Pixabay CC0 Public DomainPhoto: Bernhard_Staerck. Greece’s Bailout Odyssey Comes to an End: What Happens Now?
Greece officially exits the bailout program. The Hellenic country has put an end to eight years of financial bailout that has meant 386 billion Euros in loans, an increase in its debt in order to be able to face its creditors, a restructuring of its debt, and a period of policies of cuts for the country. But what can investors expect from Greece now?
The country’s macroeconomic data began to be positive in 2016 and, thanks to the good performance of its exports, last year its economy grew by 1.4%. “Greek politics and economy have stabilized in recent years. There are still many structural challenges, but both sides want to achieve a positive outcome and move away from the era of official assistance programs in the peripheral Euro-zone,” commented sources from Deutsche Bank’s analysis department.
In fact, Greece has experienced positive growth every quarter since 2017, as well as an increase in confidence in its economy. “From a structural perspective, the improvement of the economy has not translated into an increase in domestic demand, which has fallen during these years. Wages fell in the last decade, but prices did not adjust so much, which pushed domestic demand down but did not really improve competitiveness. This suggests that market reforms will be as, or more important than, labor market reforms in the coming years,” comment those same sources from the German banking institution.
The Greek country still faces many challenges along the way. “Greece has to start considering regulated access to the bond market, a standardization illustrated by the sharp drop in interest rates in recent years. It should be noted that although the financing needs for 2022 are extremely low, the debt’s long-term sustainability is as yet unsecured,” explains Guillaume Rigeade, Fund Manager at Edmond de Rothschild Asset Management.
The debt burden remains close to 190% of GDP and, starting in 2035, Greece’s financing needs will be once again substantial. According to Rigeade, this explains why “interest rates for Greek bonds continue to be the highest offered by sovereign debt in the Euro-zone.”
According to Joseph Mouawad, Manager at Carmignac, more than the exit itself, what matters most is the situation in which Greece exits the bail-out program. “Greece has a large primary surplus without large debt repayments in the short and medium term, a large cash cushion of 20 billion Euros, a competitive economy as a result of many reforms, and a painful internal devaluation and most importantly, growth is again in positive territory and is heading towards 3%,” Mouawad points out.
The asset management company is optimistic, acknowledging that they are still long-term investors in Greece. “We are seeking a wave of qualification updates that started with a 2-tier update from Fitch just a few weeks ago,” says the Carmignac manager.
Courtesy photo. From Quantitative Easing (QE) to Quantitative Tightening (QT)
This month of September is the tenth anniversary of the fall of Lehman Brothers, which was back then the fourth largest bank in the USA, and it initiated the worst global financial crisis in recent decades. The hyper-debt was not able to support the existing economic model, and the central banks, in a coordinated action, came to the rescue by applying unconventional policies known as Quantitative Easing, which is based on asset purchasing programmes that help inject liquidity into the market. The objective was to reactivate the flow of credit in the economy by artificially keeping the interest rates low (ZIRP, zero interest rate policy) or in negative figures (NIRP, negative interest rate policy).
The main milestones reached were the deleverage of the private sector and a financial system that had to assume stricter regulations and frequent controls in adverse scenarios (stress tests), as well as achieve further solvency by means of higher capital ratios. All of this despite the regulatory cost making them less profitable. However, the macroeconomic variables are being normalised in the main economies. The IMF, in its latest publication of the World Economic Outlook, expects an overall growth of 3.9%, for both 2018 and 2019.
At this stage, when it seems like we are overcoming the financial crisis and economic depression and the world economy is expanding, the main central banks are getting ready to reverse their balance sheet and start down a path to the normalisation of the monetary policy. This process is known as Quantitative Tightening, and it is the process of reverting Quantitative Easing. The Federal Reserve started this process in November 2017, and it has already reduced the balance in 237.9 Billion USD. The European Central Bank will reduce the monthly rate of net purchases of assets to 15,000 million euros until late December 2018 and it foresees its cessation from then on.
