BTG Pactual Buys Minority Stake in Bill Ackman’s Asset Manager Before IPO

  |   For  |  0 Comentarios

Photo courtesy

BTG Pactual recently announced the acquisition of a minority stake in the asset management firm led by Bill Ackman, Pershing Square Capital Management.

This strategic move comes at a crucial moment, just before the asset manager’s IPO, which is scheduled for the coming months.

The sale, of a 10% stake in the hedge fund, was carried out for $1.05 billion, to a consortium of institutional investors, including Arch Capital, Consulta Limited, Iconiq Investment, Menora Mivtachim, as well as family offices.

“We are very pleased to invite a group of international and long-term partners as investors in our company, which has been entirely employee-owned at Pershing Square since our founding more than 20 years ago,” said Ackman.

The relationship between Bill Ackman and BTG Pactual leaders André Esteves and Roberto Sallouti already has a history of collaboration in events and stock offerings. In February of this year, Ackman was in Brazil for a bank event. He has also been interviewed live by Esteves on other occasions.

In 2010, BTG was one of the coordinators of the stock offering of a Pershing Square branch on Euronext Amsterdam. This long-standing relationship facilitated the recent acquisition of a minority stake in Pershing Square Capital Management.

The Balanced and Predictable Decision of the ECB Leaves the Debate Open for Two or Three More Cuts This Year

  |   For  |  0 Comentarios

The European Central Bank (ECB), which did not disappoint in its meeting yesterday, has taken the lead over the Fed. However, experts from international asset management firms note that the ECB has made this first-rate cut without providing firm guidance beyond June.

The Governing Council justified the moderation of policy restriction based on greater confidence in the disinflation process and the strength of monetary transmission. Expert projections on growth were revised upwards. ECB President Christine Lagarde was clear: “We are determined to ensure that inflation returns to our 2% target in the medium term. We will keep official interest rates at sufficiently restrictive levels for as long as necessary to achieve this goal. We will continue to apply a data-dependent approach, making decisions at each meeting to determine the appropriate level and duration of restriction. In particular, our decisions on interest rates will be based on our assessment of inflation prospects considering new economic and financial data, underlying inflation dynamics, and the intensity of monetary policy transmission, without committing to any specific rate path in advance.”

Beyond the official statement, firms maintain that Lagarde’s subsequent declaration refrained from committing to future cuts and maintained a data-dependent stance. “It is likely that recent wage and inflation surprises will keep Council members in a cautious position. Therefore, a cut in July seems clearly ruled out. The ECB’s rate trajectory will depend on data evolution from now on and the Fed, which we believe cannot cut rates this year due to the rigidity of U.S. inflation,” says Salman Ahmed, Global Head of Macro and Strategic Asset Allocation at Fidelity International.

Officials not only referred to data dependency but also to flexibility. Indeed, the monetary policy decision statement was clear: “The Governing Council does not commit in advance to follow a determined rate path.” Felix Feather, Economist at abrdn, believes that in practice, the data-dependent approach is likely to be cautious. “The ECB will have little additional data before its July meeting. In particular, there will be no reliable data on second-quarter wage growth. Therefore, we consider that reiterating the emphasis on data dependency is consistent with our request to keep the deposit rate at 3.75% in July.”

Hugo Le Damany and François Cabau, Economist and Senior Economist for the Eurozone at AXA Investment Managers, consider the approach to be cautious but exaggerated. “We believe the ECB made this decision because it considers this rate cut relatively safe, with no significant risk of re-stimulating subsequent inflationary pressures. However, the ECB immediately reminded that internal price pressures remain strong. They reiterated that official interest rates will remain restrictive for as long as necessary to timely achieve their medium-term 2% target. The Governing Council insisted they will remain data-dependent and not commit to any specific rate path in advance,” they explain.

So far, the market reaction has not been very violent, but volatility persists in sovereign debt amid growing rhetoric that rates will take longer to return to expected levels, concentrating the likelihood of more cuts in the last quarter meetings of the year. “In the stock markets, attention is increasingly focused on upward revisions of corporate profits, although the banking sector performed well during the session due to the ECB’s hawkish tone, which augurs better margins for the rest of the year,” explains Carlos del Campo from Diaphanum’s investment team.

