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One-Child Policy

La política de “un solo hijo” de China — . One-Child Policy

Last year’s decision to relax the one-child policy was an important political step by the Chinese government but it will have little impact on the country’s demographic and economic trends. Chinese leaders have effectively ended “one of the most draconian examples of government social engineering ever seen.”

Historical Background

Rapid population growth after World War II led to a global focus on birth control. One extreme response was India’s forced sterilization campaign between 1975 and 1976 when more than 8 million sterilizations were performed. In 1980, China began enforcing its “one-child policy,” which three prominent Chinese demographers, writing recently in a U.S. academic journal, called “the most extreme example of state intervention in human reproduction in the modern era. . .that has forcefully altered family and kinship for many Chinese.”

Last Year’s Policy Change

Last November, China’s Communist Party announced that the one-child policy would be relaxed by implementation of a policy in which families are permitted to have two children if either a husband or a wife is an only child. This marks a change from the previous rules which required both the husband and wife to be only children in order to qualify to have a second child.

Because this relaxation was accompanied by a decision to dismantle the one-child enforcement bureaucracy, in my view it spells the rapid end of the one-child policy.

The most significant aspect of this move is political, as it represents the Party’s decision to withdraw from its citizens’ bedrooms. Restoring this element of personal freedom should help rebuild people’s trust in the Party.

But, contrary to conventional wisdom, ending the one-child policy is unlikely to change the longer-term trend toward a lower fertility rate. China’s current fertility rate of about 1.5 could drop even lower in the future, closer to South Korea’s 1.3, as the pressures of modern life lead Chinese couples to have smaller families.

Smaller Families Before One-Child

It is important to recognize that the steepest fall in China’s total fertility rate (the average number of live births per woman) actually came before enforcement of the one-child policy began in 1980. The fertility rate dropped by more than half, from 5.5 to 2.7, between 1970 and 1980, influenced by rising urbanization and falling infant mortality rates. Today, China’s fertility rate is about 1.5.

Although 11 million couples are now eligible to apply for permission to have a second child under the new policy, only 700,000 couples (6% of total) applied through August of this year.

Long-Term Impact

Last year, before the policy change was announced, I spoke with one of China’s leading demographers, Wang Feng, about the prospects for change. Wang is a professor of sociology at the University of California, Irvine, and is on the faculty of Fudan University in Shanghai. He is also a nonresident senior fellow at the Brookings-Tsinghua Center in Beijing, and he recently wrote that the one-child policy “will go down in history as a textbook example of bad science combined with bad politics.”

Following are excerpts from my interview with him. I began by asking him about the long-term impact of ending the one-child policy. Professor Wang said expectations for a rebound in the fertility rate have been exaggerated:

Professor Wang: The reason I say it’s exaggerated is because in most of China’s rural areas, couples who want to have two children have already had two. There are certainly some couples who would want to have two children, which would be good for them, but we have all indications showing that many urban couples are happy to stay with one. And then there are couples who are actually choosing not to have any children, given the larger financial ramifications—the cost of having them.

For instance, in Shanghai, fertility is even below the one-child-per-couple level. This is despite the fact that, because of the early implementation of the one-child policy, many Shanghai couples are in the only-child cohort and are thus eligible, under the current rules to have a second; but they are often choosing not to have a second and many are not even having one.

Click the following link to read the interview with Professor Wang Feng.

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.

How Can the Global Economy Adapt to Resource Scarcity?

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¿Cómo puede adaptarse la economía mundial a la escasez de recursos? — Foto: Philippe Put. How Can the Global Economy Adapt to Resource Scarcity?

The supply of resources is limited. Yet global demand for resources such as metals, fuel, water and minerals is increasing as the world’s population continues to grow. How can the global economy adapt to resource scarcity?

Resource scarcity prompts resourcefulness

According to the UN, the world’s population is expected to grow by another 3.7 billion, reaching a total of 10.9 billion by 2100. At the same time, changing consumer habits as a result of growing disposable incomes in the emerging markets and increasing industrial activity are putting additional pressure on natural resources essential to long-term economic prosperity.