According to Bloomberg data, in the ten-year period between 2008 and 2017, all central banks have trebled their balance sheet, which has involved an injection of 14,245.6 Billion USD. This expansive policy has flooded the market with liquidity and, undoubtedly, helped raise the price of assets. This in turn has led to the so-called portfolio effect, by means of which the central bank’s purchase of lower risk assets (government bonds, IG credit, covered bonds) has encouraged investors to purchase higher risk bonds, whether due to the lack of bonds in this segment or due to seeking a higher performance.
It is only natural that investors are concerned about knowing what will happen when all this liquidity is drained and the interest rates rise (the FED, immersed in this process, has increased its reference rate from 0.25 to 2% since December 2015). There is certainly a risk of the prices of assets dropping during this reversal process. There is currently a particular need for the central banks to measure correctly the different risks at a macroeconomic (especially the predictions of inflation), financial and geopolitical level, so the monetary normalisation can be carried out without any hiccups. In fact, the markets are also more volatile this year than in 2017. The price war or the Turkish crisis played a significant role, but surely so did the QT, as the better performance of the US government bonds and the appreciation of the dollar have contributed to the prices of emerging market bonds, for example.
In this context, who can be the big winners? The money market investors, who will be able to invest at better interest rates; for example: the three-month treasury bills in the USA have gone from offering an interest rate below 1% just a year ago to 2.13% today.
What are the major corporate pension plans doing to protect themselves from the rise of interest rates or a greater volatility? They are incorporating real assets that generate recurring income, such as real state, or investing in infrastructure. Many already consider them as the new bonds, which improve the performance and reduce the global risk of the portfolios.
Pixabay CC0 Public DomainPatricksommer. Loomis Sayles Appoints Succesors for the Global Fixed Income and Senior Loan Teams
Loomis, Sayles & Company, an affiliate of Natixis Investment Managers, announced that Kenneth Buntrock, portfolio manager and co-team leader of the global fixed income team, will retire in March 2019 after 21 years with the company. Kevin Perry, portfolio manager on the senior loan team, will retire in March 2019 after 17 years with the company and 37 years in the industry.
In preparation for Ken’s retirement, longstanding portfolio managers Lynda Schweitzer and Scott Service will assume leadership roles effective immediately, joining David Rolley as co-team leaders, while all senior loan portfolios will continue to be co-managed by portfolio managers John Bell and Michael Klawitter, who have been members of the team for 17 and 16 years, respectively.
Kevin Charleston, chief executive officer said of Buntrock retirement: “We are grateful to Ken for more than 20 years of service and leadership at Loomis Sayles. His dedication is reflected within the success and growth of the Loomis Sayles global bond capabilities over the past two decades, and we wish him the best in retirement.” Charleston said of Perry: “Kevin has embodied Loomis Sayles’ values of collaboration, humility and prudent risk-taking every day since he and John joined us in 2001. Kevin and John are considered pioneers in the bank loan market and their efforts have led to clients entrusting us with the management of more than $10 billion in bank loan assets. We are grateful for Kevin’s contributions to our firm, and to bank loan investing, and wish him the best in retirement.”
Until their retirement date, both executives will continue in his leadership and portfolio management roles to ensure a seamless transition and provide continuity for clients.
Pixabay CC0 Public DomainPhoto: Nile. Regulation, Monetary Normalization, Diversification, and More Cautious Investors: The Legacy of a Crisis
This past weekend marked the anniversary of the Lehman Brothers collapse, one of the most important milestones that marked the financial crisis of 2008. TwentyFour Asset Management, a boutique specialized in fixed income founded by nine employees, was born just 24 hours later and in the midst of that chaos; facing a fund industry that changed overnight.
“Over the past decade, we have witnessed an unprecedented global expansion in the role and power of central banks, whose combined balances now exceed $ 15 trillion. Yield curves are now lower and flatter than before the crisis, thanks to a combination of risk-aversion and QE. This has distorted the relationship between interest rates and inflation, and has destroyed the term premium, a sign which shows that markets have not yet normalized. In addition, we have seen a transformation in the volume and quality of capital in the global banking system, together with a radical change in the regulation of the sector,” points out Graeme Anderson, President of TwentyFour Asset Management.
Anderson recalls that, after the Lehman Brothers collapse and the outlook that they would not obtain mandates, they had to rethink their entire business model. “We said it was better to rethink everything we thought we knew about the financial markets, because this was a new chapter,” he recalls. Like him, the market and the asset management companies were never the same after September 15th, 2018.