Forecast on upcoming cuts

In light of Lagarde’s words, Ulrike Kastens, Economist for Europe at DWS, estimates that the ECB will pause in July before “probably,” she notes, cutting rates again in September and December. “Data dependency remains key. At the same time, the upward revision of inflation forecasts for 2025 suggests that it may now take longer to reach the inflation target. These forecasts are much more restrictive than expected and imply very gradual rate cuts,” she argues.

Mauro Valle, Head of Fixed Income at Generali AM, part of the Generali Investments ecosystem, believes the ECB has room to cut again in the second half of the year, as monetary policies will still be perceived as restrictive. “The debate revolves around the probabilities of a third cut in December 2024: the market is pricing about a 50% probability, while our analysis indicates three cuts. The decision will depend on upcoming economic data, mainly inflation and wage trends, as Lagarde reiterated during the press conference,” Valle notes.

“Given the ECB’s reaction function, we anticipate the entity will continue cutting rates in meetings where projections are evaluated. September offers the next opportunity to globally reassess the disinflation process. Unlike earlier this year, market prices seem reasonable and generally align with our baseline of three cuts for this year. We expect additional cuts in September and December. Risks tilt towards fewer cuts, especially due to the rigidity of service inflation, labor market resilience, financial condition easing, and the ECB’s risk management considerations,” adds Konstantin Veit, Portfolio Manager at PIMCO.

Tomasz Wieladek, Chief Economist at T. Rowe Price, also shares his forecast: “I believe the ECB will end up making two more cuts this year. The bar for new short-term surprises in its forecasts is high. However, markets should not expect any future guidance. All of this year’s future rate cuts will likely be hawkish. However, this purely data-dependent approach also means the ECB could easily cut less than twice. We might only see one more cut towards the end of the year if inflation remains much more persistent than expected.”

In this regard, Axel Botte, Head of Market Strategy at Ostrum AM (Natixis IM), recalls that it was not a unanimous decision. “This implies that the prior commitment to a cut may have been largely motivated by political reasons. In fact, the ECB raised its inflation forecast to an average of 2.2% for next year but kept it at 1.9% for 2026. In any case, Christine Lagarde struggled to justify a rate cut at a time when wage increases remain uncomfortably high. Wage growth should hover around 4% until the end of 2024. The ECB’s message is hard to understand, as ECB rate cuts are applied alongside quantitative tightening. Still, the ECB could cut more in September when it updates its macroeconomic forecasts,” Botte adds.

Divergence with the Fed

For international asset managers, yesterday’s ECB decision is also relevant because it shows the divergence between the European institution and the Fed, something that hasn’t happened since 2011. “The real point of interest is to know how far the ECB can diverge from the Federal Reserve. We believe the scope of this divergence will be limited, given the incipient signs of a slowdown in the U.S. will give the Fed room to ease rates. This is our base scenario and means we see minimal risk of importing inflation. However, any prolonged divergence in policy could have a side effect on the currency market,” notes Monica Defend, Head of the Amundi Investment Institute.

Tim Winstone, Portfolio Manager in the Corporate Credit team at Janus Henderson, believes we started seeing a divergence in central bank communication earlier this year. “Compared to Europe, demand-driven inflation in the U.S. has been firmer; growth/employment, better; and the consumer, exceptionally strong. The Eurozone economy is experiencing less rigid inflation, largely driven by energy prices. This divergence provides us an opportunity as active managers,” explains Winstone.

The Rise of Artificial Intelligence and Stock Splits, Key Factors in Nvidia’s Success

  |   For  |  0 Comentarios

Nvidia has surpassed expectations by achieving sales of approximately $26 billion, placing it as the second most valuable company, only behind Microsoft. According to the quarterly results presented on May 22, the company once again exceeded consensus estimates, with sales of $26 billion compared to a forecast of $24 billion. What is behind its success?

Firstly, the company, which specializes in manufacturing microchips used to train and operate artificial intelligence models, has become “the engine of artificial intelligence,” according to David Rainville, Luca Fasan, and Marie Vallaeys, managers at Sycomore AM, part of the Generali Investments ecosystem. These managers believe that Nvidia’s share in the AI microchip market will remain above 80% for several years, thanks to the company’s technological leadership over its rivals and the high entry barriers in the sector. “In the future, the company’s strong growth will inevitably extend to the supply chain. Therefore, we are convinced that companies supplying components or services to AI graphics processing units will also benefit,” they add.

