Investors seem to need some time to get used to the new reality that monetary policy in the US and China has shifted to a less easy stance. Central banks try to support investors in this process by sending clear messages on their future policy intentions.
In our psychological market diagnosis it remains important to understand that more pessimistic moods often lead to underestimation of the possible good news to come. Therefore, it might be wise to start with the little discussed good news in the analysis of the balance of risks ahead of us.
European equities trade at a high discount vs. US stocks
Favourable economic indicators in developed economies In sharp contrast to recent market dynamics economic data in the developed markets have surprised on the upside. To put it more strongly, economic indicators have been on a solid upward trend since the middle of May. This was driven by broad based strength in Europe (including the UK), the US and Japan. Unless the reappearance of market shocks (for example, full-blow crisis in emerging markets, renewed intensification of Eurozone crisis), it is likely that cyclical strength in developed markets will lead the global economy to higher growth grounds and thereby support risky assets across the board.
Markets have misunderstood the Fed Various members in the Federal Open Market Committee (FMOC) made speeches last week in which they made it clear that markets had misunderstood the Fed. In particular, the pricing of the first rate hike in 2014 and a somewhat steeper profile of tightening after that was certainly not the message the Fed had wanted to send. On the contrary, quantitative easing and forward guidance should be seen as two completely separate policy instruments where the latter is the most clear and important expression of the Fed’s strategic game plan. As far as the latter is concerned, absolutely nothing has changed and the Fed itself still does not expect the first rate hike to occur before somewhere in 2015.
Guidance of level official interest rates by ECB In the Eurozone the biggest concern for the central bank is to safeguard the fragile recovery in the region. On 4 July Mario Draghi tried to reassure investors by dropping a longstanding policy of never ‘pre-committing’ to future interest rate decisions. Actually, he now rules out any increase for an extended period.
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Wikimedia CommonsFoto: Pavel/ Sean Vivek Crasto. Brasil y México: comparativa de los gigantes de Latinoamérica
One year ahead of the Football World Cup, the focus is on Latin America. While Brazil might be the hottest bet on the football field, how does it compare with Mexico in economic terms? In this video, Credit Suisse Research Institute members take a closer look at Latin America’s heavy-weights.
Click the following link to read the article/transcript.
While we believe that the euro area is off ‘the critical list’, its health remains fragile. This has been evidenced in anaemic first quarter growth data (-0.2% qoq). Europe’s ‘core’ countries have also been showing signs of economic strain, France contracting 0.2%, and German growth very weak at 0.1%. Underlying structural issues and political discord within the region are also reasons for caution. The agonising negotiations over the Cypriot bailout mean that investors should not become complacent about the risks within Europe’s banking system. The voice of protest in the periphery continues to make itself heard; in Greece, the Democratic Left party has pulled out of the country’s fragile coalition following a row about the future of the state broadcaster. Although real money growth points to perhaps a slightly better outlook than consensus forecasts would have us believe, and valuation measures appear favourable, we are not entirely convinced that fundamentals will change enough in order for the region’s potential to be released. So, weighing the risks, we are underweight Europe.
We worry more that the EM have become popular investment areas over the past decade and may be a crowded trade
China and the EM are a complex area, one that we are not confident about buying into just yet. While we are not particularly concerned about their growth prospects – even with a moderation in China’s output they should continue to expand at a faster pace than the rest of the world – we worry more that these have become popular investment areas over the past decade and may be a crowded trade (chart 2). Investors who perhaps had 1-2% exposure to the EM in the early nineties, may have as much as 15-20% allocated to the area today. Notably, some of the advantages that made EM a compelling story back then – weak currencies and cheaper labour costs – have lost their sparkle. China has been losing economic competitiveness globally due to substantial wage growth and skills shortages. The Politburo’s measures to restrict property price appreciation and a clamp-down on the shadow banking sector have made for a bumpy ride. Investors will be looking for clearer announcements about fiscal policy and urbanisation plans in order to become more comfortable about the direction of Beijing’s reform agenda.
Chart 2: Post-crisis fund flows
Slowly but surely?
In the UK, there are, perhaps, more reasons to be cheerfulthan the press would have us believe. While growth has been lukewarm at best (first quarter GDP +0.3% qoq), investors could be underestimating the impact of some of the coalition government’s initiatives to kickstart the economy. Extra assistance for home buyers through the Funding for Lending and Help to Buy schemesappears to be feeding through to the housing market. According to the latest figures from the Council of Mortgage Lenders banks lent more to would-be homeowners in May than at any time since the autumn of 2008. At the same time, sterling weakness has been quite beneficial to Britain’s manufacturers, who have been enjoying a stronger-than-expected rebound in business. Lastly, the change of governorship at the Bank of England (BoE) as Mark Carney takes to the helm as governor is potentially very significant. Mr Carney is likely to be more tolerant of inflation given his comments regarding nominal GDP targeting.
