us review why.
Alpha strategies
Hedge Fund strategies have proven very resilient this year. Event Driven/ Risk arbitrage have suffered but most Equity L/S or Global Macro managers have managed to smoothen the global turmoil. As of end-September, the Lyxor L/S Equity Broad index is up 1% year to date, while global equity indices are down almost 10%. The HFR Fund of Fund was still positive end of August even if September moves will likely bring it in negative territories. At that date, some Funds of Hedge Funds were displaying positive performances, some of them above 2%, which is quite remarkable in this environment.
Alpha strategies have been under pressure over the 6-year market rally. But over the course of 2015, investors have increasingly allocated to such funds due to traditional long- only funds being less attractive in relative terms. Interestingly, inflows into liquid alternatives in 2015 are reaching record levels in Europe, at EUR 50bn between January-August 2015. This confirms, if any proof was needed, the long-term hedging properties of Hedge Funds as long as investors put enough emphasis on due diligence matters.
Risk budgeting strategies
The short term case for risk budgeting strategies is more involved. They have been roasted by some commentators recently for two reasons:
they have contributed to downward market movements
they have posted disappointing performances. Not only risk budgeting has been wrongly charged of exacerbating market movements but we point out the remarkable long-term properties of these strategies.
Certainly risk budgeting strategies can lead the manager to sell despite having a positive outlook on the market. But this is like reducing the sail surface of a boat when the wind picks up. It might prove costly if the wind falls back but might also avoid a very difficult situation if the wind picks up again.
As the VIX soared brutally from 13% on 17 August to 41% on 24 August, some people judged that risk budgeting strategies would have immediately cut their position in the same proportion (by 3) hence worsening the sell-off. In our view, this is very much exaggerated.
As far as their performance are concerned, risk- budgeting strategies cannot escape the global market sell-off, particularly when they are long-only. This said, most of them deliver returns above traditional balanced funds since they have reduced gradually their exposure as long as market risk was increasing.
On top of that, the remarkable long-term properties of risk budgeting should be kept in mind. AQR Asness, Frazzini and Pedersen (2012) published a very long-term simulation of a typical risk parity strategy in a article in the Financial Analyst Journal.
Interestingly, these simulations show that not only risk parity strategies do extremely well since 1980 but they would have also been quite resilient between 1930 and 1980. Similar results can be found in many textbooks such as the authority on the matter published by T. Roncalli in 2013.
Even if not doing it in a systematic manner, we definitely recommend thinking in terms of risk allocation more than in terms of dollar allocation since this has proven to be and will likely remain much more efficient.
Nicolas Gaussel is Chief Investment Officer for Lyxor Asset Management.
. Amundi Registers Its Document de Base for IPO With The French Autorité des Marchés Financiers
Amundi announces last week the registration of its document de base with the French Autorité des marchés financiers under number I.15-073 dated October 6, 2015.
The registration of the document de base is the first step towards Amundi’s initial public offering on the regulated market of Euronext Paris. The completion of the IPO remains subject to receiving the AMF’s visa on the IPO prospectus and to market conditions.
Amundi’s document de base is available on the websites of the company (www.amundi.com) and of the AMF (www.amf-france.org). A printed copy is available free of charge upon request to Amundi at 90 boulevard Pasteur, 75015 Paris. Amundi draws your attention to Chapter 4 « Risk Factors » of the document de base registered with the AMF.
Yves Perrier, Chief Executive Officer of Amundi, commented: “Since its creation in 2010, Amundi has transformed into a European leader. Thanks to its diversified business model, Amundi has enjoyed a strong growth momentum of its activities and earnings. The planned IPO signals the next phase of Amundi’s growth.”
Courtesy photo. Ugo Sansone Appointed as Allfunds Consolidates its Luxembourg Operations
Allfunds Bank has appointed former Eurizon Capital Ugo Sansone to head its business in Luxembourg to help drive the firm’s international expansion.
Ugo is a highly respected and well-known industry figure in the Luxembourg where he has been an active stakeholder across the Investment Fund sector. Ugo has spent his entire career at Intesa Sanpaolo Group, leading the international commercial activities of its Asset Management affiliate, Eurizon Capital for the past ten years. At Eurizon Capital, Ugo led the international commercial and client service activities, with a relevant role at the Company’s SICAV Management Board. Prior to joining Eurizon he held several roles at Sanpaolo Group both in UK and in Luxembourg.
Under Ugo’s leadership, Allfunds’ Luxembourg operations are fully prepared for the new challenges ahead: to support the international growth of the platform across the world and incorporate more institutional clients across France and the Benelux region.
Allfunds Bank’s Deputy General Manager, Gianluca Renzini, said: “We know Ugo very well as both a client and provider. He knows our company inside out and he can really extract the best from it. We consider Luxembourg strategic for our corporate development, as it is one of the most important financial centres at the heart of Europe, is a natural and logical evolution as Allfunds becomes ever more successful in following and supporting our clients and providers in their international expansion”.
