CC-BY-SA-2.0, FlickrPhoto: TreyRaatcliff, Flickr, Creative Commons. China Allows for Mutual Stock Market Access Between Shenzhen and Hong Kong
The China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission (SFC) have approved the establishment of mutual stock market access between Shenzhen and Hong Kong (Shenzhen-Hong Kong Stock Connect) in order to promote the development of capital markets in both the Mainland China and Hong Kong. The organisms have also agreed to abolish the aggregate quota under Shanghai-Hong Kong Stock Connect.
The key features of Shenzhen-Hong Kong Stock Connect, including the shares eligible to be traded under the scheme, eligible investors and daily quotas, are set out in the joint announcement. HKEX expects it should take approximately four months from today to complete the preparations for the launch of the Shenzhen-Hong Kong Stock Connect.
“We are excited about Shenzhen-Hong Kong Stock Connect, which will open up another Mainland market for international investors and strengthen the Mainland’s links with Hong Kong,” said HKEX Chairman C K Chow.
“Under ‘One Country, Two Systems’, Hong Kong is in a unique position to build important connectivity with the Mainland markets and to facilitate the gradual opening of China’s capital account,” Mr Chow said. “This will further enhance Hong Kong as an international financial centre.”
“We look forward to launching Shenzhen-Hong Kong Stock Connect, which will be an extension of our successful mutual market access programme with Shanghai, so investors in our market and the Mainland market will have an additional secure, reliable channel for investment in the other market in an environment that they’re familiar with,” said HKEX Chief Executive Charles Li. “We also look forward to enhancing Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect with additional products in the future.
“We aim to build Hong Kong into a mature, comprehensive financial centre that can serve as an offshore wealth management centre for Mainland investors, an offshore pricing centre for the Renminbi and global asset classes for the Mainland, and an offshore comprehensive risk management centre for Mainland investors.”
CC-BY-SA-2.0, Flickr. Can Brazil Win a Gold Medal as an Investment?
With the Olympic Games underway, many eyes are on Rio. Coincidentally, investors this year are similarly directing more attention to Brazil, although it is developments in the capitol, Brasilia, that are likely of greater importance.
Brazil has had one of the best performing stock markets in the world this year. This may come as a surprise given the headlines we’ve seen this year coming from the country on everything from a presidential impeachment to the Zika virus. But according to Bloomberg data, the MSCI Brazil 25/50 Index is up more than 50% this year, while the MSCI Brazil Small Cap Index has risen over 60%.
The question now is, can the rally continue? My take is that it could potentially, but investors need to be willing to accept significant risk. Some economic bright spots
First the good news: After two years of a deep recession, the economic fundamentals of Brazil are showing signs of bottoming out. Industrial production has started to turn, and so have sentiment indicators, with business confidence indexes leading the way (source: Bloomberg). Particularly encouraging are the improvements in the inflation trend. Prices have been easing since early 2016 (source: Bloomberg), and the new central bank committee’s focus on bringing down inflation has also helped lower inflation expectations for the year ahead. This ongoing adjustment has raised expectations of monetary policy easing, namely interest rate cuts in the fourth quarter, which will be supportive of a recovery in economic activity.
Brazilian stocks climb as perception of risk declines
Political vulnerability and stalling reforms
That said, Brazil remains in a fragile situation. Economic imbalances such as weak fiscal accounts, high levels of debt and unemployment need to be addressed. The reforms needed to fix the Brazilian economy are complex and in many instances very unpopular with the public, making this a significant challenge for any government.
But it is political developments that continue to be the main variable in assessing the outlook for Brazil. Most important of these is the pending final vote on President Dilma Rousseff’s impeachment, which will likely happen in late August or early September.
In May, Interim President Michel Temer took office, after Rousseff stepped down to face an impeachment trial. Since then, Temer has had a few successes. In particular, his cabinet appointments were well received by both investors and politicians, which helped strengthen the relationship with Congress. This relationship has been and will be key for the cabinet ability to pass policy measures.
A vote to impeach Rousseff is likely to prompt an acceleration of much-needed reforms, such as cutting fiscal spending and revamping the pension system. Progress on policy changes, in turn, may go a long way towards restoring confidence of both consumers and investors. Nevertheless, while many believe the Senate would follow through with Rousseff’s impeachment, we cannot rule out the opposite outcome, which would likely be adverse for risk assets especially given high market expectations. Adding to the already high political uncertainty: the ongoing corruption and money laundering investigations surrounding the country’s largest oil and gas company.