The effects of rising demand are compounded by steepening costs  of securing an adequate supply of resources. Most of the easily accessible resources have already been extracted. Geographical, political and environmental constraints mean that many supplies of critical resources such as oil or some metals are increasingly found in remote, difficult to reach places – such as deep sea areas or the arctic – making it difficult and expensive to extract them. In many cases, their extraction comes with added environmental, social and other indirect costs. All of this is contributing to price volatility and rising prices of production inputs. As a result, the global economy now sits at a crossroads. In order to prevent the depletion of natural resources critical to economic growth, we must transform industrial processes to become more resource efficient, develop substitutes for supply constrained resources and promote the reuse and recycling of limited resources.

But throughout history, human ingenuity and innovation have enabled us to adapt to resource scarcity by substituting away from supply-constrained resources and developing technological advances that have enabled productivity gains and the more efficient use of resources. Examples include energy-efficient LED lighting technology, or the aerospace industry, which has increasingly relied on lighter materials to reduce fuel consumption of their aircraft. These are the very mechanisms that have enabled humankind to cope with population and economic growth in a resource constrained world.

Companies that translate our resource challenges into opportunities by developing resource efficiency solutions that increase productivity or lower input costs will benefit from reduced risks associated with price fluctuations, environmental liabilities and regulation, and an enhanced reputation, boosting their competitiveness. And investors who identify these game- changers can benefit from superior risk-adjusted returns.

At RobecoSAM, we are convinced that companies that introduce innovative solutions to our resource challenges are more likely to enjoy a long term competitive advantage. Building on our in-depth understanding of long- term sustainability trends, we identify and invest in innovative game chang- ers that are leading the way in providing resource efficiency solutions. Our listed equity themes and private equity funds translate resource-related challenges into specialized investment portfolios containing future-oriented companies that are providing innovative solutions to resource scarcity in the areas of water, energy, climate, agribusiness and smart materials and infrastructure.

Ultimately, investing in the resource efficiency theme enables investors to mobilize capital to preserve resources critical to economic growth, generating a positive impact on the environment and society.

Loomis Sayles Expands Scott Service’s Global Bond Portfolio Management Responsibilities

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Loomis Sayles refuerza su equipo de renta fija con el nombramiento de Scott Service como co-gestor — Wikimedia CommonsPhoto: Scott Service, co-portfolio manager at Loomis, Sayles & Company . Loomis Sayles Expands Scott Service’s Global Bond Portfolio Management Responsibilities

Loomis, Sayles & Company announced today that Scott Service, CFA, has been named co-portfolio manager on the following suite of investment strategies managed by the company’s global bond team:

Loomis Sayles Global Opportunistic Bond Fund (UCITS)
All institutional global aggregate strategies
All world government bond portfolios

Scott, a long-time global credit strategist and portfolio manager on the global bond team, joins co-portfolio managers Lynda Schweitzer, David Rolley and Ken Buntrock on the Fund. Prior to this promotion, Scott was a co-portfolio manager on the team’s global credit strategies. Together, the team oversees approximately $38 billion in global assets. Scott reports to Jae Park, chief investment officer.

“Scott is a valued member of the global bond team,” said Ken Buntrock, co-head of the global bond group. “As a team, we have enjoyed the success of a growing client base over the last ten years. By naming Scott a portfolio manager for our full suite of global bond products, we feel well positioned for future growth and success.”

Scott, a member of the global bond team since 2004, remains co-portfolio manager on the team’s global credit and global corporate strategies as well as several offshore funds including the Loomis Sayles Global Credit Fund and the Loomis Sayles Institutional Global Corporate Fund.

Scott joined Loomis Sayles in 1995 and was promoted to credit analyst in 1999. Between 2001 and 2003, Scott worked in Paris for Loomis Sayles’ parent company, Natixis Global Asset Management. He returned to the Loomis Sayles fixed income team in 2003 and became team leader of the global investment grade sector team. Scott joined the global bond team in 2004. Scott earned his Bachelor of Science from Babson College and an MBA from Bentley College.