Ugo said: “I am really excited to have this opportunity to build upon my long career in European investment funds and apply that experience in a major fund distribution business. Regulatory change and increasing operational efficiency are key to promoting our services and to be considered as the best fund servicing outsourcer in this market. Allfunds is very well positioned in this market and I look forward to bring it to the next level, increasing our regional client book while supporting the international strategic development of the platform”.
Photo: Dennis Jarvis. Made in China 2025: Opportunities and Challenges
Made in China 2025 released by Chinese State Council in early May this year, has established a guiding principle for China’s transformation from a “manufacturing giant” to a “manufacturing powerhouse” in next 10 years. Based on the “Industry 4.0” in Germany, this plan introduces the “three step” strategy. By taking 30 years, which is divided into 10 years of three, it aims to build China into a manufacturing powerhouse in the year 2045 when China celebrates its 100th anniversary.
Develop China from a manufacturing “giant”to a manufacturing “powerhouse”
9 strategic objectives are put forward in Made in China 2025, which include improve innovation ability, promote the integration of informatization and industrialization, establish high-quality brand, implement green manufacturing comprehensively and vigorously promote breakthroughs and development in key areas etc. And it also has 10 key areas covering information technology, energy conservation and new energy, aviation and navigation and biological medicine etc.
The central government will provide special funds and tax preferences for 10 key areas. Although the details are not released, it is believed that the whole planning will improve the influence of Chinese enterprises in global industries and enhance the ability of enterprises to meet the different needs of customers at the same time.
Industry 4.0 can be achieved directly by taking existing advantages
Made in China 2025 is released at this very time and it is of certain advantage for China from the perspective of development process. Compared with developed countries, China and other emerging markets are able to combine industrial systems with the Internet earlier and faster due to the fact that they have invested heavily on infrastructure. This would help emerging markets to promote efficiency and enter the stage of “Industry 4.0” directly by skipping the stage of “Industry 2.0” and “Industry 3.0” which developed countries have experienced. For example, emerging markets do not bother to install electrical cable and wire but use wireless technology directly. By strengthening the connection between enterprises, it will be able to improve the overall economic scale of enterprises and ease the constraints on resources and finance, which makes enterprises more efficient and “smart.”
However, there are still many challenges to cope with in the future in order to achieve the ambitions in Made in China 2025. Firstly, current innovation ability of China is still not high. Although China has 223,000 patent applications in 2014, which make it a country where the most patents are applied for four consecutive years, China is still highly dependent upon importing core materials. In addition, China’s spending on R & D is, all the time, only 2.0% GDP (2013). And it leads to the fact that the added value of the manufacturing industry is only 21.5%, which is far lower than 35% or more in other developed countries.
Innovation ability and image are to be improved
In addition, Chinese brand image has been very poor. There are nearly 10% products which do not conform to the standards within China, and the ratio of Chinese products which need to be recalled is as high as 65% abroad (2012), which is the largest in the world. As far as toys are concerned, on average there are 20 cases where Chinese manufactures are required to recall their toys every month in EU.
Environmental sustainability is also a challenge. Poorly efficient and irresponsible behavior of manufacturing industry in the past has caused heavy environmental pollution. Apart from fog, haze and heavily polluted underground water, utilization ratio of energy per unit is also very high. Therefore, it is not easy for China to achieve significant decrease in energy and material consumption and pollutant emissions so as to fully implement green manufacturing within 10 years.
Capital and talents need to cooperate
Huge capital expenditure could also become obstacles to the implementation of the planning. Although the central government will provide financial and tax preferences, the capital might be very few compared with the funds required in training, machinery and R & D. Talent supply might also be insufficient. Universities may also fail to provide appropriate training facilities. In addition, during the past 30 years, China has been introducing technology and management structure from abroad by taking advantage of its low cost, which results in weak investment and strength in R & D. Furthermore, China has been depending on and developing resource intensive industry such as steel, aluminum, cement etc. It then results in the fact that technology intensive industries such as solar and wind energy industry are underdeveloped. Therefore, the key lies in how to transform the industrial structure and capacity.
China also faces restrictions in order to expand the market. Traditional manufacturing powers such as USA, Japan and Germany have been dominating the market for medium and high-end products globally. So it is not easy for China to seize market share. And developing countries which have relatively weak financial strength may not be able to support products of these kinds or have insufficient demand.
Upgrading the manufacturing industry is helpful for economic restructuring
In addition to market space, China also faces competition from other countries. Over the past two years, the United States has been implementing plans to attract US companies to move manufacturing industry back to the United States. It is estimated that China’s production cost is only 5% lower than that of the United States at present. But this situation is likely to reverse in the future. Due to low efficiency, high logistics cost and poor technology of China, the production cost in the United States is likely to be 2%-3% lower than that in Chinain 2018. At that time, competitiveness of China’s industry will be further weakened.