And there’s the rub: Given the sharp rise in the markets this year it seems that investors are making a bet on the best case scenario. Should that fall through, markets are likely to correct, perhaps sharply.
Things to look for
In short, investors in Brazil have already won a gold medal of sorts this year. Winning another medal will likely require a more prosaic path: a recovery of earnings on the back of the economic turnaround and effective execution on the reform front.
Investors interested in Brazil may want to consider the iShares MSCI Brazil Capped ETF (EWZ) or the iShares MSCI Brazil Small-Cap ETF (EWZS).
Build on Insight, by BlackRock written by Heidi Richardson.
Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal.
This material represents an assessment of the market environment as of the date indicated; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transactions costs, which may significantly affect the economic consequences of a given strategy or investment decision.
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CC-BY-SA-2.0, FlickrPhoto: _TC Photography_
. Hedge Fund Managers See Opportunities in Europe
Preqin’s Q2 update on the hedge fund industry finds that economic uncertainty following the UK vote to leave the EU has created potential opportunities for hedge fund managers and, as a result, many more funds have launched focused on the region. Europe-focused hedge funds saw a large increase in the proportion of overall fund launches, rising from 1% of funds launched in Q1 to 16% of those incepted in Q2.
At the same time, UCITS-compliant funds accounted for 18% of overall fund inceptions through Q2, the highest quarterly proportion tracked by Preqin since the directive came into force. Given that UCITS funds are a key way for non-European firms to raise capital from Europe-based investors, it is a further sign of the growing interest that industry participants are taking in the region.
While long/short equity hedge funds remain the most common hedge fund vehicles in terms of both investor searches and new fund launches, CTA funds are being increasingly sought-after by investors. The proportion of fund searches issued in Q2 that specified CTA or managed futures funds was 22%, twice the proportion of fund searches issued in Q1. Despite this growing appetite among investors for the fund type, just 3% of new hedge fund launches through the quarter were for CTA vehicles, less than the proportion seen for UCITS vehicles (18%) or funds of hedge funds (7%).
Other Key Q2 Hedge Fund Launches and Searches Facts:
Launches by Strategy: Equity strategies remained the most common approach among new funds launched in Q2, representing 53%. The proportion of funds using a credit strategy rose from 10% of Q1 launches to 18% in Q2, while multi-strategy launches fell from 19% to 6% in the same period.
Fund Manager Location: North America-based fund managers launched two-thirds of all new hedge funds in Q2. There was also an increase in the proportion of vehicles launched by Europe-based firms, representing 28% of all launches, while Asia-Pacific-based managers represented 3% of fund launches.
Investor Type: Fund of hedge fund managers issued the largest proportion (18%) of fund searches in Q2, while wealth managers (17%) and private sector pension funds (12%) also accounted for notable proportions. After some high-profile redemptions, public pension funds comprised 6% of fund searches in Q2.
Searches by Region: Geographically, the proportion of fund searches has remained similar to Q1. Investors in the more developed markets of North America (40%) and Europe (45%) represented the majority of fund searches, while Asia-Pacific based investors comprised 7% of searches.
According to Amy Bensted, Head of Hedge Fund Products at Preqin, “the run-up to and aftermath of the UK’s decision to leave the EU caused volatility across several markets within Europe and beyond. Hedge fund managers have seen increased opportunities to capitalise on this turbulence, and more Europe-focused hedge funds have been launched by managers both in and outside the region. Although Europe-focused funds did not make the same gains as North America-or Asia-Pacific-focused vehicles in Q2, the ongoing volatility arising out of the uncertainty within Europe may provide opportunities for hedge funds focusing on the region to deliver some upside gains. More broadly, the appetite among investors for managed futures continues to grow, as investors seek products which can diversify their portfolio and add some downside protection over the coming months. Although these funds have seen some volatility in their returns over recent months, CTAs have performed more consistently in Q2 2016, and fund managers will be keen to show investors that they can offer uncorrelated returns and capital protection.”
CC-BY-SA-2.0, FlickrPhoto: Ainhoa Sanchez . Hedge Funds and Private Equity Managers Show a Growing Interest in ESG
Unigestion, a boutique asset manager with scale that focuses on guiding its clients with risk-managed investment solutions, has again surveyed the hedge fund and private equity managers it invests in to track their attitudes to ESG.