Crucial Differences Amongst Multi Asset Funds

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Diferencias cruciales entre las estrategias multiactivos — Photo: Andrés Nieto Porras. Crucial Differences Amongst Multi Asset Funds

Research by ING Investment Management (ING IM) based on flow data from LIPPER confirms the overwhelming popularity of multi asset funds among investors in the recent years. Given the current environment, ING IM expects this trend to persist. At the same time, ING IM’s research reveals a number of important differences among these funds, in terms of expected returns and risks, which should be carefully considered by investors before putting their money to work.

Low growth and multiple financial crises have made investors more risk aware. In combination with the low interest rate environment this has made adaptability of fund managers, their absolute return focus and drawdown management more dominant themes for investors. Coupled with increased uncertainty in the markets, where purely behavioural factors can put pressure on asset prices, investors are seeking flexible funds with clearly defined return and overall risk objectives. Total return multi asset funds provide such characteristics and have been a popular choice among retail as well as institutional investors in the recent years.

Inflows increase

ING IM’s analysis of LIPPER fund data has found that asset allocation funds have been the most popular category of funds among investors in Europe in 2014 so far, with inflows topping over 54 bn EUR up until September. This was also the case in 2013 when asset allocation funds attracted more than 62 bn EUR. These flows were only seconded by sales of flexible bond funds, which saw inflows of around 29 bn in 2013 around 23 bn EUR up until September 2014.

What should investors focus on?

In the face of the apparent attractiveness of the total return multi asset proposition, the investment manager is flagging that investors need to focus more on proven risk awareness of the available multi asset funds. While the return objectives of all such funds are set well above government bond yields, it is essential take into account the riskiness of these funds, typically expressed as overall target volatility. Next to this, while the ability of multi asset fund managers to digest and react to changing market environment is at the core of the multi asset proposition, understanding the degree of flexibility and robustness of these funds at the outset is also essential for investors to decide on where to invest.

How do multi asset funds differ?

ING IM’s analysis of 20 of the largest and most well-known multi asset funds registered in Europe and available only to European investors, with combined assets under management of €165 billion reveals a wide variety of returns and risk. In this group of funds, annual returns before fees over the last 3 years averaged a solid 6.6%. At the same time however, there’s great diversity in the returns of the individual funds as well as their investment approach and the amount of overall risk these funds take on to achieve their returns. While the best performing fund in this group returned 9.8% on an annual basis before fees over the last 3 years, this figure was only 2.8% for the worst performing fund. At the same time the most risky of these funds showed an annualized volatility of 8.9% over this period, while this was only 2.1% for the safest one.

To get better insight in risk adjusted returns, ING IM has ranked the group in terms of their Sharpe ratios. This is the most well-known measure of the risk-return trade-off in an investment portfolio. A higher value indicates a greater reward to taking on risk. While the average fund of the first quartile of this group of 20 funds was able to achieve an annualized return of 8.6% before fees, with a volatility of just 4.5%, resulting and in Sharpe ratio of 1.87, this measure of risk adjusted performance was only 0.75 for the average fund in the fourth quartile, implying a significantly worse trade-off between risk and return. ING IM’s own flagship multi asset strategy – ING (L) Patrimonial First Class Multi Asset – ranks above the top quartile average according to Lipper data, with a Sharpe ratio of 2.04.

Valentijn van Nieuwenhuijzen, Head of Strategy Multi Asset at ING Investment Management, says: “Multi asset strategies are proving very popular with investors and as growing uncertainly fuels the markets, they are likely to be in even greater demand. However, there is a huge variance in the asset allocation of multi asset funds and their risk profiles, which could be made clearer to investors. For example, for downside risk mitigation purposes, with our Patrimonial First Class Multi Asset strategy we keep at all times at least 50% of the fund’s assets invested in very low risk assets such as high quality government bonds and money market instruments, while invest the rest in other potentially more rewarding assets such as equities and real estate.”