“With each market crisis there are lessons to be learnt, and honestly, some have to be learnt twice. In 2007-2008, investors were taught the lesson of how housing prices can fall at the same time across the country and how, for better or for worse, the global financial system was interconnected. We learnt that banks were not sufficiently capitalized to support higher risk behavior or systemic risk. What many investors still have to learn is that good times don’t last forever,” points out Ed Walczak, Portfolio Manager, Vontobel Asset Management, on analyzing how things have changed after the collapse of Lehman Brothers.
According to Juan Ramón Casanovas, Head of Private Portfolio Management of Bank Degroof Petercam Spain, that collapse and the international crisis caused, firstly, a new regulatory framework for financial institutions. “The great excesses committed in the past have brought radical changes in legislation. In 2010, the Wall Street reform law came into force, stress tests for financial entities began and new supervisory bodies were created. In Europe and in the rest of the world, we have experienced large concentrations and mergers of financial entities, transforming the financial system in some countries such as Spain. Bailouts with public funds have brought strong criticism. Cases of fines to banks for non-compliance have escalated. Another consequence has been the strong legislation for the marketing and purchase of new products, a sample of which is the MiFID regulation,” explains Casanovas.
This increase in legislation has meant that the global banking system seems much stronger now than it was 10 years ago. “Many regulations have been established to ensure that banks are better capitalized for their business model. For example, leveraging was significantly reduced, on the one hand, by strengthening the capital base and, on the other hand, by significantly reducing dealing on own account. In this regard, banks would probably be currently facing a comparable situation,” said Thomas Herbert and Michael Blümke, Portfolio Managers at Ethenea Independent Investors.
Beyond Regulation
The sector hasn’t only seen change in terms of regulation or of the economic environment, but also, according to Amundi Asset Management, the way in which managers assign the assets has changed as well. “From a portfolio construction perspective, we currently see three main areas of development, since not all the lessons of the crisis have resulted in real solutions. First, a broader concept of risk is considered, which is not only limited to volatility but also to liquidity. Secondly, new risk profiles are taken into account in all asset classes, and finally, the diversification strategies are improved and gain relevance,” company sources explain.
The change in the way in which management companies assign assets and compose portfolios is also due to the fact that the investor has changed. At present, investors are more cautious and therefore are more likely to change their mind when volatility looms again. “Buy and maintain” has gone from being a reliable key principle to a sad commonplace that many investors can no longer sustain.
According to Dave Lafferty, Chief Investment Strategist at Natixis IM, as the attitudes of investors have changed, so have the markets. “Because Lehman’s failure was equally a credit and liquidity crisis, investors have come to demand better protection and more liquidity in their investments. The sector has proven to be more willing to develop new products and strategies that promise to reduce volatility, manage exposure to downside or reduce correlation with falling markets,” says Lafferty.
Current Risks
Despite everything that was learnt and improved on after the crisis, management companies agree that there are still aspects to be changed and challenges to face. “The ultra-expansive policies, both monetary and fiscal, that were needed at that time in order to avoid an economic depression, have not addressed the root of the problem. They are capable, in the best of cases, of smoothing the cycle, but they have had little effect on the trend, which depends on the political reforms and on the will to carry them out. On the other hand, given that some of these extraordinary measures are still underway, they are delaying the necessary adjustment even further,” advises Fabrizio Quirighetti, Head of Multi-asset at SYZ AM.
At Schroders they wonder where these imbalances are now, in order to identify the future failings in world economy. “We discovered that there have been significant changes in the global economy, so that any imbalances are minor, but they have changed in such a way that the risks are different from those of a decade ago,” says Keith Wade, Chief Economist and Strategist at Schroders. In this regard, Wade focuses on three elements: emerging markets are still vulnerable, the current US account deficit still persists and there will be an inevitable appreciation of the Euro.
Pixabay CC0 Public DomainGraham Ray, Linkedin. BNP Paribas Securities Services Hires Graham Ray
BNP Paribas Securities Services has appointed Graham Ray to the newly-created role of Global Head of Sales and Relationship Management for Financial Intermediaries with immediate effect.