Although the UK has experienced a long period of above-target inflation this has not destabilised medium-term inflation expectations, meaning that Mr Carney may have a little more scope than perhaps people think to adjust the bank’s mandate towards growth and reaching ‘escape velocity’.
Opinion column by Bill McQuaker, Deputy Head of Equities for Henderson Global Investors.
Wikimedia CommonsFoto: Tightrope walking, Wiros. Keeping Your Balance During Shaky Markets
While capital markets have had their ups and downs, it’s been at least 15 years since we’ve seen such a broad swathe of the global markets take a hit at the same time—risky and “risk-free” assets alike.
What’s most disconcerting for investors is that the part of their portfolio that likely has provided some stability historically—US Treasuries—appears to have been part of the volatility this time. Not many of today’s investors have had the experience of getting through a period of such instability, let alone using it to their advantage.
The catalysts for this volatility include recent US Federal Reserve comments regarding tapering its bond-purchasing program, indications of slower growth ahead for China’s economy, euro-area indecisiveness, political turmoil from Brazil to Turkey and slowing growth in many emerging markets. A lot of these catalysts boil down to fears about the future rather than a focus on present positives. After all, Fed Chairman Ben Bernanke’s vision for gradually weaning us off easy monetary policy was based on the growing consistency of upbeat economic data.
But no matter the underlying cause, the markets have reacted with alarm, which makes it difficult for investors to decide what to do.
In more typical markets, diversification has kept investors on a steady course, with US Treasury bonds serving as ballast for portfolio stability. Even within the bond market, diversification has typically been a wise approach. That’s because there are two major risks in the bond market: interest-rate risk and credit risk. When the economy is shaky, the highest-quality securities, such as US Treasuries, generally tend to perform well. In times of economic growth and rising interest rates, high-yielding credits often shine. If an investor combines high-quality and high-income bonds in a balanced, barbell approach, their bond portfolio has the potential to weather most markets.
The operative word, though, is “most.” That barbell approach hasn’t fared well in the past two months. Is it dead? Some investors may think so, but we don’t.
Yield spreads and interest rates have historically moved in opposite directions, so when rates have risen, spreads have tightened and credit has outperformed. Right now, they’re moving together—meaning that government and credit prices are falling at the same time. This is a relatively rare occurrence.
In any case, a credit barbell approach has fared rather well for the past 20 years, despite three other highly stressed macro-driven environments. The only time the barbell approach didn’t work was in 1994. The other major crisis periods were bad for this approach, as they were for almost every bond strategy, but that was primarily due to massive credit sell-offs.
Still, the barbell approach has additional strengths to call upon—even in the midst of a crisis.
Diversification of sectors, industries and securities is a must. Equally important is having the flexibility to alter sector allocations when warranted. Simply put, a barbell strategy should avoid sectors, industries and securities that are at higher risk of trouble, but remain alert and opportunistic to allocate into those sectors when prices are very depressed.
We’ve seen numerous interest-rate and credit cycles over the past 20 years—and even several global and systemic credit crises. But strong credit selection going into a crisis and opportunistic allocation into more distressed sectors during a crisis gives the barbell approach the capability to potentially rebound strongly.
Every new market gyration or crisis is different, but every one of them is also an echo of the past. We believe that the best response to any situation is having a strategy that lets you keep your balance.
Paul DeNoon is Director of Emerging-Market Debt at AllianceBernstein.
Foto cedidaJuan Narváez. Acheron Partners Strengthens its Presence in Mexico
Acheron Partners, an executive recruitment firm, is still committed to the Mexican market, and proof of this is the incorporation of Juan Narvaez to the Aztec nation’s office. Narvaez has been transferred from the office in Spain, where he was a consultant for legal and financial processes and banking.
In his role, he will be responsible for managing and providing customer service to new and existing clients, as well as finding new projects, counseling, and the study of client’s needs and further branches of the business within the recruitment industry.
Before joining Acheron Partners, Juan was Corporate Banking Manager with Banesto, being in permanent contact with the general management of the companies assigned to his portfolio.
Wikimedia CommonsFoto: McKay Savage from London. La mano amiga de las microfinanzas
Microfinance, or the practice of lending to micro-entrepreneurs and small businesses that lack access to traditional banking and related financial services, takes place in different forms globally. The main goal of this type of lending is to offer loans to often low income or “unbanked” individuals in developing countries. With access to funding, borrowers stand a better chance of being able to start-up or further develop a business they believe meets a local need. In many cases, borrowers would otherwise not be able to help pull their families out of poverty, build personal assets and ultimately ascend the socioeconomic ladder. Global institutions, such as the World Bank, run programs that facilitate lending to farmers, women in village communities and small business owners. There are also for-profit organizations and commercial banks that operate various microfinance models. Loans can range from a few hundred U.S. dollars to several thousand U.S. dollars with annual interest rates north of 20%.