Léon Cornelissen: “Africa Is A Continent of Opportunities and Risks”

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Léon Cornelissen: "África es un continente lleno de riesgos y oportunidades" — Photo: Robeco. Léon Cornelissen: "Africa Is A Continent of Opportunities and Risks"

Economic growth in Africa has been strong for years and the standard of living is rising. Does Africa’s future look rosy or will weak leadership and ebola cloud its prospects? Léon Cornelissen, Chief Economist at Robeco, explains in this interview why he sees both opportunities and risks.

What are the most important factors influencing Africa’s strong economic development?

The continent is characterized by immense diversity, yet there are a number of identifiable features that African countries have in common. These are mainly their rich commodity resources and their young and rapidly growing population. As a result, many countries are showing strong economic growth.

The situation in South Africa and Nigeria is particularly significant for investors. These countries are developing into major economies. But they are not the only ones to show growth. Among the smaller economies, Botswana is doing very well. Commodities play a role here, but also the country’s good governance. This last feature is important, as badly functioning governments are one of Africa’s core problems.

How important is the commodities sector for economic growth?

Extremely important. China invests heavily in Africa because it wishes to safeguard commodity supplies for its own economy. Economic growth in China will diminish gradually as a result of the country’s transition from an export-led to a more consumer- driven economy. Yet if we consider production per capita, China is still poor. A high catch-up demand can therefore be expected from domestic consumers. This will lead to a sustained hunger for commodities.

Then there is India. Since the Modi government came to power there, the likelihood of an upturn in economic growth has increased considerably. Commodity-producing countries in Africa are reaping major benefits from Asia’s strong growth.

Besides commodity production, what other opportunities does the continent offer?

Further privatization can make a major contribution in Africa, not only in commodity extraction. Provided governments give businesses more latitude, large amounts of foreign capital can still be attracted. Another positive factor is Africa’s population structure. While money is clearly required to educate its young population, the continent is free of the burden of an aging society. And of course Africa is huge, and therefore still has substantial development potential.

Due to global population growth, agriculture offers further opportunities. Examples are coffee and flowers from Ethiopia, fruit and vegetables from Morocco, and wine from Algeria. These countries can gain a substantial amount of ground if they manage to upgrade their production methods and succeed in making infrastructure improvements. And this is happening. Ethiopia, one of the poorest countries in the world, is investing in its infrastructure.

As economies prosper, they become more diversified. Nigeria has a major film industry, for instance. After Hollywood, and India’s Bollywood, ‘Nollywood’ is the biggest film production center in the world. It is the country’s second-largest source of employment.

What are the primary risk factors?

In many countries, the primary risks are political in nature. Individual situations vary considerably, and many countries – I mentioned Botswana earlier – have effective leadership, but in other countries, conditions are in danger of deteriorating. Nigeria developed a type of pacification model that appears to have succeeded in reconciling the Islamic North and the Christian South with the distribution of power. However, since the rules of the game are not always observed, the elections in February threaten to become fairly fraught. This is not a good sign. Egypt has similar problems. The economy is taking a positive turn there, but religious tensions could ruin everything.

Then there is Ebola, of course. This dreadful disease – and more particularly the fear it generates – is putting a damper on growth. All areas can come under pressure as a result: economic activity, tourism and foreign investments. And this is not the only disease on the continent: while AIDS and Malaria cause many more deaths than Ebola, they are not a risk factor, though they do have a damping effect on economic growth.

What are South Africa’s economic prospects?

South Africa is one of the BRICS countries, a loose association of emerging economies with large populations. However, this country, with its more modest population numbers, remains something of an outsider. Its commodities were the reason China and India wished to include South Africa. Meanwhile, it is a convincing member of the ‘Fragile Five’, the group of emerging countries that rely heavily on foreign capital to finance their growth ambitions. Its large current-account deficit has become obscured by lengthy strike action in the mining sector, but the underlying figures are still high. This also applies to the country’s budget deficit and inflation.

Medium-term growth prospects are moderate and will not bring down the country’s high unemployment rate. Structural problems affect education, infrastructure and energy distribution, and the country’s political situation is unstable. The ANC did not manage to win a two-thirds majority in the May elections and has now formed a government team that can hardly be described as small and decisive.

Is the low oil price a problem for countries such as Nigeria, Algeria and Angola?