The management team of Edmond de Rothschild AM’s Big Data fund agrees with this view: “Nvidia is the absolute number one with a market share of over 80% in generative AI accelerator hardware.” Nvidia is not only one of the “7 Magnificent,” but it could also be considered their leader. “Microsoft, Amazon, Meta, and Google are trying to develop the application of large language models (LLMs) and a new monetization combined with their existing business model primarily based on software and the cloud. The last group, Apple and Tesla, both have specific use cases for GenAI but struggle to deliver to the end customer in consumer electronics and automotive applications in the short term. All these companies and those necessary to maintain the development of their products should continue the upward momentum of their assets. In fact, the supplier companies configure what we call the Horde,” they add, aiming to contextualize the current tech sector.

“The company’s GPUs (graphics processing units) are the best-in-class products, capable of handling the complex calculations required by the large language models driving generative AI applications,” adds Alex Tedder, head of global equities at Schroders.

For Sam North, market analyst at eToro, another factor in Nvidia’s success is the stock split. North explains that Nvidia will carry out this stock split to make them more accessible to a broader range of investors. “The company’s stock price has risen considerably in recent years, making it difficult for some investors to buy whole shares. With the 10:1 split, Nvidia hopes to attract more investors and increase the liquidity of its shares. Although, in Nvidia’s case, there are both risks and benefits. On the one hand, the stock split could help attract new investors and increase share liquidity. There are no guarantees that the stock price will regain its pre-split level, and it could be interpreted as a sign that the company is struggling to maintain its stock price,” reasons the eToro analyst, who believes this is not the case.

In Nvidia’s Shadow

The expectations for the company are very high. In Tedder’s opinion, “after an extraordinary acceleration, revenues are expected to double year-on-year in 2023. However, the sustainability of the company’s growth profile is uncertain. In the short term, an overcapacity scenario is entirely plausible, especially since key customers, such as hyperscaler providers, have been volatile spenders in the past.”

Experts believe Nvidia’s success is likely to be long-lasting, not fleeting, and the company’s economic forecasts are quite positive. This optimistic view is dragging many companies in its wake, at least according to the management team of Edmond de Rothschild AM’s Big Data fund: “From subcomponent suppliers to power grid upgrades. Nearly $7 trillion in market capitalization is moving in tandem with Nvidia, now showing a correlation above 0.5. Among these companies are Marvell, AMD, Applied Materials, and also companies like VAT Group in Switzerland, ASML in the Netherlands, and Vertiv and Eaton, industrial companies with exposure to data center cooling and power grid modernization. These companies have recorded average gains of 25% in 2024 and 60% in the past year (compared to the market’s 22% and 7%, respectively) since generative AI gained significant stock market traction.”

Schroders Appoints Rafael Cantisani as Head of Wealth and Family Offices for Argentina and Uruguay

  |   For  |  0 Comentarios

Schroders has strengthened the family office segment in Argentina and Uruguay with the appointment of Rafael Cantisani as Head of Wealth and Family Offices for both countries. According to the asset manager, this decision is part of the company’s strategy to promote sustained growth and better adapt to the constantly evolving needs of its clients.

A year ago, Schroders undertook a major restructuring of the Client Group, a team of professionals from across the organization that now includes Sales, Business Development, Client Experience, Marketing, and Communications teams. The firm notes that this new unit aims to ensure a smooth and personalized service for Schroders’ clients while collaborating with investment teams to deliver the best results.

Regarding client segmentation, redefinitions were also made: historically, Schroders grouped clients into Institutional or Intermediary categories. Now, the company is focused on four key segments: pension funds, insurance companies, wealth management, and long-term asset owners, which include family offices.

This client-centric strategy aims to provide a service more suited to the specific needs of each client, seeking to tailor its messages and services to the particularities of each segment.

As part of this restructuring, Rafael Cantisani, who previously served as Sales Director – Intermediary, will now hold the dual role of Head of Wealth and Family Offices for Argentina and Uruguay.

