Photo: maxpixel CC0. The Fed is Looking to Prepare a Plan to Stop Reducing its Balance
The Federal Reserve, which at its meeting on January 29 and 30 decided to keep the reference rate unchanged, said in its minutes, published this Wednesday, that there is greater concern about the risks to the economic growth of the US and that it is open to preparing a plan to stop reducing its balance.
The FOMC continued with the message that it would be “patient” to decide when and how to adjust policy to a growing set of risks, including the slowdown in growth in China and Europe, Brexit, trade negotiations and the effects of the five-week shut-down of the United States government, pointing out to a wait and see aproach about how the economy unfolds with the current policy, indicating that for now it has suspended interest rate increases.
The minutes also show that they are prepared to be more flexible in reducing their overall balance, made up of a 4 trillion dollars portfolio of bonds and other assets: “Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year.” they point out.
Pixabay CC0 Public DomainPamjpat. Asian Countries Dominate When It Comes to Passport Power in 2019
Japan goes into the new year holding 1st place on the Henley Passport Index, with citizens enjoying visa-free/visa-on-arrival access to 190 destinations. In a further display of Asian passport power, Singapore and South Korea now sit in joint 2nd place, with access to 189 destinations around the globe. This marks a new high for South Korea, which moved up the ranking following a recent visa-on-arrival agreement with India. Germany and France remain in 3rd place going into 2019, with a visa-free/visa-on-arrival score of 188.
The US and the UK continue to drop down the Henley Passport Index — which is based on authoritative data from the International Air Transport Association (IATA) — and now sit in joint 6th place, with access to 185 destinations. This is a significant fall from the 1st place position that these countries held in 2015. Denmark, Finland, Italy, and Sweden now hold joint 4th place, while Spain and Luxembourg are in 5th. As they have done for much of the index’s 14-year history, Iraq and Afghanistan remain at the bottom of the ranking, with access to just 30 visa-free destinations.
Turkey’s recent introduction of an online e-Visa service has resulted in some interesting changes to the overall rankings. As of October 2018, citizens of over 100 countries (including Canada, the UK, Norway, and the US) must apply for an e-Visa before they travel to Turkey, instead of being able to do so on arrival. While this specific change means that a number of countries have dropped slightly in the rankings, it does not alter the overwhelmingly positive effect of the wider global tendency towards visa-openness and mutually beneficial agreements. Historical data from the Henley Passport Index shows that in 2006, a citizen, on average, could travel to 58 destinations without needing a visa from the host nation; by the end of 2018, this number had nearly doubled to 107.
Dr. Christian H. Kälin, Group Chairman of Henley & Partners and the inventor of the Passport Index concept, says this latest ranking shows that despite rising isolationist sentiment in some parts of the world, many countries remain committed to collaboration. “The general spread of open-door policies has the potential to contribute billions to the global economy, as well as create significant employment opportunities around the world. South Korea and the United Arab Emirates’ recent ascent in the rankings are further examples of what happens when countries take a proactive foreign affairs approach, an attitude which significantly benefits their citizens as well as the international community.”
Citizenship-by-investment countries consolidate their respective positions
As in 2018, countries with citizenship-by-investment (CBI) programs continue to hold their strong positions. Malta, for instance, sits in 9th spot, with access to 182 destinations around the world. St. Kitts and Nevis and Antigua and Barbuda hold 27th and 28th spot respectively, while Moldova remains in a strong position at 46th place, with citizens able to access 122 countries. A recent agreement signed between St. Kitts and Nevis and Belarus, due to come into effect in the coming months, will further strengthen the St. Kitts and Nevis passport, and enhance the travel freedom of its citizens.
Dr. Juerg Steffen, the CEO of Henley & Partners, says: “The enduring appeal of investment migration programs shows that more and more people are embracing alternative citizenship as the best way to access previously unimagined opportunities and improve their passport power. Additionally, it is no surprise that countries are increasingly looking to launch CBI programs, which attract talented individuals and bring enormous economic and societal benefits.”