The survey showed that more hedge funds are considering the value of ESG, as last year 60% of hedge fund managers were ‘reluctant’ to consider ESG as part of their strategies, whilst this year only 53% of hedge fund managers were in the ‘no interest’ category1. 30% of hedge funds managers surveyed were actively incorporating ESG into their strategies.
Whilst there were a number of strategies represented in this sample, the clear leaders in ESG adoption were Arbitrage managers – 67% of which had an active ESG strategy. Tactical traders (including commodities, managed futures and global macro strategies) find it the most difficult to implement ESG into their investment processes because of the nature of the strategy
One of the managers surveyed, Winton Capital, explained that its approach to ESG encompasses broad initiatives such as sponsoring research prizes. In addition, its headquarters are a certified Low Carbon Workplace, one of only 8 in the UK.
Small and large firms also diverged in their approach to ESG. Whilst the survey showed that large firms are more likely to have in place a formal ESG policy than smaller firms, there are again exceptions. Arrowgrass Capital Partners has USD 5.9bn under management and has a strong ESG policy having partnered with an ESG data provider and a responsible investment consultant, and having its CEO and other members of the senior executive sitting on its ESG committee.
The survey also showed more hedge funds are becoming signatories to the PRI. Last year only 13% of hedge funds surveyed were signed up to the principles, whilst this year 20% had signed up.
As the practicalities of incorporating ESG into investment strategies is still a stumbling block for many managers, the PRI is spearheading a working group to create a standard ESG due diligence questionnaire for hedge funds.
Private equity managers are on the whole more advanced than their hedge fund counterparts in ESG adoption, and Unigestion has also seen a larger year on year improvement in this asset class. This year, 42% of private equity managers achieved ‘advanced’ or ‘leader’ status (up from 29% last year) and the proportion of ‘reluctant’ managers fell from 27% to 21%.
Eric Cockshutt, Responsible Investment Coordinator at Unigestion, said: “We are still seeing too many hedge fund and private equity managers dismissing ESG as a cost burden, incompatible with their strategies, or a mere marketing exercise. The experience of many managers however is that ESG adoption is both feasible and beneficial to clients and the company’s overall reputation for taking seriously its environmental and social responsibilities.
Photo: Mortime, Flickr, Creative Commons. Standard Life Investments Launched the Enhanced Diversification Multi-Asset SICAV
Standard Life Investments launched the Enhanced Diversification Multi-Asset (EDMA) SICAV on July, 20th, 2016 in response to a growing client demand for multi-asset funds that manage downside risk.
According to a press release, “EDMA is part of our multi-asset range for investors who want to balance capital growth against volatility in financial markets. With EDMA, we aim to generate equity-like returns over the medium term with less volatility.” EDMA targets equity-type returns over the market cycle (typically five to seven years in duration) but with only two-thirds of equity market risk.
The Fund differs from many traditional diversified growth approaches. Standard Life Investments holds a range of market return investments (such as equities, bonds and listed real estate), however, they also use enhanced diversification strategies to provide additional sources of return and high levels of portfolio diversification.
“EDMA benefits from the expertise of our established and award-winning multi-asset investing team. By exploiting our resources and capabilities we believe we can offer enhanced, lower-risk performance that is cost-effective for our clients.” They conclude.
CC-BY-SA-2.0, FlickrPhoto: Darron Birgenheier. An Inflection Point For Emerging Markets?
Historically, commodity prices and emerging market assets have been closely correlated. This was true in the secular commodity bull market of the 2000s and has continued to be the case in the subsequent commodity market bust beginning in 2011. While the latter was unfolding amid the broader bull market, emerging market assets had always appeared to be more geared to the downside during sharp market corrections. Indeed, they have generally proven to be serial underperformers.
However, in the early part of 2016 this trend appeared to reverse. Markets plunged amid fears that the People’s Bank of China might devalue the renminbi again and in the wake of the US Federal Reserve’s modest rise in the Federal Funds Rate. Despite these ructions, key commodities, emerging market currencies, equities and xed-income securities weathered this particular storm far better than was the case in previous set-backs. More often than not, market price behaviour is more eloquent about true investor positioning than surveys and fund- flow reports. Consequently, market price behaviour, an assessment of investor sentiment and ows, forms one of the key elements of our core investment decision-making framework, Compelling ForcesTM, along with ‘fundamentals’ and ‘valuation’.