Ray will be responsible for driving new sales and strategic opportunities with financial intermediaries, and for deepening relationships with new and existing clients. His proven experience in helping clients with complex needs to optimise their business operations will continue to position BNP Paribas Securities Services as a strategic partner to its clients. Ray will be based in London and will report globally to Alvaro Camuñas, and locally to Patrick Hayes, Regional Head of UK, Middle East & South Africa.
Alvaro Camuñas, Global Head of Sales and Relationship Management at BNP Paribas Securities Services said: “We’re delighted to have Graham on board. His outstanding track record in our industry, product knowledge and client expertise position us well for future growth. He joins at an important time for our business, which is growing rapidly around the world.”
Ray has more than 15 years’ experience in the custody industry. He joins BNP Paribas from Deutsche Bank where he was Global Head of Investor Services, responsible for product management for an extensive portfolio of products. Prior to this, Ray worked in global operations for Northern Trust as a Division Manager, responsible for securities and alternative investment settlement operations.
Pixabay CC0 Public DomainFree photos. US Companies are at the Forefront of Another Outstanding Period of Results on a Global Scale
Since the beginning of the year, equities have positioned themselves as one of the most attractive assets for investors given the risk / reward ratio that it offers. Therefore, asset managers have been calibrating and searching for the best combination of US, European, and emerging market equities. According to the asset management companies, this will continue to be a fundamental piece in the portfolios for the second part of the year.
Although historically summers are a quiet period, logically there are also some exceptions, sources at DWS point out that this year “the growth of some shares, for example Facebook, has been afflicted, and defensive stocks have outperformed the behavior of the most cyclical securities. In fact, some cyclical stocks obtained poor results, while sovereign bonds barely moved.”
US equities stood out due to the good behavior of business profits which, as was to be expected, increased thanks to the fiscal reform that was already noticeable this quarter. According to Richard Turnill, Global Head of Investment Strategy at BlackRock, “the strength of corporate profits, especially in the United States, will continue until the end of the year, as the optimistic forecasts of companies show that confidence is on the rise”.
In his opinion, US Companies are at the Forefront of another outstanding period of results on a global scale. According to his analysis, firms that exceeded expectations have been rewarded with a rise in prices, even in spite of investors’ concerns about the increase in economic uncertainty, trade tensions and the appreciation of the US dollar. “Our analyses of business forecasts suggest that business confidence is on the rise, which provides us with the basis to affirm that the soundness of profits can be perpetuated in 2018 in a context characterized by the robustness of global growth,” says Turnill.
In his opinion, US Companies are at the Forefront of another outstanding period of results on a global scale. According to his analysis, firms that exceeded expectations have been rewarded with a rise in prices, even in spite of investors’ concerns about the increase in economic uncertainty, trade tensions and the appreciation of the US dollar. “Our analyses of business forecasts suggest that business confidence is on the rise, which provides us with the basis to affirm that the soundness of profits can be perpetuated in 2018 in a context characterized by the robustness of global growth,” says Turnill.
But all that glitters is not gold, especially in the United States. “The downside is that American companies are seeing more pressure on the cost of raw materials and wages. There have also been quite a few companies in the United States that have pointed out the negative effects that the increase in tariffs has on them, whereas European companies have taken advantage of the opportunities that trade tension has generated,” DWS points out in its latest report.
Once again, the United States and Europe are the markets where investors and asset managers find more opportunities for equities, after the exit of flows from emerging countries due to the effect of the strength of the dollar. According to Union Bancaire Privée (UBP), the strength of the dollar must be added to the political uncertainty generated by the US administration with its trade policy. “In our opinion, investors have become excessively pessimistic about emerging markets’ assets, and a stabilization of the dollar should allow a rebound in emerging market stocks,” UBP explains in its latest report.
The entity is cautious and prefers to follow strategies that allow them to participate in equity growth through hedge funds, strategies that protect capital, and convertible bonds, avoiding direct investment in shares. “Within equities, we have expanded our underweight in Europe given the constant political fragility that is projected, and a more moderate economic growth. On the other hand, Euro-zone shares are more attractive than US equities, while offering a modest perspective of earnings growth,” he argues egarding his position towards the end of the summer.
