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.
Pixabay CC0 Public DomainPhoto: KnutEgil1966 . Prodigy Network Surpasses 500 Million Dollars In Securitized Assets Through Flexfunds
Incorporating real estate assets as part of investment diversification is essential, which is why investors are increasingly analyzing alternatives that are not correlated with markets for stocks and bonds. Global platforms for investment and real estate asset development, such as Prodigy Network utilizing FlexFunds‘ asset securitization program, provide corporations, families and individuals access to institutional – quality investment opportunities in commercial real estate assets in the United States.
Prodigy Network has managed to raise funds in excess of US$ 690 million, connecting more than 6,500 investors from 42 countries and 27 states in the U.S. Its portfolio, with a projected value of US $1 billion, includes 6 buildings in Manhattan and 2 in Chicago, Illinois.
FlexFunds has securitized more than 25 assets and real estate projects for Prodigy Networks, surpassing US$ 500 million since their relationship began in 2013, becoming a flexible solution to enable real estate developers to access international capital markets. Both private and institutional investors can participate in these projects through their already existing private bank or brokerage accounts.
According to Lisandro Videla, Vice President for Distribution at Prodigy Network, “FlexFunds’ securitization program has transformed our business, offering a new distribution channel for our projects. Through Private Banking we have connected thousands of investors all over the world to investments of institutional quality to which they did not have access previously; this accounts for a substantial part of the success of our business model which has made us a byword in the real estate industry. In addition, FlexFunds has endowed the investment structure with a new level of auditing and control.”
FlexFunds CEO Mario Rivero had this to say: “As a leading service provider in asset securitization for third parties, FlexFunds gives access to capital markets globally. To securitize their assets with FlexFunds, our clients must comply with strict legal and operating requirements, so we congratulate Prodigy Networks for surpassing US$ 500 million in securitized real estate assets. This is one illustration of how suitable FlexFunds solutions can be for real estate developers.”
Pixabay CC0 Public DomainCourtesy photo. Return of the Fed Put
Birth of the Fed Put A put, is an option that increases in value when the underlying security’s price falls below a certain level. One of its most common usages is to protect a portfolio against a market decline.
The famous “Fed put” refers to the notion that the Federal Reserve will take action to support the equity market in times of increased risk and volatility. Since Alan Greenspan became chairman of the Fed during the 1980s, there has been a definitive pattern of the central bank increasing liquidity during times of crisis. This includes taking action to inject liquidity during major downturns in an effort to “fix” the stock market. Each successive time that the Fed does this, investors have become further reliant on this free put option. Eventually, the Fed put became priced in, pushing equity valuations higher and encouraging investors to take excessive risk. This has led to many criticisms of the Fed put for creating “moral hazard.”
Originally, the Fed put was known as the “Greenspan put.” When Mr. Greenspan finally retired in 2006 after leading the Fed for almost 2 decades, Ben Bernanke and then Janet Yellen both continued his policy of taking action to support the markets during times of crisis. This led to the Greenspan put morphing into what we now know as the Fed put.
When President Trump appointed Jerome Powell as the 16th Chairman of the Federal Reserve in early 2018, investors assumed he would continue the tradition of the Fed put. Investors were even willing to tolerate (albeit grudgingly) further interest rate increases by the Fed as long as they knew that the Fed put remained in place. With this understanding in place, Jerome Powell was able to increase the Fed’s target rate every quarter, which was a much faster pace than his predecessor Janet Yellen had done.
Death of the Fed Put
As the Fed raised rates throughout 2018 while imposing quantitative tightening through the reduction of its $4.5 trillion balance sheet, President Trump openly criticized both Powell and the Fed. The President warned that the higher rates were going to choke off economic growth. Of course, these criticisms went mainly unheeded by the Fed as it maintained its independence from the President and steadfastly kept on its course to raise rates.
In October of 2018, Jerome Powell shocked the markets with the “we’re a long way from neutral” interest rates comment. The market was already dealing with the lingering trade war with China, the threat of a global economic slowdown, and the waning economic tailwind of the tax cuts in the US. Powell’s comments shook many investors faith in the Fed put as many feared the Fed was not acknowledging the many issues while continuing on its path to raise rates. In December, Powell doubled down on his comments from October saying that the Fed would stay the course on increasing rates and would continue to shrink its balance sheet at the same pace. This sent an already struggling market into another tail-spin that culminated in the Christmas Eve decline that saw the Dow Jones plunge more than 650 points.
This prompted David Tepper, who manages $14 billion at Appaloosa Management, to say, “Powell basically told you the Fed put is dead.” The market agreed with this sentiment, as it appeared the Fed was prepared to let the market fall without even attempting to intervene.
Return of the Fed Put
“Feel the market, don’t just go by meaningless numbers.” President Donald Trump’s tweet to the Fed
However, the market had not been completely forsaken by Powell. In early January, Powell abruptly changed his tune (maybe he was finally convinced by Trump’s tweets to feel the market) and acknowledged that the Fed will be closely watching market signals and will be patient with its monetary policy approach.
Powell also indicated that the Fed would be willing to adjust its balance sheet reduction efforts if needed, which sounded a lot like he was willing to inject liquidity in the system if the markets took another downturn. Investors that had feared the Fed was being to hawkish and was going to kill the economy, shouted a collective hallelujah as the market rallied strongly on the recognition that the Fed put was back!
CC-BY-SA-2.0, FlickrPhoto: EAST Miami. Aswath Damodaran to Visit Miami for an Exclusive Event on Valuations
Ignacio Pakciarz, Founding Partner and CEO of Bigsur Partners, is organizing an evening with the Dean of the Stern School of Business at NYU, Professor Raghu Sundaram as well as with Professor Aswath Damodaran the “Dean of Valuations.”