“I am excited to continue growing professionally at Schroders and have the opportunity to drive growth in this segment. In this role, I will be responsible for overseeing and strengthening relationships with high-net-worth clients and family offices, as well as developing personalized investment strategies to meet the specific needs of clients in both countries,” said Rafael Cantisani, Head of Wealth and Family Offices for Argentina and Uruguay.

Mariano Fiorito, Country Head for Argentina and Uruguay at Schroders, added: “Rafael has been part of the Schroders team for over six years, and his appointment as Head of Wealth and Family Offices for Argentina and Uruguay represents a strategic step for the company. His deep market knowledge and experience in the region are essential for strengthening our client relationships and expanding our service offerings in these key countries.”

The restructuring of the Client Group and the strategy of segmenting clients based on their specific investment needs highlight Schroders’ commitment to excellence and adaptability in a constantly evolving and challenging market.

Pershing Launches New Features on Its Wove Platform to Empower Advisors

  |   For  |  0 Comentarios

BNY Mellon announced new enhancements to Pershing X’s Wove platform, designed to help registered investment advisors, broker-dealers, and wealth management firms connect an investor’s entire financial landscape in one place, the company said in a statement.

The new offerings include Wove Investor, a comprehensive client portal that allows investors to view account information from multiple custodians and use self-service features to quickly complete simple tasks on their own.

Additionally, Wove Data has been launched, a cloud-based data platform designed for high-level financial professionals in wealth management firms to manage large sets of multi-custodial data and gain deeper insights into the performance of their advisor teams, operations, and investment products within their firms.

Another enhancement is Portfolio Solutions, a set of tools designed to save time and help advisors more efficiently and quickly find investment products that align with a client’s risk objectives and add them to a portfolio.

“When we launched Wove exactly a year ago, we said we wouldn’t stop innovating until it became the most connected advisory platform on the market, and today we are delivering on that promise,” said Ainslie Simmonds, President of Pershing X and Global Head of Strategy.

According to Simmonds, “Advisors asked us to create a simple and interconnected portal for their clients, so we created Wove Investor, while Wove Data allows larger firms to turn vast amounts of data into actionable business intelligence. These new products are helping us fulfill our mission to change the future of wealth management.”

The platform also includes additional features, such as the first wealth management platform tool designed for investors and a cloud-based tool created for high-level financial executives to better manage business data.

What Changes and What Doesn’t for Investors with Modi’s Narrow Victory in India

  |   For  |  0 Comentarios

The outcome of the election in India, where 642 million people voted, has surprised analysts and the market. Narendra Modi, the favorite, has declared victory, but it was much closer than expected. According to the experts from investment firms, the fact that Modi’s party lost the simple majority raises some questions but does not undermine the country’s strong growth drivers.

“After exit polls pointed to a landslide victory for Modi, markets saw heavy selling on Wednesday morning as it appears Modi’s Bharatiya Janata Party (BJP) lacks a simple majority, erasing the 2.5% gains made the previous day following the exit poll results. The NDA (National Democratic Alliance) coalition can still form the new government with about 300 seats; however, Modi seems to have lost the majority, so while he can remain prime minister, coalition partners may oppose some of his initiatives, leading to the market reaction,” explains Liam Patel, Small-Cap Equity Investment Manager at abrdn.

Kenneth Akintewe, Head of Asian Sovereign Debt at abrdn, views this as a classic case of “buy the rumor, sell the fact.” He attributes part of the voter dissatisfaction with Modi to high food inflation, agricultural sector difficulties, and cuts in certain subsidies.

“India has experienced high growth levels, but not everyone has benefited, and consumption has not been as strong. The election result will serve as a wake-up call for the government and could act as an important catalyst for refocusing. However, these are not easy challenges to address. This underscores the urgency of developing a prosperous manufacturing sector to create more well-paid jobs and continue pushing reforms to strengthen the economy and generate the resources needed for economic transition, such as through privatizing public enterprises and monetizing assets,” notes Akintewe.

The Templeton Emerging Markets Equity team at Franklin Templeton describes the election outcome in India as clearly disappointing for investors compared to initial expectations. “Nonetheless, it is important to focus on the long term, and we do not foresee significant political changes in Modi’s likely third term. India’s growth drivers remain centered on manufacturing, infrastructure, and consumption.”

