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An Investment Trip Around the World with Templeton’s Global Equity Group

La vuelta al mundo de la mano del Grupo de Renta Variable Global de Templeton — Heather Arnold, Templeton’s Global Equity Group Director of Research - Courtesy photo. An Investment Trip Around the World with Templeton’s Global Equity Group

Heather Arnold, Director of Research of Templeton’s Global Equity Group guides us on a journey through the world’s major equity markets. Her vision is value-oriented, in order to obtain the best ideas for a complete business cycle, which has an average life of five years. Templeton is part of the Franklin Templeton Group.

Beware. All that Glitters is not Gold

According to Heather Arnold, there is a valuation problem in the price of money. Currently, banks and governments of many countries have negative yields. She argues that we are paying for lending money to governments, which in no way reflects the risk assumed by investors, as the rates are artificially low due to QE programs. “In fact, interest rates should be much higher because the global debt has grown. What has changed is the geographical location of debt. Investors need to realize that there is something odd about fixed income markets. They are pursuing the safest option, which in reality is the most dangerous and risky, “Arnold says.

Europe: So Bad, that it’s Actually Good

This also applies to equity markets overall. The US has been regarded as the safest option, because of its better corporate earnings, and that is why it has risen so much, but for a value investor, Europe offers better opportunities. “It is true that corporate profits in Europe have not yet regained their 2007 levels, but there is enough gap for margins and valuations to recover,” said Arnold. She also raises concerns on the valuation of the US stocks. In a historical Shiller P/E ratio analysis of the US market, there are only two occasions when it has been more expensive than now, in 1929 and 2000. Additionally, since 1940, US stocks accumulate the longest relative rally to the rest of the world.According to Arnold, this data is far more disturbing than a strong dollar, which is already a problem for US companies.

In Europe, however, there is a quantitative easing program (QE) in place which will gradually help banks to wake up and give credit. Although timidly, governments may also spend a little more; but above all, the greatest tailwind pushing European stocks is a weaker euro, which is also a consequence of QE. Arnold notes that we must also add the positive effect on consumption that will result from weaker oil prices. Therefore, the foundations are laid for the expected recovery in European business profits. Since market valuation is reasonable, everything which is bad in Europe is actually “good”.

Russia and Greece: The Potential Risks in Europe

There are two breeding grounds for instability in Europe, or at least in their region, which can be the source of many problems. On one side there is Russia, which may not remain impassive in the face of deployment of NATO troops in Ukraine, and this may be a “serious problem” for Europe, especially for Germany. The other difficult country is Greece. Its situation is not good, whether it stays in the euro zone or leaves it. In the second case, its exit will be accompanied by a default on its debt, which “once again complicates European credibility.”

The Japanese Experiment is no Guarantee for Success

When speaking of the increase in global debt since 2008, Arnold refers mainly to Japan. The government is trying to get out of debt by creating inflation. “This did not work in Germany during the first half of the twentieth century, we will see if it works for Japan,” says the Templeton expert. For now, what can be seen in Japan is an asset loop, “the Bank of Japan (BoJ) is buying all the new debt issued by the government and also the debt which is held by pension funds, which, in turn, are buying equities. However, despite the depreciation of the yen, neither consumption nor exports have improved substantially”. Corporate profits have improved somewhat but in order to continue doing so, “great reforms in the corporate world are needed.”

Arnold explains that exports have not improved as much as expected after the decline of the yen, because it was so grossly overvalued that most exporters had already left to produce abroad, mainly to China, but also to the US.

Furthermore, the country’s demographic problem cannot be ignored, a problem which will be further aggravated if Japan really becomes an inflationary country, because the savings of a very aged population will tend to wane. “Another problem which inflation could bring is a decrease in productivity due to increased wages,” Arnold says. To address this issue, the country would have to open to immigration, something which is extremely unpopular in the country even though companies are now silently hiring more foreigners.

Arnold concludes that even though valuations are reasonable in relation to the ROE of Japanese companies, this profitability cannot improve much without further corporate reforms.