You can consult your country’s position in the following link.
Photo: Onsen. Multi-Asset Funds did Not Work in 2018 because they Largely Replicated what Advisers Were Doing Themselves
Multi-asset funds failed to protect investors from the impact of volatile equity markets in 2018, according to the Natixis IM Global Portfolio Barometer.
Adviser portfolios delivered negative returns across all regions, driven by falls in equity markets. But the analysis of investor portfolios in seven markets, conducted by the Natixis Portfolio Research & Consulting Group, found that multi-asset funds did not provide diversification as expected, and instead had very high correlations to adviser portfolios. This suggests multi-asset funds largely replicated what advisers were doing themselves.
Equities were the largest contributor to negative returns in all regions, costing around 3-5% on average – except in Italy, where advisers had much lower equity allocations. However, multi-asset funds were the second largest detractor, costing 0.5-2% on average, and particularly affecting France, where these funds have traditionally been very popular.
Alternative investments, like real estate and managed futures, were more resilient to volatility than traditional asset classes, but still contributed marginally to portfolio performance at best, due to lacklustre performance and low allocations. Real assets contributed little except in the UK, where property funds were a positive contributor to portfolios.
Matthew Riley, Head of Research in the Portfolio Research and Consulting Group at Natixis IM, commented: “It’s natural for investors to seek shelter from volatile markets by diversifying portfolios, but it is clear from our analysis that, in 2018, the majority of multi-asset funds fell short and largely failed to diversify, which only added to portfolio losses”.
“Our findings show that investors really need to look more closely when selecting a multi-asset fund, ensuring that the fund is aligned with their investment objective. This due diligence should include checking the fund’s correlation to their existing portfolios, as well as to bonds and equities, to make sure it will improve the risk-return profile of the portfolio.”
Italy showing most resilience to volatile markets
In stark contrast to 2017, advisers in all regions suffered negative portfolio performance in 2018 with the impact of falling equity markets and muted fixed income returns taking their toll. Italy was the most resilient market, with estimated losses of 3.2% for the average adviser portfolio, due to a much lower allocation to equities. Advisers in Italy had an average equity exposure of just 20%, while the UK and the US had a more bullish stance, with equity weightings of over 50% in moderate risk portfolios.
Currency risk continues to weigh on portfolios
In 2017, the Global Portfolio Barometer revealed the impact of currency risk on performance. And, while slightly reduced, it remained an important factor in 2018, benefitting European investors compared to their US counterparts. Currency moves remain an often overlooked area of risk, but when considering a more internationally exposed portfolio, not paying attention to it can have a significant impact on overall returns. For instance, in 2018 a European investor allocating to US equities would have experienced a small positive return of 0.3% in euro terms – a US investor would have lost 5%.
The quest for true diversification continues…
In short, the findings of the Global Portfolio Barometer highlight the impact that the return of volatility had on markets and investor portfolios, with portfolio risks potentially rising from the extraordinarily low levels seen in 2017. Multi-asset funds simply failed to provide diversification, which should be food for thought when considering the relationship between diversification, risk and returns in adviser portfolios.
The Mirabaud Group, the banking and finance group founded in Geneva in 1819, has obtained the necessary authorisations from the Central Bank of Uruguay to open two Wealth Management subsidiaries. Both located in Montevideo, Mirabaud Advisory (Uruguay) SA will offer Mirabaud’s services to local clients, while Mirabaud International Advisory (Uruguay) SA will provide services to clients from other Latin American countries.
These openings strengthen Mirabaud’s wealth management presence and follow the creation of Mirabaud Asset Management (Brasil) Ltda in São Paulo earlier in the year which marked Mirabaud’s arrival on the South American continent. Both Uruguayan companies will be managed by Fabio Kreplak, with the support of Thiago Frazao, Limited Partner. According to the company, these openings represent a further step in Mirabaud’s international development strategy.