Given these high interests rates, the microfinance industry inevitably creates controversies as some claim it takes advantage of poor workers. In the Asia context, the degree of development and success of microfinance lending varies quite a bit given various political and social sensitivities.
Bangladesh’s model of lending to small groups of women whose group members act as co-guarantors for repayment has been an inspiration to many other countries. Approximately 40% of Indonesia’s 240 million people lack access to financial services. The model of lending to the “productive poor” to expand their businesses has been effective. Micro-loans are made to farmers or self-employed small business owners who might not otherwise be able to provide proof of income required in a traditional banking scenario. In general, borrowers are receptive to the merits of microfinance lending and, thus far, such models have thrived. In India, however, microfinance lending carries a rather negative connotation. This is due in part to overly aggressive lending and payment collections practices. In India, the practice of microfinance lending has met with scrutiny and criticism by regulators and politicians.
Whether microfinance is praised or not, the benefits or pitfalls are subject to the interpretation of the stakeholder. It is, however, important to keep in mind that while urbanization may be taking place across Asia, large populations still live in rural areas in the region’s less developed countries. Because of structural or social hurdles, gaining access to financial services is still amongst the many challenges faced by rural residents. There is obviously no “one-size-fits-all” solution to the problems in such a diverse region as Asia. It is nonetheless encouraging to see the ongoing developments and issues being addressed by both government-owned organizations and the private sector.
Lydia So, CFA,Portfolio Manager
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.
Photo: MarcusObal . Commodity Market Decreased in June Amid Continued Slowing Growth Signals from China
Commodities were lower in June as uncertainty surrounding the future of the global economic recovery remained high.
Nelson Louie, Global Head of Commodities inCredit Suisse’s Asset Management business, said, “Macroeconomic news out of China weighed on commodities in June. With China now shifting to a more moderate rate of growth and modestly improving conditions elsewhere, it is likely that supply divergences are playing an increasing role at a time when the higher correlation observed between other asset classes and commodities since 2008 has begun to normalize. This may signal a return to a more fundamentally-driven market. Within the current trend, the pace of supply growth is likely to remain the key factor in driving commodity returns.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Markets continue to be caught between good economic news being positive, indicating that the recovery is gaining traction, or good economic news being negative as it may mean monetary policy will tighten. While the pace of these programs may eventually soften, we believe that most major central banks will continue to err on the side of providing more stimulus until the economy improves rather than risk tightening too much. In the meantime, while inflation continues to be muted, the risk of unexpected inflation remains elevated.”
The Dow Jones-UBS Commodity Index Total Return decreased 4.71% in June. Overall, 15 out of 22 index constituents posted negative returns. Precious Metals was the worst performing sector, down 12.27%, on persistent worries over the US Federal Reserve’s plan to wind down its monetary stimulus program and the rally of the US dollar in the second half of the month. Industrial Metals declined 7.11% as a preliminary survey showed that China’s factory activity weakened to a nine-month low in June as demand faltered. This may heighten risks that a second quarter slowdown could be sharper than expected and increase pressure on the Chinese central bank to loosen policy.
Agriculture ended the month lower, down 4.16%, pressured by higher-than-expected ending corn stocks and further data showing larger-than-expected US acreages planted despite the earlier weather related planting delays. News that Australia’s new-crop wheat production increased 15% from a year ago added to concerns over larger global supplies. Australia is one of the world’s largest wheat exporters. Energy decreased 2.55%, led by Natural Gas, following the higher-than-consensus storage injections in June as reported by the US Energy Information Administration. Livestock was the best performing sector, up 3.10%, with both Live Cattle and Lean Hogs ending the month higher. The USDA lowered its forecast for 2013 pork production and reported lower feeder cattle placements for May than a year ago.
Foto: Captain-tucker . El mercado residencial de Miami sube un 25% en un año
The Second Quarter 2013 Miami Residential Market Report reveals that the Miami market is continuing its momentum of market strength. For the ninth consecutive quarter, since 2Q 2011, Miami Dade’s overall median sales price has gone up year over year. Current median sales price is $219,000, a 25.1% increase since last year. This is the largest year-over-year median price gain since 1Q 2012. Average price also increased 13.9% since last year.
The Miami Residential Market Report is produced by StreetEasy.com, a comprehensive real estate information website. The report tracks the market trends of the greater metropolitan area with quarter-over-quarter and year-over-year comparisons.
“These price gains were driven primarily by strong condo resales and single-family home resales in Miami-Dade. When you separate out the housing types, the price gains are even more dramatic,” says Sofia Song, Head of Research at StreetEasy.com. According to the report, the median price forcondo resales jumped 48.6% to $208K and single-family homes went up 24.3% to $230K since last year.