Only in the short term. I expect the relative price of oil to rise again. Oil is a fantastic product, and it is not easy to find substitutes. The shale-gas revolution in America is likely to be short-lived. At some point the reserves will be exhausted. Oil exports remain a positive factor for these countries, as does exporting other commodities to different countries.

All things considered, Africa is a continent of opportunities in economic terms. Nevertheless, a downturn scenario is also possible. The main thing now is to improve governance. If the continent succeeds in this respect, it will be able to maintain its present high growth rate for a long time to come.

Santander Invests £33 Million in Monitise’s Platform to Drive Growth in Mobile Money Ecosystem

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Santander invierte 33 millones de libras en la plataforma Monitise para impulsar su crecimiento en el ecosistema del dinero móvil — . Santander Invests £33 Million in Monitise’s Platform to Drive Growth in Mobile Money Ecosystem

Banco Santander will invest £33 million to acquire ca. 5% in Monitise — a world-leading mobile money business — to accelerate the development of the company’s new technology platform. Through this partnership, Santander also expects to develop its own capabilities with one of the most innovative digital technology companies, as it seeks to become the bank of choice for its customers who chose to interact with the bank on digital platforms. This is a major step in the development of the fintech strategy of Santander, and will be managed in the context of the Santander Innoventures fund initiative, announced in July this year.

The collaboration currently being discussed includes an accelerated pipeline of opportunities, leveraging Santander’s expertise and scale and Monitise’s technology to build new Mobile Money capabilities for Santander’s global customer base. Santander, the largest bank in the Eurozone by market capitalization has over 107 million customers across ten main markets in Europe and the Americas.

Monitise also announced a deepening collaboration with IBM that will include the deployment of Watson, IBM’s cognitive computing engine, to support Monitise’s new technology platform. In addition, Telefónica will become an investor and strategic partner and MasterCard has reconfirmed its strategic partnership relationship through a follow-on investment.

Ana Botín, Santander Group Executive Chairman, said: “With this investment, Santander will become part of a network of trusted partners who will work together to address our customers’ needs whenever, however and wherever they chose to bank with us. Our aspiration is to be the best global retail and commercial bank; and we are working to give simple, personal and fair service to all of our clients. Clearly a digital offer is key to this strategic vision of our bank, and this investment, coupled with the exciting opportunities we see through the Santander Innoventures Fund to enhance further what we can offer our customers, provides an excellent base from which to build a global digital offering.”

As strategic partners, Santander and Telefónica will have the right, acting jointly, to nominate a single Non-Executive Director to be appointed to the Monitise Board.

Monitise co-CEO Alastair Lukies said: “The Mobile Money industry is now a global phenomenon. In developed markets it is fundamentally changing the way we bank, pay and buy. In emerging markets it is the foundation of new economic systems. There are two clearand distinct approaches appearing in this industry: disruptors looking for control and collaborators working together to share in a very big and sustainable opportunity. With our partners, we are delighted to be playing our role as an enabler to the Mobile Money collaborators. Via deepening partnerships, our increasingly connected mobile commerce services can become even smarter and more engaging for the businesses we work with.”

Exploding Misconceptions

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Emerging market debt is typically synonymous with increased risk. It is certainly true that emerging markets are more sensitive to global capital flows while the often more volatile economic and political backdrop means investors in emerging markets demand a higher risk premium.

However, this means that companies in emerging markets often take more effort to attract investors. At the basic level for a corporate bond issuer this means offering higher yields than developed market counterparts but it also means signalling to investors that there is little difference between an investment in an emerging market corporate bond and one issued by a similar company from a developed market. Over time, therefore, corporate governance standards have improved and are converging on developed market standards.

At an aggregate level, emerging market companies tend to be more financially conservative than their developed market counterparts. The chart below shows the lower leverage (debt to equity) ratio of emerging market companies compared with their US counterparts. Similarly, emerging market companies tend to hold more cash on their balance sheets than US companies.

Enlarge

In our view, this creates a valuable opportunity because investors can take advantage of the relatively high yields on emerging market corporate bonds while simultaneously investing in companies with stronger balance sheet and earnings fundamentals than some of their developed market peers.