Nicolas Mirabaud, Managing Partner and Head of Wealth Management for the Mirabaud Group, is “delighted with the opening of these two new subsidiaries in Mirabaud’s bicentenary year. For 200 years Mirabaud has always focused on serving the interests of its clients and protecting their assets by offering them investment solutions tailored to their needs. In recent years our Latin American client base has grown, so it was natural for us to establish a presence closer to them in order to serve them better. Opening these subsidiaries in South America once again demonstrates that Mirabaud maintains its entrepreneurial family spirit.”
Thiago Frazao, Head of Wealth Management for the LATAM market, emphasises how “Mirabaud’s diversified and personalised offering meets the needs of clients looking for confidence, stability and financial performance. Mirabaud is present on four continents and in ten countries and can call on a network of experts covering the various fields of wealth management. With their comprehensive knowledge of the South American market and Swiss wealth management expertise, Fabio Kreplak and his team are fully integrated into the Mirabaud culture and approach.”
Fabio Kreplak, who gained extensive experience in Latin America at UBS and then at Julius Baer, is “honoured to join Mirabaud and contribute to its development from Montevideo. Mirabaud has an excellent reputation among finance professionals, who recognise the firm’s tailor-made approach, international expertise and standards of excellence, which are essential assets in a booming Latin American market. Our clients will be able to benefit from the full range of investments and services offered by the Wealth Management team.”
The team based in Montevideo is expected to reach half a dozen employees during the course of this year.
Foto: NPS CC0. Investors Trust Opens Insurer in Puerto Rico
Investors Trust welcomes ITA International Insurer, the most recent member of its group. International Insurer is an insurance company in Puerto Rico, a jurisdiction that the firm considers ideal for insurers and reinsurers in Latin America, Europe and other international markets.
“As a United States Commonwealth, Puerto Rico’s free market economy is subject to both federal and state regulations designed to protect free market-competition; specifically, but not limited to, the insurance and banking industries. This position further stabilizes Puerto Rico as an attractive domicile for international insurance business and provides legal peace of mind for companies and individuals.” said the company in a statement.
Investors Trust has also established an International Financial Entity (IFE) in Puerto Rico to consolidate all banking and custody transactions for the group of insurance companies, ITA International Financial Services Corporation.
“The need for greater diversity and new jurisdictions has led Investors Trust to reposition itself as a multi-jurisdictional insurance group. With the establishment of ITA International Insurer in Puerto Rico, clients now have more options to choose a plan based on their specific needs and preferences.” said the company that anticipates further growth in 2019 to support their multijurisdictional structure.
Pixabay CC0 Public Domainpadrinan. What Can Investors Expect From China in Year of the Pig?
This month China started the year of the pig. In the Asian tradition, this is an animal directly related to fortune because of its nobility and fertility. Will this lunar new year bring fortune to investors or succulent returns to the Chinese stock market?
In the opinion of Michael Bourke, manager of the M&G (Lux) Global Emerging Markets fund, after a difficult year for stocks in 2018, “investors expect the new lunar year to generate better prospects for the Chinese stock market. The new year may typically be a time for optimism, but there remains a great uncertainty about the outlook for China. The country’s trade dispute with the United States dominates the headlines and the fear that US tariffs on Chinese products will begin to have a negative impact on the world’s second largest economy are worrying investors. Recent economic data has been weak, factory activity and exports are slowing, and last year the economy grew at 6.4%, its slowest pace since 1990.”
Hernando Lacave, manager at DIF Broker has the same concern: “In the year of the pig we will continue to talk about deceleration in China, where growth for 2019 is expected to fall to 6%. However, this is still much better than the 2.5% expected for the United States or 1.6% of the EMU, so bad macro data should not blind us since China will continue to be the engine of growth of the world economy.”
Investment experts warn that the commercial war is beginning to weigh on China, and although the slowdown started years ago, there are signs that this war is not only affecting the foreign sector but increasingly its internal economy. “Given the size of China, it is logical that it should no longer be treated as an emerging economy and be required to play with the same intellectual property rules than the rest of developed countries. In addition to the positives that an agreement would bring, bad macro data could be the catalyst needed for the Chinese Central Bank to launch incentives to keep growth for a long time, and they have margin to do so,” clarifies Lacave.