Towards the end of February, friends and clients of Bigsur partners will meet up in Miami in an exclusive event, to discuss about valuations and Bigsur’s market outlook.
“We are very excited to have Professor Damodaran, a captivating speaker with compelling ideas and a unique understanding of current asset pricing, valuation and investor sentiment.” Bigsur mentions.
Professor Damodaran teaches Corporate Finance and Valuation at the NYU Stern School of Business. He specializes in equity valuation and earned the name of Wallstreet’s “Dean of Valuation”. He recently published a paper with Professor Bradford Cornell on valuing Tesla: “Tesla: Anatomy of a Run-Up Value Creation or Investor Sentiment?” This publication was awarded the Bernstein-Levy readers’ award in the Journal of Portfolio Management. He has also published several other enthralling papers and books such as “The Dark Side of Valuation: Valuing Young, Distressed, and Complex Businesses”.
Foto cedidaUnicorn's US Offshore team. From left to right: Mike Kearns, David Ayastuy, Renata Parra and Luis Alvarez. With BNY Mellon IM, Unicorn Has All the Partners it Wants in US Offshore and LatAm Retail
Unicorn Strategic Partners continues to grow. The firm led by David Ayastuy will be responsible for promoting and distributing the UCITS funds of BNY Mellon Investment Management in the US Offshore market. In addition, they have signed Renata Parra, ex-HSBC, as responsible for client services.
Unicorn, with offices in Madrid, Miami, New York, Montevideo, Buenos Aires and Santiago de Chile, will initially focus on servicing BNY Mellon IM assets already on the market, seeking to intensify the company’s presence in the portfolios of family offices, institutional investors and fund platforms in the region.
BNY Mellon, with its multi-boutique model, in addition to the 40Act versions, has more than 50 UCITS funds with exposure to most asset classes. As Luis Álvarez told Funds Society, “there is a great demand from the market in the liquid alts part, it is something that with BNY Mellon we will be able to promote very actively with its Global Real Return Fund”.
Sasha Evers, managing director at BNY Mellon IM for Iberia, Latin America and US offshore mentioned: “We are very excited to be partnering with Unicorn to establish and develop our presence in the US offshore market where we see many opportunities to provide investors with access to leading global investment capabilities. We will provide Unicorn with a range of relevant products managed by our world-class investment specialists, as well as all of the necessary resources and support to enable them to provide the highest quality client service in the local market.”
In an interview, Ayastuy added that it is a great honor to include BNY Mellon IM among its partners and that they are extremely happy with the results they are having when promoting the Vontobel and Muzinich strategies. He also mentioned that, with the addition of BNY Mellon IM, Unicorn does not want to add any other partners in US Offshore and/or LatAm retail “because our way of working is a way of partnership and we want to be able to be an extension of the firms. With BNY and Vontobel we are covered for US Offshore and with Vontobel and Muzinich we are covered for LatAm retail,” he says adding that they would be open to increasing the number of partners in institutional LatAm.
Foto cedidaEdouard Carmignac. Edouard Carmignac Leaves his Company's Day-to-Day Operations
Carmignac’s President and Founder, Edouard Carmignac, has decided to leave its Patrimoine fund management team as well as his company’s day-to-day operations. In a press conference in Paris today, he mentioned that the transition will be gradual and that he will try to work more efficiently but leaving the day-to-day to a very competent team. He will remain on the firm he founded as CIO and member of the Board.
Earlier this week, he announced that after almost 30 years running it, he has decided to pass on the stewardship of the 16 billion dollar fund to Rose Ouahba, Head of Fixed Income, and David Older, Head of Equities.
Accourding to the company: “30 years after the creation of Carmignac, the investment philosophy of Carmignac Patrimoine remains the same. David and Rose, as sole Fund Managers, have fully embraced their partnership and are focused on reinforcing alpha generation with specific attention to risk management in this challenging global environment.”
Last month he gave David Older the leadership of his 3 billion dollar Investissement fund.
David Older joined Carmignac in 2015 as Fund Manager and was later appointed Head of Equities in 2017. “Expert on global technology, telecoms and media, his considerable experience in alpha generation and long-short management is key in a challenging environment.”
Before joining Carmignac, David Older spent 2003-2015 at SAC Capital/Point72 Advisors in New York, as co-Sector Head of the Communications, Media, Internet and Technology team. Prior to this, David was an Investment Banking Associate in the Communications and Media group at Morgan Stanley. David received a Bachelor of Arts at McGill University and holds a MBA from Columbia University.
Rose Ouahba joined Carmignac in 2007 as Fund Manager to take over the bond component of Carmignac Patrimoine. She was appointed as Head of Fixed Income in 2011. “Rose has been reinforcing and reorganizing the team to strengthen our unique “unconstrained” investment philosophy.”
She started her career as Bond Fund Manager at Ecureuil Gestion in 1996 and joined IXIS Asset Management 3 years later, as Head of the “Bond diversification” team and, subsequently, Head of Structured Credit Allocation. Rose holds a Postgraduate DESS in Financial Engineering from the University of Paris XII.
Carmignac Patrimoine is the original fund of the Patrimoine strategy. In 2013, they launched Carmignac Portfolio Patrimoine, a sub-fund of the Luxembourg Carmignac Portfolio SICAV. Carmignac Patrimoine and Carmignac Portfolio Patrimoine share the same investment strategy, portfolio construction and the same management process.