Natixis Global AM Strengthens its Ambitious Project in LatAm with Offices in Mexico and Future Presence in Uruguay and Colombia

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Natixis Global AM arranca su ambicioso proyecto en LatAm con oficina en México y futura presencia en Uruguay y Colombia — Sophie del Campo, CEO at Natixis Global AM for Iberia, Latin America, and US Offshore. Natixis Global AM Strengthens its Ambitious Project in LatAm with Offices in Mexico and Future Presence in Uruguay and Colombia

When Natixis Global Asset Management decided in 2011 to open an office in Madrid, with Sophie del Campo at the helm, it wasn’t only seeking to expand its business in Iberia, but also thought of Spain as leverage to gain momentum toward Latin America. Del Campo, CEO at Natixis Global AM for Iberia, Latin America, and US Offshore, assumed the task and then began to explore the opportunities for, when the time was right, take the leap across the Atlantic. And that time has come: she has just opened an office in Mexico with Mauricio Giordano at the helm, the first part of an ambitious strategic project that within the next few months will have a physical presence in Uruguay, and Colombia, as points from which to cover the Spanish speaking region, and with which it aims to become one of the top management companies in the region.

“Latin America has all the components needed to build a lasting business: a growing market with great potential, very different customers with an appetite for diversification outside its borders, and financial needs for retirement,” says Del Campo during the first interview with the media for the advance of their plans in LatAm. The management company, which is increasingly aware of the need for international expansion, enters into the only greater geographic region, outside Africa, in which it did not have a presence, because their business is growing as much in the US as it is in Asia and Europe.

After studying the market for over two years, they finalized their plans late last year and are now already being implemented, with three key slogans: A long-term strategy, based on offering services for building lasting portfolios and target both institutional clients and distribution in the offshore world.

“Natixis Global AM’s philosophy of growth of is based on creating long term relationships, growing with the clients, and adding value, becoming their partners. We have no quantitative objectives in terms of volume but we intend to grow gradually to become one of the leading suppliers of these markets in line with the group’s philosophy”, he explains. Unlike Spain, the Latino market is not as saturated in terms of supply, and although there are challenges cropping up, such as competing with large, US management companies which are very popular in the region, Del Campo is optimistic, since she believes in the institution’s capacity to provide that added value and complementary and differentiated services based on a “multi-manager” business model, with a diverse and global supply and, rather than selling products, it aims to provide investment solutions through its portfolio construction services. “Simply selling funds would limit the value of the group. We are not only a seller of funds, we go much further”, she says.

In fact, this is the second key point of their proposal: “The motto is to help customers build lasting portfolios. The crisis has taught us the dangers of volatility and high correlations of assets and clients need to manage risks”, she explains. The management company has a center, Portfolio Research & Consulting Group, which offers research of portfolios in which they analyze, free of charge, and totally independently, the best combination of products for every client, whether funded by the Management Company or third parties. In LatAm, where each market has its own peculiarities, they will provide personalized service, “and not a ready-made fund package.”

Ambition in Hispanic Latin America

The aim is to reach Spanish-speaking Latin America, and all types of investors, both institutional and private banking distribution, during the first phase, leaving Brazil for a second time. In Mexico, the business will focus on institutions, since the Afores provide the opportunity, for which they are already designing portfolios. “The first focus is on pension funds but, according to the regulation, we will reach more market segments gradually”. Giordano, head of business and previously from Schroders, has extensive experience in institutional business.

In Colombia’s case, an office which could be opening sometime next year, and a market from which they will also cover Peru and Panama, there is a greater mix of clients, as in Peru, while in Uruguay (an office which they plan will be ready for opening anytime from the end of the year to early 2015) the focus is on large private banks and third party funds. Even in Chile, where more than just accessing often opportunistic pension funds, the core of their strategy is also based on growing with the fund managers and private bankers, facing their commitment to building a sustainable and lasting business. From here the expansion could reach more countries in the future, says Del Campo.