For managers, the important thing is that China continues to reorient its economic model from one based on investment in fixed assets to one driven by the growth of consumption, especially in the services sector. This transformation is being led by private companies that aim to generate profits and tend to be less capital intensive, unlike what happened during the boom of fixed assets, when state banks granted huge amounts of credit to other state entities and Real estate developers financed by the State. At Newton, part of BNY Mellon, when investing, they prefer to avoid those sectors. “Now that fixed assets have less weight in the Chinese economy, it is very likely that GDP growth will suffer. However, the growth registered will be of higher quality. We can expect the GDP to grow more slowly during this period of rebalancing, a change that, in our opinion, should not be detrimental to the more consumer-oriented areas of the economy, since the employment component of GDP will increase. The latest measures by the Chinese authorities have been aimed at making the lending more flexible and at supporting the middle classes through tax cuts,” explains Rob Marshall-Lee, Head of Asian and Emerging Equity at Newton.
Finally, Neil Dwane, global strategist at Allianz Global Investors, notes that “China’s high levels of debt and slower growth are likely to last beyond the New Year celebrations, but we believe that the Chinese government has the right tools to solve them. With China’s economy set to become the world’s largest, we believe that investors should think of China as an asset class.”
Courtesy photo. Alex Calvo and Morgan Stanley Advisor Launch Asset Management Firm through Bolton
Global fixed income fund manager Alex Calvo has teamed with Marco Oreamuno to set up a wealth management firm through Bolton Global. Prior to joining Bolton, Oreamuno was a financial advisor with Morgan Stanley where he managed client assets of 230 million dollars. The team will operate under the name StratEdge Quant Investors in providing asset management services to ultra-high net worth individuals, family offices and institutional investors primarily in Latin America.
Calvo was formerly the Director of Global Fixed Income at Franklin Templeton Investments, where he directed all global macroeconomic and fixed income research and investments, overseeing over 14 Billion dollars in assets. At Franklin Templeton, he was a member of the Global Economic Committee and the Asset Allocation Committee. In 2010, he established Calvo Funds and managed the StratEdge Multi-Currency Bond Fund, which utilized macroeconomic analysis and financial engineering as part of a global macro strategy. He also served as Chief Fixed Income Strategist for Biscayne Americas Advisors, a Miami based asset management firm.
Oreamuno began working in the US at Merrill Lynch in 2004 where he was a financial advisor for 6 years in New York City. In 2010, he joined Morgan Stanley Smith Barney in New York and then transferred to the firm’s Miami office in 2016. Before moving to the US, he was a financial adviser with BN Valores Puesto de Bolsa in Costa Rica for 12 years managing portfolios for large financial institutions and ultra-high net worth individuals. He has also worked as an attorney with the law firm of Facio y Canas.
In addition to managing a client book of over 200 million dollares, the team will provide customized fixed income portfolios for the clients of other financial advisors affiliated with Bolton. According to a press release, “By having direct access to the international fixed income asset management capabilities of the StratEdge team, Bolton is enhancing its capabilities to provide cost effective fixed income solutions to a global clientele.”
Pixabay CC0 Public Domain. China to Join Bloomberg Barclays' Global Aggregate Index
Bloomberg has confirmed that Chinese RMB-denominated government and policy bank securities will be added to the Bloomberg Barclays Global Aggregate Index starting April 2019 and phased in over a 20 month period. The inclusion is a result of the completion of several planned operational enhancements that were implemented by the People’s Bank of China (PBoC), Ministry of Finance and State Taxation Administration.
When fully accounted for in the Global Aggregate Index, local currency Chinese bonds will be the fourth largest currency component following the US dollar, euro and Japanese yen. Using data as of January 24, 2019 the index would include 363 Chinese securities and represent 6.03% of a $54.07 trillion index upon completion of the phase-in.