There Are Select Bargains in Emerging Markets

The Templeton Global Equity Group is beginning to see some value returning to emerging markets, which they have underweighted for quite some time. “A more attractive valuation is awakening some interest within the region, but as yet there are no great bargains because the money has continued to flow into these markets, mainly as foreign direct investment.”

Now that China’s economic growth has begun to slow down, the Templeton Global Equity Group notes that companies with more reasonable capital allocation and greater profitability are starting to emerge. This is positive.

As regards to companies linked to commodities, Arnold recommends waiting. “We should not get excited yet. At a P/BV of 1.5, the sector is still expensive in relation to the current point of the cycle, with the exception of companies in the energy sector”.

Energy: The Great Opportunity

The fall in oil prices has wiped out the valuations for the energy sector. Templeton’s Global Equity Group sees this as a great opportunity, both in Europe and in the US.

“The excess global oil supply can be adjusted very quickly,” says Arnold. In 1986, the excess of supply over demand for oil reached 15%, because the OPEC countries had increased their oil production to take advantage of the upturn in prices that occurred in the early eighties. “Now, this excess capacity is barely 4% and could be reduced to 2% with the current increase in demand. This oversupply could be absorbed very quickly because there are many exploration projects which have stopped and much Capex has been removed from the sector. On the demand side, more barrels are being consumed due to falling oil prices. “Arnold explains that the P/BV ratio of the sector has not been this cheap since 1986. “We’ve never seen so many bargains in this sector,” she concludes.

Chinese Tech Entrepreneurs Take a New Path

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Los nuevos emprendedores chinos transforman antiguos problemas en oportunidades — Photo: Gabriel Jorby. Chinese Tech Entrepreneurs Take a New Path

Since the first Internet companies from China began going public on the NASDAQ exchange about 15 years ago, investment bankers have typically been able to find comparable U.S. companies during IPO road shows in order to help investors better understand the business nature. However, these days when I visit companies in Asia or attend investor conferences, it takes a bit more time and effort to understand the basic business models for some new market entrants. These new start-ups are no longer just copycats of any U.S. counterparts, but are now more deeply rooted in unique economic fundamentals, and more evolved in their own ways. So what makes today’s technology entrepreneurs in China different from earlier pioneers?

First, new ventures need to be better aligned between technology and current lifestyles. China’s earlier Internet start-ups were mostly website portals, search engines or developers of instant messenger applications. One wired desktop was all people needed, whether they were in New York or the other side of the Pacific Ocean. Nowadays, however, things are different. Take ride-sharing companies, for example, which need to work with local taxi unions, city by city. As the Internet and technology have become well integrated into modern lives, a higher level of engagement is often needed in order for new ideas to succeed.

It took 30 years for the U.S. to grow its GDP from US$1 trillion to US$10 trillion (from 1970 to 2000). Meanwhile, China replicated this success in only 16 years, from 1998 to 2014. There, people live different lifestyles. While many don’t have landlines at home, cellphones are a “must have” to navigate the modern world, having leapfrogged the full household penetration of landlines. In addition, a much bigger proportion of Chinese household income is spent online as department stores never developed an efficient supply chain to lower costs. In terms of real estate, when Chinese buyers purchase condominiums, they tend to require additional work from construction companies to build them out as they are more like shells that need much outfitting. And, as an example, of an auto-related new business model, new firms are springing up to help China’s car shoppers verify mileage on pre-owned cars as odometers can often be tampered with in the country’s aftermarket sales.

Secondly, entrepreneurs are now more creative, and capital markets are more sophisticated these days. Earlier entrepreneurs are mostly “returnees”—people who grew up in a much less commercialized society, often obtained their bachelor degrees in China, went to the U.S. for graduate school, and secured jobs in places like Silicon Valley before returning back home to copy and implement U.S. business models. Over a decade ago in China, venture capital was still a foreign concept. When people with ideas in China wanted to start their own businesses, family and friends were often the first and only ones they could turn to for loans. Not surprisingly, many start-ups struggled with financial obligations from day one and struggled to get off the ground. Now, all one needs is simply an idea, a business proposal and a capable team. There are hundreds of experienced venture capitalists who have the money, market knowledge and most importantly, the ability to differentiate between the quality of various entrepreneurial teams.