Impact of the Election Result

If the final result is achieved with a coalition majority, abrdn’s expert believes that while India is expected to continue progressing, there is a risk of more populist policies being implemented. “Fortunately, on the fiscal side, the starting point is a much stronger fiscal performance than expected and a structurally stronger fiscal position that provides significant buffers, reinforced by higher transfers from the Reserve Bank of India (RBI) to the government,” says Akintewe.

“Indeed, regarding bond market prospects, the election result does not significantly disrupt them, as the supply-demand dynamics for bonds remain very favorable and inflation and official interest rates continue to trend downward. The instinctive response of higher yields and some currency weakness could be an attractive opportunity to add risk. However, it may complicate the continuation of some of the more challenging reforms, such as those related to agriculture, labor, and certain aspects of agricultural reform. The ball will be in the government’s court, and if there’s one thing we’ve learned about the BJP in the last decade, it’s that they are not a government that weakens in the face of adversity.” Akintewe adds.

The Templeton Emerging Markets Equity team believes that while the election results may have potential negative consequences for certain market sectors, they do not believe it changes the overall policy direction of the BJP-led National Democratic Alliance (NDA). “In the manufacturing sector, the focus will remain on developing the manufacturing base through the Production-Linked Incentive (PLI) program. Additionally, infrastructure growth will shift from the public to the private sector, with particular attention to manufacturing, including renewables,” they explain. On consumption, they note that consumption stimulation will continue, with potentially renewed focus on rural incomes, including higher fiscal transfers. “This is likely to benefit the discretionary and staple consumer sectors, where our investments in India are concentrated,” they conclude.

India in Investment Portfolios

Regarding the main challenges ahead for the Indian market to become the top emerging country in investor portfolios, Avinash Vazirani, Investment Manager, Indian Equities, at Jupiter AM and Director of the Jupiter India Select Fund, indicates that it is simply a matter of time. “Investors tend to be slow to adapt to market paradigm shifts. Over the last two decades, China has had the highest weighting in global emerging market indexes; India has been gradually gaining a higher weighting as its economy and stock market grow faster, and we believe this process will continue in the coming decades,” he argues.

He points out that the best opportunities in this market are found in “companies exposed to India’s internal growth, especially in sectors such as healthcare, where we see possibilities for spending to grow faster than the economy in general, as current spending levels are low compared to other countries.”

“Investors should know that the most common benchmark for Indian funds (MSCI India) is concentrated in large and mega-cap stocks, which can trade at higher valuations than equally attractive companies lower down the market cap spectrum but still quite large by European standards,” he concludes.

A Solid Economy

Mark Matthews, Head of Research for Asia at Julius Baer, believes the changes introduced in India’s management over the last ten years have placed the economy in a solid position. Among these milestones are the demonetization of banks, the goods and services tax, the bankruptcy code, the real estate law, the corporate tax reduction, and the privatization of government-controlled companies.

“Although the BJP’s power has been diluted, it remains intact. The momentum of current economic reforms remains strong and will not fade. GDP growth in the January-March quarter, at 7.8% year-on-year, confirms an economic cycle that we believe still has several years to run. This should translate into annual earnings growth of around ten percentage points over the next few years. Finally, on June 28, India will be included in JP Morgan’s emerging markets bond index, with inclusion in two more bond indexes expected to follow. The result is that tens of billions of dollars will flow into the Indian economy from abroad over the next two years,” comments Matthews.

Ashish Chugh, Portfolio Manager at Loomis Sayles (Natixis IM), believes the BJP’s growth- and investor-friendly agenda will continue. “India has many structural growth drivers that will continue regardless of the party in power. Additionally, significant investments in physical and digital infrastructure over the last decade will continue to boost productivity and economic growth. This election result does not change India’s path to becoming the world’s third-largest economy in the coming years,” argues Chugh.

In this regard, Vivek Bhutoria, Emerging Markets Equity Portfolio Manager at Federated Hermes Limited, highlights that the country’s economy is set to grow around 7% in the foreseeable future and, in nominal terms, possibly around 11%. “The drivers of this growth are very sustainable. If we look at other major economies, while they face the challenge of an aging population, India will add between seven and eight million people to its workforce each year, which is a significant competitive advantage. Urbanization is occurring, which will generate growth in various sectors of the economy,” Bhutoria points out.