Pixabay CC0 Public DomainOimheidi. After the Trade Storm of Summer, what do the Last Four Months of the Year Hold in Store?
All analysts point to several elements as the protagonists towards the end of the year: Geopolitical tensions in the face of a possible commercial war, rising interest rates on the horizon, the Brexit negotiations, and the confidence in fundamentals that suggest that Global growth will continue.
For some experts, such as Olaf van den Heuvel, Head of Investments at Aegon Asset Management, the markets are behaving well and will continue to do so for the rest of the year, despite the constant background noise generated by the economic situation, geopolitics and the associated volatility.
“As we anticipated, the most prominent feature so far in 2018 has been the reappearance of market volatility in most asset classes. Volatility is often synonymous with good news for active fund managers, as it allows us to provide added value through fundamental analysis and a good selection of securities. In addition, volatility has not prevented most economies from maintaining a steady growth rate. To date, the year has been marked by a continuous flow of events that have focused the attention of the markets at one time or another, from the abrupt stock market corrections to the widening of the Libor spreads, Italian politics, and the depreciation of emerging market currencies. Although these events caused strong fluctuations in the markets, within a matter of days they were already of secondary importance,” says Van den Heuvel.
According to this expert, it isn’t difficult to identify the events that will affect the markets in the coming months: “Trade policy has become a central issue and will continue to be so long as Donald Trump continues to apply tariffs on Chinese goods. The Chinese economy is already somewhat weakened in itself after the strong corrections experienced by both its currency and its stock markets. I think fears about the sustainability of the Chinese growth model will come to the fore some time during the year, as well as the possible repercussions of the agreement, or lack of agreement, on Brexit.”
At Lombard Odier they share the same theory, as they believe that “trade tensions will remain restrained, although we must admit that the possibility of a trade war has become a risk that deserves our utmost consideration.”
Regarding this summer period of tweets and tensions that we are just about to conclude, the team of economists at Schroders, are wondering as to just how real the “calm” we are experiencing really is. “Concerns about China, the weakening of commodity prices, and the appreciation of the dollar, all point to a period of slower growth for the global economy. The trade wars have probably generated a rebound and later a fall, as importers advanced their expenditure in order to avoid higher tariffs and now they are reducing it again”
Macro analysis
Looking at the fourth macro, at Lombard Odier they point out that the global environment does not favor the growth of emerging markets, “although the most affected countries to date have been those with weaker fundamentals or greater political risk.” For the United States, it foresees, in the short term, that the Fed will not accelerate the adjustment of its policies and that the economy of the Euro-zone will suffer specific falls, rather than sustained ones.
In this regard, Schroders points out that, unless trade wars hurt “business confidence and investment, the global economy should recover, but the combination of tariffs and tax cuts is likely to lead to an increase in inflation in the U.S”.
Pixabay CC0 Public DomainWenPhotos. Are we Heading Towards a Political Crisis in the Eurozone with Italy?
The risk of a new sovereign crisis in the Eurozone seems to have come to a halt after the uncertainty caused by the Italian elections and the subsequent formation of a populist government. At the end of the second quarter, Italy became the center of attention and the fear of contagion resurfaced again. Will Italy – and the rest of the peripheral markets – endure the political noise? Noise such as that caused by the Italian Deputy Prime Minister and leader of the 5 Star Movement, Luigi Di Maio, when he affirmed that the government would not ratify the free-trade agreement between the EU and Canada (CETA). These types of statements generate uncertainty in the market and concern for international investors, as what happened with Greece during the economic crisis still remains fresh in their memory.
This is where asset management companies reassure and argue that we are not facing the same case. “As simple as the idea that we are facing a Greece II may be, there are several factors that override this perspective. On the one hand, the Italian economy is much larger: it represents approximately 15% of the economic activity registered in the Eurozone, compared to 1.6% for Greece, and traditionally, its economy and banking system are considered much more integrated with the rest of the Eurozone. Italy is also the third largest debtor in the world (130% of its GDP), after the United States and Japan. In addition, according to the figures handled by Deutsche Bank, only 40% of this debt has domestic creditors: foreign investors (around 35%) and the Euro system (approximately 18%) account for the majority,” Robeco sources explain.