Although China’s economy has been slowing, I am excited by the new generation of entrepreneurs that is viewing some of the country’s earlier challenges as opportunities.

Raymond Z. Deng is Research Analyst at Matthews Asia.

The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.

Old Mutual Global Investors Introduces Team Based Approach to Fixed Income Range

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Old Mutual Global Investors reorganiza su equipo de renta fija tras la entrada de Oxley y la salida de Stewart Cowley — Photo: Esparta Palma. Old Mutual Global Investors Introduces Team Based Approach to Fixed Income Range

Old Mutual Global Investors announces the introduction of a team based approach to managing its fixed income range of funds. This change mirrors the approach utilised by Russ Oxley and his team, who joined the company earlier this year. This development has also resulted in promotion for some members of the team, which aligns to Old Mutual Global Investors’ desire to offer career growth opportunities.

With the arrival of Russ Oxley and the Rates and LDI Team (initially titled Fixed Income Absolute Return Team) Old Mutual Global Investors now has a powerful 20-strong fixed income capability in two distinct teams. The two teams (Absolute Return/Rates and LDI – headed by Russ Oxley and Total/Relative Return – headed by Christine Johnson) will harness the skill set of each other’s experience continually, there will be synergies but the end result will be independent. These two teams will work collaboratively, sharing tools and discussing views. However, as there is no fixed income house view, each team will manage funds in line with their own investment process.

Stewart Cowley will leave Old Mutual Global Investors at the end of June 2015. Until that time, Stewart will support the business in the transitioning of the funds he has actively managed to the newly named teams stated above.

Julian Ide, CEO at Old Mutual Global Investors comments: “I am grateful to Stewart for the guidance and stewardship he has given to Old Mutual over the last six years and for the commitment he invested in building our powerful fixed income capability. He has made a vital contribution to our management teams over many years, and particularly since I joined the company. Stewart leaves with our gratitude and best wishes.

“I believe that we now have one of the industry’s most powerful fixed income capabilities led by two highly experienced fixed income leaders, Christine and Russ. The changes we have made to our funds will benefit our clients in the future. I am also pleased that we have been able to offer further career growth opportunities to Bastian, Hinesh and Lloyd,” point out.

Stewart Cowley adds: “I am immensely proud of what we have achieved at OMAM and Old Mutual Global Investors over the past six years. Bringing this group of people together has been one of the most important things I have done in my career. Achieving this whilst guiding clients through some of the most difficult market conditions I have seen in my time as a fund manager gives me a real sense of achievement. I wish Julian Ide and all the Old MutuaI Global Investors’ family well in the future.”

CFA Institute celebrates its European 68th Annual Conference

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CFA celebra su Conferencia anual europea en Fráncfort — . CFA Institute celebrates its European 68th Annual Conference

CFA Institute and CFA Society Germany announce that the 68^th CFA Institute Annual Conference will be held in Germany for the first time. The conference will take place from 26-29 April 2015 at the Congress Center Messe Frankfurt, bringing together more than 1000 eminent investment professionals to debate how to shape the future of the finance industry at a time of uncertain geopolitical, inflation and currency trends.

The conference will feature a line-up of more than 40 speakers including :

Jürgen Stark, former member of the executive board of the European Central Bank
Hans-Werner Sinn, Professor of Economics and Public Finance at the University of Munich
Martin Wolf, chief economics commentator at the Financial Times
Ian Bremmer, founder and president at Eurasia Group
Moritz Kraemer, managing director and chief rating officer at Standard & Poor’s Rating Service’s Sovereign Ratings Group

In addition to the broader thematic discussions around the future of the finance industry in Europe and its impact on society, the conference agenda will feature:

A vision for the future of the investment management profession, by Paul Smith, CFA, the new president and CEO of CFA Institute.
Over 20 sessions examining market trends, new investment opportunities, and practical advice for investment professionals
The launch of a timely new paper, Shadow Banking: Policy Frameworks and Investor Perspectives on Markets-Based Finance

Natixis Global AM: Emerging Markets are No Longer a Homogenized Asset Class

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Natixis Global AM: Los emergentes han dejado de ser una clase de activos homogénea — CC-BY-SA-2.0, FlickrPhoto: Kevin. Natixis Global AM: Emerging Markets are No Longer a Homogenized Asset Class

Commodity and currency pressures, economic slowdowns and structural reforms have been creating a divergence in emerging markets in recent months. All of this punctuates the fact that not all emerging market investments are created equal.