He believes policies are being implemented to attract investments, and the global supply chain realignment will benefit India over time. “We are already starting to see some benefits in terms of exports of electronics and chemicals. Additionally, other factors, such as investment in infrastructure and digital investments, are converging at the same time,” concludes Bhutoria.\

JP Morgan AM indicates that the BJP’s plans for its third term include efforts to become the third-largest country by GDP, from its current fifth position, within the next five years. “We expect the government’s overall tone and general policy outlook to remain unchanged. Given the election results, the government is likely to move forward in less controversial areas. Continued focus on infrastructure spending, boosting manufacturing capacity as part of the Make in India program, and its integration as a more significant player in supply chains will continue. Areas where India can see rapid improvements, such as continued urbanization, formalization, and digitalization, should unlock more growth potential. Where India has a competitive edge, such as labor costs, IT services, and business support, more promotion is likely,” notes Ian Hui, Global Market Strategist at JP Morgan AM.

However, he clarifies that now the more divisive issues will likely require more political maneuvering to achieve, if at all possible.

“Constitutional changes are out of reach without a two-thirds majority in the Lok Sabha. Others will require more political capital: land and labor reforms, rationalizing food and fuel subsidies now seem more challenging to pass. The next government budget will be key to understanding the approach to developments,” Hui concludes.

1,600 Vehicles and up to 40 Billion Euros at Stake Following the Adjustments Required by the EU Guidelines on the Naming of ESG Funds

  |   For  |  0 Comentarios

The latest guidelines approved by the EU on the naming of funds that claim to be ESG could force more than 1,600 investment vehicles to rebrand or divest up to 40 billion euros, according to an analysis by Morningstar.

The requirements include a minimum of 80% of investments that meet environmental or social characteristics or sustainable investment objectives, and exclusions as established by the EU regulations for the Paris-aligned benchmarks (PAB) and climate transition benchmarks (CTB). In this regard, the PAB exclusions are particularly important, as they would exclude investments in companies that derive a certain level of revenue from fossil fuels. Additionally, funds with the key term “sustainable” in their names will need to invest “significantly” in sustainable investments, and funds using terms related to “transition” or “impact” will be subject to specific qualitative requirements.

“While it is impossible to predict the full impact of these guidelines, we expect their implications to be significant. They have the potential to completely reshape the landscape of ESG funds in Europe, with possibly thousands of ESG funds changing names and/or adjusting their portfolios to comply with the new rules. It might be tempting to assume that the upcoming major adjustment means many ESG funds could have been greenwashing, but the reality is that there were no standards until now, and it is a complex area. The guidelines have the benefit of setting minimum standards for ESG products and, hopefully, will provide greater clarity to investors about what they are investing in,” says Hortense Bioy, Head of Sustainable Investment Research at Morningstar Sustainalytics.

Morningstar has identified around 4,300 EU funds with terms related to ESG or sustainability in their names that could fall within the scope of the new guidelines. According to Morningstar, of the 2,500 funds with equity holding data, more than 1,600 are exposed to at least one stock that could be violating the PAB and CTB exclusion rules. “This represents a significant number (two-thirds) of funds that may need to consider divesting from the stocks or rebranding,” they indicate.

Morningstar explains that if all these funds retained their names, it could lead to stock divestments worth up to 40 billion dollars. “The sectors most affected by potential divestments include energy, industries (e.g., railroads, defense), and basic materials. The countries most impacted would be the USA, France, and China in terms of market value, but China, the USA, and India in terms of the number of companies,” states the latest Morningstar report.

Morningstar explains that when interpreting the PAB/CTB exclusion rules and obtaining data, managers will decide how far they want to go in the companies’ value chains and assess the related investment implications. “Due to the rigorous nature of the PAB exclusions, we expect many funds to remove terms like ESG and related terms from their names, while some will reposition as transition funds, which are subject to the less restrictive CTB exclusions, provided they can demonstrate a clear and measurable transition trajectory,” they add.