Likewise, they consider that the contagion to other countries, especially the peripheral ones such as Spain or Portugal, is low. According to Oliver Marcoit and Guilhem Savry, Managers of Multiactive Strategies at Unigestion, contagion is very limited given the consolidation that exists in the Eurozone since the European debt crisis.
Spain has its own problems, however, and the vote of no confidence that took place in June revived market tensions, since the markets are taking into account the risk that populist parties will gain access to executive functions. The combination of political risk in both Italy and Spain would weigh on European assets as a whole, with the spreads of the peripheral government and the Euro at the forefront,” warn Marcoit and Savry.
Italian Risks
That the risk of contagion is low, or that Italy’s context is totally different from what Greece was, does not exempt it from having a long list of tasks ahead to avoid weakening the European project. According to Philipp Vorndran, Market Strategist at Flossbach von Storch, Italy is at a moment of transition and exposes its public coffers to a new challenge, which will only be viable if interest rates are maintained at the current level.
In fact, the “Government for change” proposed by Italian Prime Minister Giuseppe Conte is a challenge for the public coffers and may lead to a greater imbalance than expected. According to a study by Flossbach von Storch’s Research Institute, the net negative fiscal impact of the proposed measures could reach 100 billion Euros per year. Amongst the proposed measures are the reduction of fuel taxes, the repeal of the recent pension reform, and the creation of an income for citizens living below the poverty line. Minister Conte’s plan, however, does not clarify how he plans to finance these and other measures. On the one hand, VAT remains unchanged. On the other hand, the reduction of expenses, such as the abolition of “golden pensions”, limitations on international missions, and the elimination of the life pension for members of parliament, does not release enough capital to finance the measures provided for in the coalition agreement. According to this study, the financial hole in public coffers could reach 120 billion Euros.
According to Vorndran, it also seems unlikely that these measures will significantly boost economic growth and improve the trade balance. “Half of the proposed measures would have a negative impact, going from the current 132% today to 141% of the GDP until the end of the mandate. As long as Italy’s economy maintains the growth rate of the last five years and the ECB extends its favorable monetary policy for the refinancing of costs,” he says.
Foto cedida. Should Investors be Worried About EM Contagion?
Emerging markets are in free fall. The main reasons for the decline are the recent US dollar strength, trade war fears, and, more recently, the sharp devaluation of the Turkish lira. The abrupt sell-off evokes memories of the Mexican peso crisis of 1994/1995, the Asian financial crisis of 1997/1998, and, more recently, the Chinese devaluation and stock market turbulence of 2015/2016. Should investors be worried about emerging market contagion?
The crisis in Turkey is hardly surprising. Its economy suffers from a large trade deficit (6.3% of GDP), high external funding needs, and rising inflationary pressures. Consumer price inflation surged from around 10% at the beginning of the year to above 15% by June. Nevertheless, the central bank left the policy rate unchanged at 17.75% at its July policy meeting. It became evident that President Erdogan’s criticism of higher interest rates has undermined central bank independence. This opened the door for bets against the lira. There is hope that a more comprehensive policy, combined with fiscal and monetary austerity, could stabilize the currency and avoid an inflationary spiral, although this could push the economy into a recession in 2019. The good news is that there are only minor economic links between Turkey and other emerging markets.
More importantly, Turkey’s major emerging market peers are in better shape. Fundamentals are healthy, with improved trade and fiscal accounts and low inflation. Foreign debt levels are not excessive and a number of major countries, especially China, have sizeable hard currency reserves in place. Demographic factors also continue to be favorable in comparison with advanced economies. Finally, there is a tendency toward structural reforms, stronger institutions, and anti-corruption policies that should improve longer-term financial stability. For now it appears that China and Brazil are the only countries that could trigger a deeper financial crisis, due to their size and rising sovereign-debt (Brazil) and corporate-debt (China) levels.
Brazil has initiated an ambitious reform process. The country is at an early stage of an economic recovery following the sharp recession of 2015/2016, since when the trade deficit has been largely eliminated. Inflation and interest rates are low in comparison to what they have been. This, together with significant hard currency reserves and a direct swap line with the US Federal Reserve, gives the central bank plenty of room to counterbalance pressures and defend the foreign exchange rate. The problem is that Brazil needs economic growth to offset its souring public debt levels, meaning that the reform path needs to be continued. Volatility is therefore likely to persist ahead of the upcoming presidential election in October. However, given the illegibility of former president Lula, the most likely outcome is still a relatively market-friendly, though populistic, center-right government, which could lead to a relief rally.