The nature of investing in emerging markets has changed significantly since the Great Financial Crisis, explains David Lafferty, Chief Market Strategist Natixis Global Asset Management. Through much of the 2000s, EM performance across countries was driven by several common factors including double-digit or near- double-digit growth rates, strengthening local currencies and growing exports – often coinciding with commodity demand.

No longer “one-size-fits-all”

Today however, these factors no longer dominate the EM landscape, points out Lafferty. Forecast gross domestic product (GDP) growth for EMs in aggregate is now closer to 4%–5%. The strong demand for commodities has collapsed and most EM currencies are under pressure due to the expectation of tighter U.S. monetary policy. In the absence of these macro themes, each country now trades based on its own fundamentals, not as part of a homogenized asset class. So we can expect the fortunes of each country to diverge due to differences in interest and inflation rates, domestic savings rates, current account position, and commodity dependency. As performance diverges, security, country and currency selection will all take on greater importance.

Because each country is now following its own path, the broad outlook for “emerging markets” is cloudy at best. U.S. dollar strength has brought back echoes of the currency crises of the 1980s–90s as dollar-denominated debt is harder to pay back. Local currency weakness creates inflation (i.e., imports become more expensive), and curbing that with higher rates hampers growth. Finally, falling commodity prices, particularly for oil, may severely weaken growth due to lower exports in major emerging markets like Russia, Brazil, Venezuela, the Middle East, and parts of Africa.

Long-term growth, short-term pain

Even so, on both the equity and debt sides, Natixis Global AM continues to view EM as an essential asset class for the long run. Cyclical growth rates have come down somewhat, but due to demographics and younger populations, most of the secular growth in the world today still resides in EM countries, explained the firm. Across equities, valuations may be deceiving. EM stocks have a lower relative Price-to-Earnings than other markets, but this is skewed by unique risk factors and state-owned enterprises. EM bonds still offer attractive yields, and credit quality has been steadily improving. While sovereign debt levels have grown, so has GDP, so debt remains manageable. Moreover, U.S. dollar strength isn’t the bogeyman many folks think, for several reasons:

Many EM countries now have local currency debt, not just U.S. dollar debt.
Weaker local currency boosts export growth.
As the EM consumer base grows, they contribute to their own economies and are less dependent on trade and external funding.

Mexico and India among favorites

In terms of specific markets, Natixis Global AM likes Mexico and India. Mexico is becoming more competitive thanks to structural reforms in energy and education, and its cost of production is becoming more favorable when compared with rising labor costs in Asia. Mexico also benefits from its proximity to the gradually improving U.S. economy. India has been slow to reform, but new government under Prime Minister Modi is rooting out corruption, reducing agricultural subsidies, and opening up industries to competition.

In contrast, Russia looks far more dicey as its economy collapses under the weight of global sanctions and falling oil prices. In this environment of currency and commodity volatility, the insights by experienced portfolio managers may be particularly valuable to investors.

Allfunds Becomes Europe’s Largest Mutual Fund Platform

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Allfunds se convierte en la plataforma de fondos de inversión más grande de Europa — Photo: Deurimpoyu. Allfunds Becomes Europe’s Largest Mutual Fund Platform

Allfunds has become Europe’s largest mutual fund platform, overtaking UBS, according to the latest annual edition of The Platforum “European Platforms and Open Architecture 2015 Guide”.

Platforum also revealed today that Allfunds has been recognised by asset managers for having the best potential for supporting their distribution strategies.

Platforum also suggested that the winners from upcoming MiFID II European fund regulations will be those platforms who not only provide excellent technical services for fund administration but also help asset managers with fund selection; a wide range of supportive management information and offer support in commercial negotiations – three elements in which Allfunds has strength in depth.