Some highlights of the Miami report include the following:
New Developments– This quarter, there was 65% fewer new development sales compared to a year ago. This is a segment of the market that is truly constrained by the low inventory. Two-thirds of new development closings this quarter were under $300K.
Condo Resales – This segment of the market had a decrease of 11.1% in the number of transactions this quarter compared to a year ago. However, average PPSF jumped 34.3% to $341.
Single-Family Home Resales– 22% of all single-family homes sold this quarter were over $500K. Average PPSF climbed to $227, a 17% increase from a year ago.
StreetEasy.com’s partnership with DataQuick allowed the website to compile the recorded sales of residential properties that traded in the Miami-Dade County during Q2 of 2013.
In addition to overall Miami-Dade county data, the report also focused on six major markets of the greater metropolitan area, defined as such:
Greater Aventura & Bal Harbour : Golden Beach, Sunny Isles, Ojus, Aventura, Bal Harbour, Bay Harbor Islands, Surfside, and Indian Creek
Upper Miami Beach : La Gorce, La Gorce Island, Allison Island, Mid Beach, Nautilus, Bayshore, Sunset Islands, North Bay Road, Biscayne Point, Normandy Island, and North Beach
South Beach & Fisher Island
Urban Core : City of Miami (includes Downtown Miami & Brickell), Coral Gables, Key Biscayne, Pinecrest, and South Miami
Southwest Miami Dade : Kendall, Doral City, Sweetwater, Tamiami, University Park, Westchester, Fountainbleu, and Coral Terrace
Northeast Miami Dade : Miami Shores, North Miami, Biscayne Park, North Miami Beach, and Golden Glades
Foto: Raimond Spekking. Deutsche Asset & WM ficha a Caroline Kitidis para servir a clientes UHNWI de las Américas
Deutsche Asset & Wealth Management announced that Caroline Kitidis will join the firm as Head of Key Client Partners & Wealth Investment Advisory for the Americas, effective August 2013, said the bank in a press release.
Kitidis will lead a team that structures customized investment solutions for ultra high net worth clients in the Americas, including individuals and family offices.
Dario Schiraldi, Head of Global Client Group, Deutsche Asset & Wealth Management, said: “I am delighted a professional of Caroline’s caliber has joined our team to help provide ultra high net worth clients with comprehensive market access, high quality investment ideas, and swift execution.”
Jerry Miller, Head of Asset & Wealth Management Americas, added: “This is an exciting time in the development of our ultra high net worth business. Our investment platform spans all asset classes and is ideally suited to serve the needs of the most sophisticated investors.”
Kitidis joins Deutsche Asset & Wealth Management after 15 years at Goldman Sachs. She was most recently Head of the Americas Structured Solutions Group within Private Wealth Management. Before that, she led Equity Derivative Structuring for private clients.
Kitidis will be based in New York and report to Dario Schiraldi and Deutsche’s Co-Heads of Wealth Management in the Americas, Chip Packard and Haig Ariyan.
With €944 billion of assets under management (as at December 31, 2012), Deutsche Asset & Wealth Management is one of the world’s leading investment organizations. Deutsche Asset & Wealth Management is the brand name for the Asset Management & Wealth Management-division of Deutsche Bank AG and its subsidiaries.
Kathryn von Matthiessen. Foto cedida por Cantor & Webb. Cantor & Webb incorpora nueva socia al equipo de Miami ante el aumento de clientes
Miami-based attorneys Cantor & Webb have strengthened their tax and estate planning team, expanding for a sixth consecutive year with the addition of new trusts and estates partner, Kathryn von Matthiessen.
Von Matthiessen, who relocated her practice from New York to join Cantor & Webb P.A., brings more than fifteen years of experience in the field of international estate planning, both inbound and outbound. Her practice will focus primarily on sophisticated personal and estate planning for high net worth individuals and the administration of complex estates and trusts, including advising international trust companies on reporting obligations concerning U.S. matters.
“I have joined Cantor & Webb P.A. because of their excellent reputation among clients and my peers. Driven by the complexity of US reporting obligations and the global reach of an IRS newly armed with FATCA and extensive information exchange powers, there is also a demand for international wealth structuring from Miami is greater than ever, and now extends far beyond traditional Latin markets”, said Von Matthiessen.
This announcement complements a string of initiatives by the firm, which has expanded for a sixth consecutive year after seeing a substantial increase in client engagements. “This major hire was driven by client demand for our services and helps cement our standing as experts in complex global wealth structuring. More broadly, it shows that Miami is a dynamic center which attracts heavyweight legal talent and is more than capable of competing with other US cities for international clients,” said Managing Partner, Steven Cantor.