A Local and Global Team

To reach this market, Del Campo shall coordinate from Madrid all local commercial teams from Latin America (Mexico’s, and the future ones of Colombia and Uruguay) and US Offshore, where Ed Farrington is co-head for the Offshore market, also counting on marketing support, compliance and operations with the overall infrastructure of the group. Rodrigo Nunez Aguilar, director of Global Key Accounts for Latin America and the US offshore, will provide support from New York, as will the teams in Miami and Boston. All of it, in order to serve the region in a coordinated manner, and very important, for example, to plan the steps to be taken according to the regulatory characteristics of the various markets.

As for their Luxembourg funds, they are operating in international platforms and currently there are no local records, but that’s a topic that depends on each market. Nevertheless, Del Campo assures that investors feel very comfortable with the UCITS brand because they seek the security offered by regulated products. Among her market preferences, and considering a tendency to a more risky character regarding local assets, she highlights both US and European equities and emerging fixed income. In these assets she highlights the offer which can be provided by management companies within the group, such as Loomis Sayles (expert in fixed and emerging market debt) or Harris Associates (US Equities).

Growth in their DNA

Natixis Global AM’s Latin expansion arrives at a time in which their assets globally are close to a trillion dollars, as currently it has 960 billion, and when it has already secured a place amongst the top 15 management groups worldwide, according to the Cerulli ranking. In recent years, while its competitors closed down offices, the company invested heavily, opening in markets like Spain and, since the year 2000, has hired 13 new sales managers. This strategy has allowed it to double its business during the past three years. Also, instead of investing in marketing in recent years, the Management Company has invested to enhance the group’s capabilities of analysis and research for building lasting portfolios.

In the US, it accumulates ten and a half consecutive years of positive inflows in its affiliated management companies in the country, whose assets have grown from 131 billion to 453 billion in 14 years.

“The Question to Ask Is What Percentage of the Portfolio Should Be in Asia and the Answer Should Have Two Digits”

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“La pregunta que hay que hacerse es qué porcentaje de la cartera debe estar en Asia y la respuesta debería tener dos dígitos” — Steven Nicholls, Head of Fixed Income Product Specialists was recently in Madrid with Donald Amstad, Head of Business Development for Asia at Aberdeen AM.. "The Question to Ask Is What Percentage of the Portfolio Should Be in Asia and the Answer Should Have Two Digits"

There is no stopping Asian development, and the best proof of this is the increasing urbanization rate of these countries, which in turn results in an increase in life expectancy, increasingly higher per capita income (especially in the big cities) and, although it may seem an unimportant detail, the constant growth in the use of technology, especially mobile phones. For Donald Amstad, Director of Business Development for Asia at Aberdeen AM, the most representative example of this trend is South Korea, which should serve as a role model for other regions.

Taking into account that Asian currencies are generally cheap, while fixed income offers good returns -especially Asian dollar-denominated bonds which are trading at significant discounts compared to their American counterparts- and equities are not expensive either, investors should have exposure to Asia in their portfolios.

“In this scenario, the question to ask is what percentage of the portfolio should be invested in Asia, and the answer should have two digits,” said the expert, during a recent presentation in Madrid.

During his speech, Donald praised Asia’s growth potential, which is being ignored by developed countries, even though it now contributes 30% of global GDP, and estimates suggest that this figure will rise to 50% in 2050.

And for the first time in many years there is no negativity regarding China in Aberdeen. The reason is that the government has undertaken important steps, more and more people migrate from rural areas to cities, and they are also taking steps to liberalize markets, such as the recent connection between the markets of Shanghai and Hong Kong. They believe that, although growth is slower, a situation like Lehman Brothers is not about to happen. “The government has invested US$4 trillion out of the country and the same amount in domestic companies.”

According to Amstrad, however, the Asian region with the highest potential is India. “It’s definitely the emerging country with most investment opportunities.” And this is due to the good measures taken by both the Prime Minister, Narendra Modi, and the Governor of the Central Bank of India, Raghuram Rajan, although there is still much to be done. For example, in spite of its huge population, the percentage of workers is increasing.