As the largest provider of mutual funds Allfunds believes it has become the irrefutable leader in ‘open architecture’ – the industry model which offers asset managers the opportunity distribute their funds more widely while offering financial advisers and their end clients a far greater level of choice than from proprietary platforms.

Allfunds focus on open architecture is complemented by the provision of independent research of the mutual funds it has on its platform – an area Platforum suggests will become ever more important with MiFID II. Unlike some research providers, Allfunds does not operate the ‘pay to play’ research model – which allows the largest and most financially strong fund groups to dominate its research agenda. Rather Allfunds seeks to fund its research activities from its adviser clients who aim to provide the widest range of fund choices for their clients.

Commenting on the Platforum’s findings, Allfunds Bank CEO Juan Alcaraz said, “It has taken 15 years from the foundation of Allfunds to get to the leading position in Europe. That has only been achieved because we have relentlessly pursued our belief in consumer choice through our open architecture model and by focusing solely on providing a robust business to business service to institutional clients in the financial advisory sector. Our approach to open architecture is complemented by our desire to offer information and independent research to our clients with a view of offering as wide a range of choice as possible.”

Central Banks Have Distorted Reality in the Volatility Market

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Los bancos centrales provocarán breves repuntes de la volatilidad — Photo: El coleccionista de instantes. Central Banks Have Distorted Reality in the Volatility Market

The major impact of Central Banks actions all over the world has been a massive decrease of interest rates. This rates move has led to very good performances for bond investors, but reduced their potential of future returns. As a consequence, investors started to look for alternative yields, for example by allocating more risk to Equities, but also by selling volatility to extract the volatility risk premium and generate yield.

This is where Central Banks have distorted reality in the volatility market: volatility has become abnormally low and abnormally stable compared to the uncertainty over global recovery.

The consequence for the volatility market is that is at some point there is uncertainty regarding Central Banks (Tapering talks in June 2013 or more recently Fed Rates hike talks, or ECB QE), volatility can spike quite sharply, like we experienced in October 2014.

As Central Banks in general around the world will stay very accommodative in 2015, we at Seeyond expect volatility to stay artificially low in average, ie lower than where it would be otherwise, but with some key periods ahead (Fed rates hike, ECB QE effects, etc) we expect to see volatility short lived spikes few times in the coming year.

Simon Aninat, portfolio manager at Seeyond, subsidiary of Natixis Global AM.

China for Sale?

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China cuelga el cartel de ‘Se Vende’ — CC-BY-SA-2.0, FlickrPhoto: Mark Moz. China for Sale?

Over the past few years, there have been questions about whether the “smart money” is leaving China. For example, high-profile, Hong Kong businessman Li Kashing has been reorganizing his empire to lighten the amount of Chinese property assets he owns, and refocusing on other parts of the world, principally Europe. So, is the smart money leaving? Well, in this case, it is hard to know, as it can be very difficult to separate personal issues from hard-nosed investment decisions or tactical shifts in allocations between regions.

In any case, mainland property assets are still a very significant part of Li’s wealth and in some cases, even though he has been shedding some property, associated companies still retain an interest in the management of those properties. More recently, too, other businesses with at least as strong a pedigree in China have been making significant acquisitions in their core businesses there, particularly in consumer-facing sectors. So, not all the “smart money” is necessarily moving in the same direction. There have definitely been some recent retrenchments from China by multinational companies. As American businessman Jeffrey Immelt has said, “China is big, but it is hard. Other places are equally big, but not quite as hard.” Sometimes it is easier for home-grown companies, focused primarily on their domestic market, to succeed.

Perhaps more significant are the recent sales by some Hong Kong banks of banking assets held on the mainland. Is this a way of taking some of the risk out of the balance sheets of Hong Kong banks? There has been some concern in recent years over the growth in loans to the corporate sector, and potentially in exposure to rising nonperforming loans on the mainland. Since last year, the Hong Kong Monetary Authority (HKMA) has been far more public about lending details of Hong Kong bank loans to Chinese corporates. Mainland assets at the end of 2013 had grown to 17% of Hong Kong bank assets. Hong Kong remains eager to grow its role as a financial center for China over the long term. But it seems apparent that the HKMA is at least somewhat concerned over the pace of growth of the mainland market and its ability to regulate such activity. In addition, some regional banks with mainland loans have been reassessing the risk of these assets, particularly among state-owned enterprises. But even here, though the near-term concern is over rising non-performing loans, this reassessment may be in part a symptom of the belief that these companies will become gradually slightly more commercial and lose some of the implicit backing of the state. Apart from the implications for banks’ risk, would that be such a bad thing?