According to their estimates, in the best-case scenario, only 56% of funds with the specific term “sustainable” in their names could retain the term if the minimum threshold for a “significant” allocation to sustainable investments is set at 30%. Meanwhile, “the remaining 44% of funds would need to increase their allocation to sustainable investments, adjust their sustainable investment methodology, or rebrand.”

Investors Assess Risk and Spanish Banking Giants Feel the Impact: Some Effects of the Presidential Election in Mexico

  |   For  |  0 Comentarios

Following the overwhelming victory of the ruling party’s Claudia Sheinbaum in last Sunday’s elections in Mexico, the week has been filled with reactions from all sides. The country’s financial markets initially reacted adversely, plunging the day after the election on Monday, June 3, although they have partially recovered throughout the week.

The market reaction was tied not so much to Sheinbaum’s victory but to the eventual composition of Congress. The ruling party appears to have won a relative majority, opening the door for constitutional changes without needing agreements with the opposition. Other reactions involved the international financial community, including a sovereign debt rating agency, investor stances, and effects on banks heavily exposed to the Mexican economy.

Moody’s Ratings Awaits Signals

“The victory of Sheinbaum and the expected composition of Congress reinforce the outlook not just for continuity, and this has several implications,” noted the rating agency. “Moody’s Ratings expects that Sheinbaum’s policies will become clearer and signal whether she will preserve, reinforce, or reverse the trends that have begun to deteriorate Mexico’s credit profile,” it stated.

The agency highlighted several key issues for the next administration that will help determine the sovereign credit outlook:

Macroeconomic Policies: Moody’s expects Sheinbaum to maintain the current president’s austerity rhetoric, with presidential projects continuing to dictate spending objectives. However, it remains to be seen how committed she will be to fiscal austerity, especially regarding a significant reduction of the fiscal deficit, which this year will exceed 5% of GDP. Importantly, there will need to be measures to keep the deficit at levels recorded in previous years, between 2% and 3% of GDP.

Energy Sector: The agency foresees that the authorities will maintain their commitment to energy sovereignty and the dominant role of the state, with no changes to Pemex’s business model or the government’s financial support. An operation increasing Pemex’s financial obligations in 2025-26, such as debt buybacks at a discount, is now more likely with the new administration.

Social Policies: Moody’s expects the incoming government to expand the reach of social programs and preserve the universal and unconditional nature of federal transfers. Sheinbaum repeatedly stated during her campaign that the next government would make these programs constitutional mandates, which would further reduce fiscal flexibility, as rigid spending categories already account for about 80% of total public spending.

Mexico has undergone a significant change not just in the presidential mandate but in the composition of Congress. Moody’s announced it is waiting for relevant signals from the incoming president to make decisions regarding the country’s credit profile.

Risk for Investors

Thomas Haugaard, a portfolio manager for Emerging Markets Debt at Janus Henderson Investors, released a brief analysis on investor sentiment following the Mexican election results. According to Haugaard, Sheinbaum’s election could be more positive since she is considered more pragmatic than the current president.

However, the ruling party is also on track to capture more seats in Congress. Initial counts suggest that Morena and its allies could secure enough seats in the Senate and the House of Representatives, approaching a constitutional majority in the House.

This level of political control is a concern for investors, as it raises the possibility of new policies that could undermine checks and balances on AMLO, Sheinbaum, and Morena. Given the tight political balance in Congress, we must wait for the final counts later this week. Meanwhile, uncertainty dominates the markets in the hours following the election, with investors awaiting more clarity.

Finance Minister Reassures Markets

On Tuesday, the Secretary of Finance and Public Credit (SHCP), Rogelio Ramírez de la O, who will remain in office under the new president, sought to calm the markets.

He assured that Mexico would not deviate from fiscal discipline and would aim to reduce the deficit next year to 3% from a previous 5.8% left by the current administration. Mexican markets have seen a “rebound effect,” but uncertainty remains as they await announcements from the new president and the official composition of Congress.

Spanish Banking Giants Feel the Impact

Spain’s two most international banking groups, BBVA and Santander, experienced a rough week in their stock prices, with one of the main causes being the election results in Mexico. More than Sheinbaum’s victory, the markets fear the ruling party’s dominance in Congress, which opens the door for constitutional changes without needing to consult or negotiate with the opposition, potentially impacting the banking business.