China has started to transform and modernize its economy and this should lead to more sustainable and robust, albeit somewhat slower, economic growth. Policy measures in the past two years have included a reduction of fiscal and monetary stimulus to deflate the housing bubble and reduce local and corporate debt levels. Economic growth has continued to slow at a moderate pace, from above 7% to around 6.5%. The recent depreciation of the yuan is no great surprise, given the general US dollar strength as well as the narrowing growth, trade deficit, and interest-rate gaps compared to the US. Of course, the main risk is an escalating trade war. Given President Trump´s rising approval ratings and recent political scandals around his lawyer and campaign manager, he may continue to play tough to please his main supporters. Trade tensions could therefore intensify ahead of the US mid-term elections in November. However, China has already started to implement small policy adjustments to bolster the economy’s defenses against the negative impact of US tariffs, which should start to become visible in Q4. Even if the US imposes a 25% tariff on another USD250bn of Chinese goods, the growth drag should be less than 1% and an additional stimulus should help keep GDP growth above 6% in 2019. In a more market-friendly scenario, Trump’s tone could become more reconciliatory once the elections are over.
In fact, Trump’s introduction and threats of tariffs and other sanctions have been the main drivers of the recent USD rally, which has been the biggest headwind for emerging markets. Given the extensive media coverage, and as Trump has already threatened to impose tariffs on basically all Chinese imports, a lot of bad news must be priced in. Nevertheless, markets hate uncertainty and volatility is likely to remain high throughout the political campaign period in the US, and to a lesser degree in Brazil. Unless the situation gets completely out of control, we may well see a catch-up rally toward the end of the year.
Pixabay CC0 Public Domain . Fintech and Machine Learning Among New Topics for the CFA Program Curriculum in 2019
CFA Institute, the global association of investment management professionals, has introduced its 2019 CFA® Program curriculum for June and December 2019 exam candidates. Guided by a robust practice analysis process that tracks how the investment management profession changes over time, CFA Institute regularly updates its curricula to arm candidates with the skills and knowledge needed for success in the rapidly evolving industry.
“The integration of next-generation knowledge into our curricula on emerging topics like fintech and machine learning ensures our candidates are fully prepared to not only have a place in the industry, but to lead it,” said Stephen M. Horan, CFA, CIPM, managing director of credentialing at CFA Institute. “It is challenging to keep a nearly 9,000-page curriculum up to date, and we take that task very seriously to prepare the next generation of investment managers for the demands of the global capital markets.”
The CFA designation is one of the most respected and recognized investment management designations in the world, and its reputation and that of CFA Institute depend upon maintaining a comprehensive “gold standard” curriculum. To ensure its integrity and relevance, the organization gathers input from practicing investment management professionals, university faculty, and regulators around the globe, who help identify and prioritize the CFA curriculum areas to be added, deleted, or revised.
The 2019 CFA curriculum update includes a total of 10 new readings and major revisions and improvements to 18 existing readings. Among the highlights:
Fintech enters the CFA Program curriculum at Level I and II, surveying the range of technologies and financial applications in investment management, new content on Machine Learning, and ethics cases within a fintech work setting.
New content for Level III in Equity Portfolio Management reflecting the latest practices in the areas of both passive and active equity investing.
New Level III content on Professionalism in Investment Management explaining the characteristics of investment management professions and CFA Institute as a professional body.
20 sets of practice problems supporting new curriculum content.
Candidates study approximately 1,000 hours on average to master nearly 9,000 pages of curriculum. Its depth and breadth provides a strong foundation of advanced investment analysis and practical portfolio management skills, which gives investment professionals a career advantage. To earn the charter, candidates must pass all three levels of the exam, considered to be the most rigorous in the investment profession; meet the work experience requirements of four years in the investment industry; sign a commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct; and become a member of CFA Institute. Less than one in five candidates who begin the program actually become CFA charterholders, a testament to the determination and mastery of professional competencies demonstrated by successful candidates.