Then there is the long term—who are the buyers of China’s assets. Well, I would argue—we are. U.S. investment in Chinese securities is at very low levels. According to Treasury data, less than 3% of U.S. residents’ holdings of foreign equities are in China and Hong Kong combined. Although the absolute level has grown throughout the 2000s, it is now little changed since 2010. And it makes sense from the point of view of diversification for the U.S. to be buying more Chinese assets and the Chinese to be buying more U.S. assets.

Let’s not forget that every sell is a buy – greater foreign ownership of China is likely to go hand in hand with greater China ownership of foreign assets– witness China’s investment abroad climbing from 2% of the world’s total (as of 2006) to nearly 6% as estimated at the end of 2013. Indeed, we have seen some Chinese insurance companies starting to buy real estate and other assets since China’s regulators made this easier in 2012. (New York’s Waldorf Astoria is now Chinese-owned.) Programs such as the development of the corporate bond market in China, the development of an over-the-counter market, the mutual fund industry, better regulation of and capital allocation by the Chinese banking industry and capital markets all has a dual purpose: not only to raise the efficiency and attractiveness of investing for domestic investors, but also to reassure and attract foreign investors. For it is only by achieving long-term demand for Chinese assets (alongside the significant demand for Chinese goods) that China is likely able to achieve international status for its currency.

So, is China for sale? Most assuredly yes. This partly reflects the decisions of some high profile businessmen, which grab headlines but which are an imperfect guide to the real trends. It partly reflects, one suspects, an attempt by regulators and banks to get a handle on growing mainland risk exposure. But it also reflects a natural trend of greater cross-border holdings of assets between China and the rest of the world. Over the long term, China will likely continue to be “for sale,” in my opinion, as demand for Chinese assets from foreign investors and central banks continues to grow. As always, it only really matters what price you pay.

Robert Horrocks, PhD, is Chief Investment Officer at Matthews Asia.

Move To a Tactical Neutral on Equities

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Posición neutral táctica en renta variable — CC-BY-SA-2.0, FlickrPhoto: Antonio Zugaldia. Move To a Tactical Neutral on Equities

The European equity rally is both impressive and entirely warranted. Investors had been very sceptical on Europe at the beginning of 2015 but they are now seeing the ECB’s bigger-than- expected Quantitative Easing in action as well as encouraging signs of an economic recovery.

The pace of European growth is now much stronger, mainly due to household spending which had previously been rather soft. And countries like Italy are also seeing an incipient recovery after a long period of stagnation. Economic activity is gaining traction and the most obvious signs of deflation are on the wane:

Bank lending has been stabilizing over the last two months after a long period of contraction;
After a spectacular collapse, Spanish property prices rose by 1.8% YOY in the fourth quarter of 2014.

We are confident in the outlook for earnings growth especially as we believe European company margins have genuine upside if the economy continues to grow at a reasonable pace.

Consequently, we are still overweight Eurozone equities despite the impressiverise. But our overweight is still likely to be adjusted from time to time to reflect mounting political risk in Greece. We continue to believe talks between European institutions and the new Greek government will end up succeeding but, in the meantime, the process is proving chaotic with Athens resorting increasingly to political provocation and not much European enthusiasm over reform proposals from Alexis Tsipras. All this suggests we should be more cautious. Nobody really knows how long Greece can continue to honour its commitments but the risk of a payment accident is rising all the time and that would obviously trigger market volatility.