“Today’s announcement represents an important milestone on China’s path towards more open and transparent capital markets, and underscores Bloomberg’s long-term commitment to connecting investors to China,” said Bloomberg Chairman Peter T. Grauer. “With the upcoming inclusion of China in the Global Aggregate Index, China’s bond market presents a growing opportunity for global investors.”
The PBoC, Ministry of Finance and State Taxation Administration have completed a number of enhancements that were required for inclusion in the Global Aggregate Index in order to increase investor confidence and improve market accessibility. These include the implementation of delivery v. payment settlement, ability to allocate block trades across portfolios, and clarification on tax collection policies.
“It’s a pivotal time in the development of China’s markets and inclusion in our Global Aggregate Index is significant for facilitating Chinese market access for global investors,” said Steve Berkley, Global Head of Bloomberg Indices. “Our phased approach to inclusion is designed to give investors ample time to prepare for what we believe will be a positive impact on the investment community.”
In addition to the Global Aggregate Index, Chinese RMB-denominated debt will be eligible for inclusion in the Global Treasury and EM Local Currency Government Indices starting April 2019.
Bloomberg will create ex-China versions of the Global Aggregate, Global Treasury and EM Local Currency Government Indices for index users who wish to track benchmarks that exclude China. Bloomberg can also create customized versions of the indices as requested by investors.
CC-BY-SA-2.0, FlickrPhoto: Thomas Depenbusch. Has the China Collapse Finally Arrived?
China has been on the verge of a hard landing for many years, according to some analysts. Will they finally be right in 2019? In the latest issue of Sinology, Andy Rothman, Investment Strategist at Matthews Asia explains that in the fourth quarter of 2018, China’s economic deceleration was not significantly sharper than he expected, and several policy changes should lead to stronger activity and market sentiment in the second half of this year. In his opinion, a hard landing is still not on the horizon.
He believes that “everyone paying careful attention to China should have expected the year-on-year (YoY) growth rates of almost every aspect of the economy to slow a bit last year,but that it is still the world’s best consumer story… Services now account for 44.2% of household consumption, up 1.6 percentage points from a year ago.” Rothman also points out that manufacturing, excluding autos, is healthy, as well as property investment.
Considering that the degree of economic growth deceleration last year was largely within his expectations, Rothman points out four reasons why market sentiment in China abysmal:
Fear of a trade war with the U.S.
Concern that during the first three quarters of last year, Chinese leader Xi Jinping voiced strong support for state-owned enterprises (SOEs), while expressing little love for the private firms
The unintended consequences of the government’s efforts to de-risk the financial system.
A cloud of regulatory uncertainty
However, he believes that sentiment is likely to improve in the second half of this year, given that he expects a 1H19 resolution to the short-term trade dispute between the U.S. and China. :Trump seems to believe that resolving this problem and lifting his tariffs on Chinese imports is important to his re-election prospects, and he has therefore adopted a more realistic negotiating strategy, dropping his irrational focus on the bilateral trade deficit as well as demands for Xi to make deep structural changes, such as eliminating his industrial policies and support for SOEs. I think Xi recognizes that Trump’s remaining demands, including better market access for American firms and stronger protection for intellectual property rights, will contribute to China’s economic progress, and Xi also wants to avoid a conflict that could escalate into a tech war, jeopardizing China’s access to US semiconductors. A Trump–Xi deal will not resolve the longer-term challenges in the bilateral relationship, but it will lift short-term fears of an escalating trade war.”
The second reason to expect better sentiment in China, according to Rothman is that Xi has already pivoted away from his rhetorical embrace of SOEs, with recent public statements expressing support to entrepreneurs. “His banking regulators have also announced a series of measures designed to boost lending to private firms. While it isn’t clear how effective those measures will be, the impact on entrepreneurial sentiment should be apparent in the coming quarters.”