Opportunities in emerging markets’ fixed income

Investment opportunities are also to be found in fixed income. As advocated by Steven Nicholls, Head of Fixed Income Product Specialist, the potential of emerging regions is unquestionable. These are regions with a large population, where demand for goods and services is growing, and an “example of this, as Donald said, is the ever increasing use of mobile phones and internet, and not only among the young.” Also, people in rural areas have greater access to information and banking institutions, with transactions, for example, becoming more common.

This does not mean that there are no risks, however, although generally they have more solid and stronger balance sheets than ten years ago and lower levels of debt. In addition, much of the debt is denominated in local currency. “But we must be selective with the countries that are chosen.”

“We believe that besides the growth potential offered by these countries, another indicator that they will continue to give good yields is that demand should be supported in part by institutional investors in high yield corporate issues,” said the expert.

Investec: “Our Preferred Asset Class Is High Yielding Equities, Which We Think Are Reasonably Valued”

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How will the potential move away from zero interest rates influence markets? John Stopford, Co-Head of Multi-Asset at Investec Asset Management, gives his view on this interview about the implications for high yield equities, income investors, emerging markets and more.

What has surprised you most in 2014?

One of the things that surprised me most is how much pessimism around the global economy has affected people’s expectations of US interest rate pricing. To our minds, the US economy is diverging, to some extent, from other economies and is creating room for the US to raise interest rates at some point in 2015. However, this has been largely priced out of markets, as markets worry about slowdowns in Europe, China and elsewhere. This has obviously had quite a big impact on bond markets and, to some extent, other asset prices as well.

Should we be concerned about US interest rates in 2015?

We think interest rate developments in the next 12 months are going to be very important. Clearly one of the key drivers of asset markets in recent years has been the very low level of interest rates and the promise by central banks to keep interest rates at low levels for a considerable period. If this driver is beginning to change then investors need to factor that into their investment thinking. We think it is highly likely that the US Federal Reserve will raise rates next year. We also think that this is a fairly significant development that will lead to a pick-up in volatility. It will cause more divergence between US assets and other markets, particularly the dollar, but also bond markets. It will create some noise in equities, although we think that equities should be able to ride through the noise and will be more focused on whether the global economy as a whole is going to expand.

How are you going to be managing your income portfolios?

The best way, we believe, to manage income asset exposure is to take a broad diversified approach. The world of income generation has widened out and it is no longer just a bond story. There are other assets – such as high yielding equities, property and infrastructure – that can provide part of an income solution. All income generating assets these days bring risks with them because all of the safe assets are pretty expensive: cash rates are very low, government bond rates are very low, so if you want to generate more income you have to take more risk. Therefore, to manage that we think you need to strike a balance between opportunity and risk management. One of the easiest ways of managing risk is to diversify and to actively manage the exposure that you take.

What are the biggest risks to these views?

We think there are both upside and downside risks. The main downside risk is the global economy is struggling to grow at a rate that will close output gaps and allow a more normal recovery. This is putting downward pressure on inflation. We may have reached a limit in terms of what monetary policy can do to offset this. There is also the risk that we might be in an uncomfortable economic environment. Asset prices may react badly to this risk, particularly some of the more growth-oriented assets.

But it is also possible that the world is already priced for a pessimistic outcome and potentially there are some upside risks in places like the US where we think growth may turn out to be stronger than people currently think, interest rates may rise somewhat faster than the market is pricing in and this will also potentially have an impact on the absolute relative pricing of assets, such as the dollar, equities, bond yi elds and so on.

How are you positioning your portfolio in terms of strategy?

At the moment our preferred asset class is high yielding equities, which we think are reasonably valued and which we think should benefit from a global expansion that could continue for some years given there are not many pressures on central banks to tighten monetary policy aggressively. We think that against that background earnings can come through, dividends can continue to rise and so equity income should do relatively well.

We are more cautious about high yield and credit in general, as we think this asset class has been the major beneficiary of low interest rates and is now a very crowded trade. It also tends to do less well towards the latter part of an economic cycle and looks reasonably expensive to us. We are underweighting high yield and are more neutral towards some of the other income-generating assets, such as emerging market debt and property, where we think having some exposure makes sense, but perhaps not too much.