Based on this scenario, we have moved to a tactical neutral on equities due to:

1. Less buoyant conditions in the US.

The US economy has lost some steam. Statistics have been hard to read due to another exceptionally severe winter but the question now is how the US economy will perform with a strong dollar, an energy sector forced to adapt to much lower prices and the failure so far of household spending to stage a strong recovery. Against all the odds, retail sales have not yet benefited from low oil prices. Consumers have chosen instead to save more over the short term.
Tame inflation and lacklustre economic conditions may push back the launch date for a rate hike but it is still on the agenda judging from comments from Fed committee members.

We are still optimistic on the US economy but we are moving out of a period when US growth was underpinned by very laxist monetary policy and into more uncertain territory with the likelihood of more orthodox monetary policy.

2. Uncertainties over the UK elections.

May’s parliamentary elections and the risk that a Conservative minority government will end up organizing a referendum on membership of the European Union can only introduce a local risk premium. We have accordingly reduced exposure to UK equities.

Regarding the bond market, we continue to prefer high yield bonds and Eurozone convertibles due to the ECB’s move on QE. This is encouraginginvestors to take on more risk to avoid negative returns. We remain cautious on US bonds. As Janet Yellen recently said, investors remain very sceptical on the Fed’s intentions and/or scenario.

Given today’s very low bond yields, investors will probably wait for clearer indications that inflation is returning, before selling the US bond market. Wages will be in focus. At the moment, the US yield curve is the steepest and therefore the most profitable among industrialized countries. We believe that the risk of wage inflation will be high in coming months and drive volatility in the US. Hence our decision to remain underweight US bonds.

Benjamin Melman is Head of Asset Allocation and Sovereign Debt in Edmond de Rothschild Asset Management (France).

EXAN Capital Receives the Mandate to Sell Espirito Santo Plaza in Bankruptcy Process

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Miami’s landmark Espirito Santo Plaza has been mandated to be sold in the bankruptcy process tied to the collapse of Banco Espirito Santo (BES). The mandate shall be carried out by Miami-based EXAN Capital.

Rio Forte Investments, the controlling entity of Estoril, Inc, (the asset’s owning entity), sought protection from creditors in Luxembourg in July of 2014, hoping to avoid a fire sale of its assets.

Banco Espirito Santo had to be rescued due to the debt exposure of firms related to the Espirito Santo family.

On August 3, 2014, Banco de Portugal, Portugal’s central bank, announced a €4.4 billion bailout of BES which heralded the end of BES as a private bank. The bailout was funded by the Portuguese Resolution Fund. The bank was split in two: a healthy bank known as Novo Banco, and the existing bank, where the toxic assets remained. Most of these toxic assets are held in Luxembourg by two holding companies: Espirito Santo Financial Group (ESFG) and its subsidiary Espirito Santo Financiere SA, where RIOFORTE and the associated Espirito Santo Plaza are held.

Immediately prior to seeking such protection, the mixed-use tower (offices, retail, and parking garage) had been all but sold to an investor identified by Miami-based EXAN Capital, a boutique Real Estate Investment Firm. That process came to a halt when the bankruptcy process began.

This week the court-appointed trustees in Luxembourg announced that EXAN Capital will lead the sale process, as they did once before, because of their deep familiarity with the building and the transaction. EXAN believes that with a court-mandated marketing process open to new bidders, in a strictly transparent and public process, creditors of Rio Forte will find the outcome more favorable than in the prior process.

The Plaza (at 1395 Brickell Avenue) is an iconic 36-story mixed-use tower that in 2012 was awarded the American Institute of Architecture’s highest honor for a commercial building in the state of Florida, being recognized as Commercial Building of the Year. Located in Miami’s thriving financial district (Brickell), the building’s designers (Kohn Pederson Fox) built the glass- curtain wall to contain its trademark arch, symbolizing both the building and the neighborhood being “Miami’s Gateway to Latin America.” With nearly 660,000 square feet of offices,retail, hotel, and 121 luxury condos, the Plaza will command a market premium as the irreplaceable asset that it is.

“The sale of the Espirito Santo Plaza will no doubt draw attention from both local investors and those from around the globe, as both recognize the rarely seen opportunity for what it is,” notes Adam Wolfson, SVP at EXAN Capital, who will be managing the sale process. EXAN reiterates the open and transparent process and encourages qualified bidders to contact them in their Miami offices for more information.