Overall, there has being a major adjustment in the pattern of global manufacturing industry: On the one hand, developed countries have carried out “re-industrialization” in order to enhance the competitive advantage of manufacturing after financial crisis; on the other hand, other developing countries expand their international markets with costs lower than China. And it leads to the fact China is “facing a severe two-way challenge”, as is written in Made in China 2025. Successfully overcoming the above challenges and gradually transforming China to a manufacturing giant which is characteristic of high-end products, high quality and environmental protection can benefit industries and enterprises which are related to the ten key areas, in overall, as well ashelp to ease the impact of labor cost increase, environmental pollution, limited resource, excess capacity and slowdown in exports and promote economic restructurings.
Victoria Mio is the Lead Portfolio Manager of Robeco Chinese Equities.
Victoria Mio, co- chief investment officer in Asia Pacific at Robeco.. Robeco, about China: "Some Investors Did Leave The Market, Providing A Good Entry Point for Long Term Investors"
Victoria Mio, co- chief investment officer in Asia Pacific at Robeco and Robeco Chinese Equites’ fund manager, explains in this interview with Funds Society her outlook for the Chinese economy and markets and the impact for the global economy.
How would you explain the volatility that the Chinese stock markets have experienced in recent weeks?
For the offshore Chinese equities listed in Hong Kong and the US, the recent volatility is due to the following factors: continued lack of sign for macroeconomic condition improvement in China; changing of Chinese currency CNY pricing mechanism and 3% one-off CNY depreciation; lack of upside surprise from the 1H2015 corporate earnings result season in August; expectation of interest rate hike in the US causing funds outflows from global emerging markets, including China. For the domestic A share markets, there is a Chinese specific condition: unwinding of margin finance. At the peak, margin financing through the official channels stood at CNY 2.3 trn in mid Jun, and dropped to less than CNY 0.9 trn.
Will the current Chinese government measures be enough? To what extent the Chinese authorities have room to boost the markets?
China government has recently introduced new stimulus as debt-swap (CNY 3.2 trn debt-swap program for maturing short-term LGFV debts to be converted into long-term local government bonds), local government projects (boosting the capital adequacy ratios of China Development Bank and Export-Import Bank of China, and issue policy bonds to support local government projects), infrastructure (support construction in 5 areas: agriculture, urban infrastructure, environment protection, public housing and high-end manufacturing & telecom), property (PBOC cut the down-payment requirement for second homes to 40% from 60%. This will likely lead to an improvement in property investment in 4Q15), export (the State Council pledged on 26 August 2015 to support China’s export by cutting levies on exported goods, increase the transparency of port and customs fees, etc.) and consumption (the government also cut the RRR for auto loan by 300bps to support auto finance).
These stimuli may not be enough to stop the deceleration in growth, but they will reduce the downside. We expect that the Chinese central bank will continue to cut interest rate or RRR in Oct this year, and will continue the monetary easing policy next year. We also expect the government to do more fiscal spending to boost growth in the coming months, particularly related to the 13th Five Year Plan (covering 2016-2020). The initial plan is likely to be announced in October 2015 and finalized in March 2016.
Is there anything you may find positive about such markets correction?
Valuation becomes extremely attractive now. Some investors did leave the market, providing a good entry point for long term investors.
Do you see room for further declines in China’s markets?
Given the extreme bearishness in the market, and record low valuation, the downside is limited. The risk is to the upside in the next 3-6 months.
At this moment, what is your strategy: taking the opportunity to buy low or selling because of high volatility?
We remain overweight China within our APxJ/EM coverage universe. We are selective with stock ideas, and prefer sectors/stock names with healthy earnings growth trajectory, and potentially have higher US$ or equivalent revenue exposure while its cost base is more RMB denominated. Such sectors/companies will benefit under the RMB depreciation scenario.
To what extent this crisis will impact in the developed world, especially Europe and the US? Do you think the situation can be spread around, as we saw in August?
Due to capital control in China, the correction in China A share markets will have little impact on global markets, except the Hong Kong equity market, through the Shanghai-Hong Kong Stock Connect.
The net impact of the change in the RMB currency management approach on the global economy is dependent on whether policy-makers also take up easing measures in a way that stabilizes growth in China. A currency move, just by itself, will lead to tightening financial conditions elsewhere in the world (by way of appreciation of other economies’ trade-weighted indices) and could prolong the impact of disinflationary forces on the global economy. We expect this impact to be felt most materially in the Asia ex Japan region and also in the US (given the close trade linkages between China and these economies).
What about the contagion of other markets in Asia? And in Latin America?