BBVA and Santander are highly dependent on the Latin American region, particularly Mexico. According to recent figures, BBVA is the most at risk, with 56.5% of its net profit coming from the Latin American country. “For many years, BBVA has had a clear stake in the Mexican economy, and any adverse movement could impact its earnings,” said Javier Cabrera, an analyst at XTB.

“At XTB’s analysis team, we believe that if a new tax is eventually imposed in Mexico, it would significantly affect Spain’s two most global banks, BBVA and Santander, especially BBVA, which has a large dependence on the region,” the expert added.

Although the current government had a distant relationship with the banking sector, it maintained the same conditions and allowed the banks to develop their business. Analysts fear this scenario could change with a ruling-party-dominated Congress without counterbalances.

9 out of 10 Financial Advisors Invest in Private Equity, According to Survey

  |   For  |  0 Comentarios

Hamilton Lane conducted a survey of 232 professional investors worldwide, in which over 90% reported allocating their clients’ capital to private markets.

The study, accessed by Funds Society, adds that nearly all financial advisors (99%) plan to allocate part of their clients’ portfolios to this asset class this year.

Additionally, 52% reported planning to allocate more than 10% of their client’s portfolios to private markets, while 70% of advisors plan to increase their clients’ allocation to this asset class compared to 2023.

Advisors cited performance and diversification as the primary reasons for the increased interest in private markets.

Regarding their own knowledge of private markets, 97% of advisors claim to have advanced knowledge. However, the report notes that their clients may not be as well-informed.

“The survey revealed that advisors recognize their clients believe alternative assets can benefit their portfolios but are not sufficiently informed about this asset class,” explains the Hamilton Lane report.

For example, 50% of advisors rate their clients’ knowledge of private market investments as beginner or having little to no knowledge of the asset class and needing basic education, despite their high interest in the asset class.

Only 4% of advisors rated their clients’ knowledge of private markets as advanced, meaning they understand the asset class well and feel confident discussing details, trends, and products in private markets.

“The conclusion of this survey is that as interest in private markets grows, there is a clear need for more education,” says Steve Brennan, Head of Private Wealth Solutions at Hamilton Lane.

When advisors were asked what tools and information about private markets they would find useful in their practice, they cited education, thought leadership, and events as the top three ways to improve their clients’ knowledge of the asset class.

The online survey was conducted from November 27 to December 22, 2023. Among the 232 respondents from around the world were private wealth firms, RIAs, family offices, and other professional advisors from the U.S., Canada, Latin America, EMEA, and APAC.

To view the full report and its conclusions, click on the following link.

Manufacturing and Construction Slow Down More than Expected in the U.S.

  |   For  |  0 Comentarios

The ISM manufacturing index registered a larger-than-expected contraction in May, with a drop in orders and a slowdown in production. Construction also came in weaker than expected, indicating that monetary policy is tightening and acting as a drag on economic activity, according to an ING report released Monday.

The ISM fell from 49.2 in April to 48.7 in May, indicating a contraction in the manufacturing sector. Regional surveys and the Chinese PMI had suggested a slightly different result, but the drop in orders and the slowdown in production were more pronounced than expected, ING adds.

The price component dipped slightly, but remains above the average of 54.1, indicating that inflationary pressures persist in the sector.

“The only good news was the employment component, which rose above the 50 level, the highest level since March 2022, but with production slowing and orders looking weak, there are doubts about its sustainability,” the bank’s experts add.

Construction hit by high borrowing costs and lack of affordability

On the other hand, construction spending fell for the second consecutive month and is expected to see a gradual moderation in the sector. High borrowing costs and tight lending conditions remain a constraint, and in the particular case of the residential sector, where affordability is so limited, this is leading to weaker housing starts and building permits, which should translate into further weakness in construction spending.

The non-residential sector (outside of office construction) is also expected to slow, albeit from solid rates, as the initial surge of support from the Inflation Reduction and CHIPS production acts increasingly fades.

Overall, the data are consistent with the view that the manufacturing sector is not going to contribute significantly to economic activity this year. Construction is also affected by high borrowing costs and lack of affordability, which may lead to a gradual moderation in the sector, experts add.

To read the full report you can access the following link.