He considers modest easing of monetary and fiscal policy is a third reason for optimism this year. “China’s banking regulators have indicated that they will take steps to mitigate the impact of the shadow banking crackdown, including increasing interbank liquidity, which will lower interbank rates. Mortgage rates have already begun to decline. This will be accompanied by modest fiscal policy easing, including further tax cuts and a small boost to infrastructure spending. Because the economy remains reasonably healthy, these policy fine-tuning measures will fall far short of a dramatic stimulus, and their objective is to boost sentiment and ensure the macro deceleration remains gradual, rather than to reaccelerate growth.”
Rothman also expects policy fine-tuning in the residential property sector with Chinese likely to buy another 12 million new homes this year, with a minimum of 30% cash down.
“Finally, although regulatory uncertainty will remain a fact of life in China for many years to come, investors are likely to see more clarity on some specific issues, including a relatively benign impact on company profits from more effective collection of social security taxes. All of these factors, along with relatively low valuations in the A-share market, are likely to result in better sentiment among domestic investors in the second half of this year.” He concludes.
Pixabay CC0 Public DomainRicardo Castillo, courtesy photo. Castillo, Pacheco Romero, Martin Cazenave and Pitre Méndez Join Credit Suisse IWM's LatAm Team
Credit Suisse IWM (International Wealth Management) is strengthening its LatAm operations. So far this year they have made five appointments that will be focused on the region.
According to a memo seen by Funds Society, which was written by Credit Suisse IWM’s LatAm Head, Jorge Fernández Amann: “The Latin American region is of key importance to IWM’s growth strategy. The future of IWM LatAm lies in the growth potential of our franchise across all our markets: Mexico, Cono Sur, Comunidad Andina, and LatAm-based External Asset Managers. Our clients look to us for our unique strength that combines best-in-class wealth management services, institutional capabilities, as well as UHNWI-specific solutions. This differentiation has driven growth in the region and is also attracting new talent. To grow our regional capabilities further we need to not only develop our internal talent pool but also attract external talent and I am excited to announce a number of appointments in IWM LatAm.”
In his opinion, in order to deliver best-in-class solutions to their clients, a robust Advisory & Sales organization is key, so they have hired, former JPMorgan Ricardo Castillo as Head of Advisory & Sales and member of the IWM LatAm Management Committee, effective immediately. “He will also lead the Investment Consulting team for ConoSur. Ricardo has a proven track record of more than 15 years in various investment roles: Investment advisory and sales, asset allocation across asset classes and tactical and/or thematic trading and hedging solutions. More recently he was Global Investment Specialist covering UHNWI, notably for Chile and Argentina. With Ricardo’s experience in international financial markets, I am confident that he will take our A&S offering to the next level. Ricardo will be located in Geneva.” Said the memo.
Also for the Geneva office, looking to serve both Cono Sur and Comunidad Andina clients, coordinated by Daniel Clavijo, are three more hires that report to Wenceslao Browne:
Marco Pacheco Romero joins as Senior Relationship Manager for ConoSur. He specifically covers Argentina, Chile and Peru and has a combined 20 years of experience in Private Banking, Lending, and Hedge funds. He also led credit teams in the past and will have an additional role to focus on growing our UHNWI-focused strategy as Head of Lending, where he will be part of our Management Committee.
Andrés Martin Cazenave joins as Senior Relationship Manager for ConoSur focusing on Argentina, Chile, Uruguay, and Colombia. Andrés has more than 25 years of wealth management and investment expertise across several institutions in Switzerland, the US, and Argentina. More recently he covered markets mainly from Cono Sur (Argentina, Chile, Uruguay) after being in charge of developing Comunidad Andina markets in the past (Colombia, Ecuador, Central America).
Rodrigo Pitre Méndez joins as Senior Relationship Manager for Cono Sur. Rodrigo has 20 years of private banking experience in Argentina, Bahamas, Uruguay, the US, and more recently Switzerland, where he has lived since 2013. In 2013 he moved from Miami, where he had spent 4 years developing an Argentine book to join another institution in Geneva. Since 2013 he has been in charge of developing a book for Cono Sur.
In January, the company hired Maria Vega Ibañez De La Cruz as Zurich-based deputy head of client management for ConoSur.