From macro perspective, the Asia ex Japan region is highly exposed to the impact of China’s slowdown, as China has emerged as a key source of end demand over the past years. Within the region, Korean, Taiwan and Singapore would be the most affected via the direct trade channel, while Indonesia and Malaysia would be affected via the commodity price channel, owing to their status as the net commodity exporters in the region.
Latin America is less directly exposed to China’s end demand. But with the majority of tis exports basket commodity related, a growth slowdown in China would affect the region via weaker commodity prices and a negative terms of trade impact. Domestic demand could be further affected via weaker consumer purchasing power and reduced attractiveness of commodity related investment. Government spending could be constrained by weaker commodity tax revenues.
From a currency market perspective, the adjustment of the fixing mechanism of the CNY may have a potential impact on other Asia currencies, as the resultant devaluation has resulted in the Asian currencies trading weaker too.
Do you think this turmoil may lead the Fed to delay, even more, the interest rates hikes?
Specifically, for the Fed, China’s move complicates one of the three criteria – a leveling out in the trade-weighted dollar – that the Fed had laid out earlier this that, if met, would give it the confidence to raise the target rate this year. Robeco holds the view that the Fed will start its first rate hike in December 2015.
What impact will the new China have in global growth, commodity prices, and in general, in the world economy?
Unlike the “old China” sectors that are more investment + export driven and more energy intensive, the “new China” is more consumption driven and less energy intensive. If the relatively faster growth in “new China” helps to prevent a major slowdown in China’s growth, in general, China is likely to continue contribute to world GDP growth by a significant share, though commodities prices are unlikely find a meaningful lift from this.
Will there be soft or hard landing?
We expect China to have a gradual pace of adjustment to address the challenges of managing the disinflationary pressure and high debt level. This gradualism approach means that the disinflationary pressure could persist for longer as we believe that the magnitude of excess capacity in China remains large during this slow adjustment process.
As policy makers continue to adopt gradual adjustment, we believe investment growth will continue to slow in an environment of relatively high real borrowing cost trend, particularly for the industrial corporate sector. Moreover, moderation in corporate revenue and nominal industrial growth is resulting in the corporate sector slowing wage growth, which in turn is likely to weigh on private consumption growth. Hence, we expect GDP growth to slow to 6.8% YoY in 2016.
We have seen the slower GDP growth mainly weighed by industrial sectors. The current weakness in growth mainly reflected the difficulties in industrial economy on the back of deceleration in investment growth and systematically weaker external demand. However, services sectors growth continues to outperform the industrial sectors. The services sectors – which represented 48.1% of GDP in 2014 (vs. 44.2% in 2010) – have been outperforming the overall GDP growth. Tertiary sectors growth was 8.4% YoY in 1H15 (vs. 7.8% YoY in 2014), partially offsetting the slower growth in secondary sectors (6.1% YoY in 1H2015 vs. 7.3% YoY in 2014). The strength in the services sectors is reflected in the relatively higher reading of non-manufacturing PMI at around 53-54, well above manufacturing PMI which is hovering at around or slightly below 50.
CC-BY-SA-2.0, Flickr. Pictet Asset Management Launches Robotics Fund
Pictet Asset Management, a pioneer in thematic investing, has announced the launch of Pictet-Robotics, one of the first funds of its kind to invest in robotics and artificial intelligence technologies. A Luxembourg Sicav, the fund aims to capitalize on the growth of an industry that is forecast to expand as much as four times faster than the global economy over the next decade.
Advances in IT, such as cloud computing and the emergence of powerful new microprocessors, are revolutionizing robotics and automation technologies, which are expanding beyond the factory floor into our everyday lives. Modern robotic devices are now equipped with a remarkable capacity to sense, gather, process and act on information, endowing them with dexterity, versatility and cognition. Robots that can detect changes in facial expressions and tones of voice are being used in services and security industries. In the health care industry, sophisticated robots already assist surgeons in complex procedures, while in transport smart sensor technology is being deployed in driverless cars.
Karen Kharmandarian, Senior Investment Manager, Thematic Equities, said, “Robots have long been used in factories to automate dangerous, dirty or dull tasks. But the pace of invention is accelerating as robots are becoming indispensable to our professional and personal lives. Companies active in robotics seem bound to enjoy strong growth from this new wave of innovation”.
The Robotics fund is the most recent addition to Pictet Asset Management’s range of thematic strategies which already include, among others, specialist funds in digital communication, security, health and water. Thematic funds allow investors to capitalize on long-term socio-economic trends shaping our world.
The official launch date of Pictet-Robotics is 8th October 2015 and the initial subscription period for the fund is 2-7 October.
The fund is currently registered in the following countries: Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Liechtenstein, Luxembourg, Netherlands, Portugal, Spain, Sweden and the UK. It will be available in other countries soon.