Correlation characteristics appeared to be changing in a stressed market environment, suggesting that the prices of metals and emerging market assets could be beginning a process of relative stabilisation or had actually reached their cyclical low points. Oil prices, however, suffered a further plunge at the beginning of this year, demonstrating an unusually high correlation with growth assets and in particular equity markets. However, oil has a unique dynamic due to the in uence of the cartel known as Organisation of the Petroleum Exporting Countries (OPEC). OPEC had kept prices abnormally high by constraining supply, which ultimately attracted investment in new technology and new entrants, effectively ending the cartel. With Opec no longer managing supply, the market price played this role and the oil market played catch-up with other global commodity markets.
The key change to fundamentals has been capacity cuts and supply constraint. Many market participants, as they often are, were simply ‘behind the curve’ because negative market momentum had taken over. But as the spectacular performance of gold mining stocks in the rst quarter of the year illustrated so well, when the sellers have sold, it only takes a modest amount of buying to have a dramatic impact on the price. To the end of June, gold mining stocks, as measured by the Euromoney Gold Miner Index, were up an eye-watering 100%.
We took relative commodity-price and emerging market currency resilience in the face of equity and credit market weakness as a signal to start the process of rebuilding exposure to commodity-related and emerging market assets in general. We have resisted the siren call of simplistic relative valuation metrics for a number of years. It is worth remembering the advice of one experienced emerging market observer: “never buy the equities until the respective currencies have put in their lows”.
Resource stocks specifically, but emerging market assets more generally, tend to be highly cyclical and in our view, should be treated as opportunistic rather than a core exposure in a multi-asset context. In this era of constrained growth and returns, we can’t afford to ignore emerging markets and related exposures, which represent a large and growing opportunity set and more normal risk premia. But as investors, we should accept their inherent cyclicality and act accordingly.
Philip Saunders is co-Head of Multi Asset Growth at Investec.
CC-BY-SA-2.0, FlickrPhoto: Foxspain, Flickr, Creative Commons. Nearly 16,000 Pass the Level III CFA Exam
CFA Institute, the global association of investment professionals that sets the highest standards of ethics, education, and professional excellence, announced that of 28,884 candidates who sat for the Level III CFA exam in June 2016, 54 percent passed the third and final exam. Pending experience and membership requirements, these successful candidates will become CFA charterholders starting in early October, and begin their journey as investment management professionals whose mission is to raise standards in the industry.
In addition, of 50,230 candidates who sat for the Level II exam in June 2016, 46 percent were successful and of 58,677 candidates who took the Level I exam, the pass rate was 43 percent. Globally, a total of 64,020 candidates passed Levels I, II and III, with the overall pass rate for all three levels at 46 percent. (View historical pass rates.)
“Congratulations to the successful candidates who have demonstrated their commitment to the highest standard of professional knowledge and ethics,” said Paul Smith, CFA, president and CEO of CFA Institute. “At CFA Institute, we aspire to develop future investment management professionals for the global financial markets. These candidates have taken the first step to earn the CFA designation and to join us in our pursuit to build professionalism, market integrity and a more trustworthy industry that puts clients’ interests above their own interests.”
To earn the CFA charter, candidates must pass all three levels of the exam which is considered to be the most rigorous exam in the investment profession; meet the work experience requirements of four years in the investment industry; sign a commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct; and become a member of CFA Institute.
“We applaud CFA Institute for its continued efforts to strengthen the professional and ethical foundations of our industry by upholding the highest standards in their certification process,” said Ronald P. O’Hanley, President and CEO of State Street Global Advisors, “and we congratulate all successful candidates. As an organization that is proud to partner with CFA Institute, we strongly encourage everyone to avail themselves of the many opportunities it provides for continuing education and certification to improve our industry and the quality of service and engagement for our clients.”
Successful candidates study approximately 1,000 hours on average to master 8,500 pages of curriculum. The CFA curriculum includes ethical and professional standards; financial reporting and analysis; corporate finance; economics; quantitative methods; equity, fixed income, alternative investments; derivatives; portfolio management; and wealth planning. Its depth and breadth provides a strong foundation of advanced investment analysis and practical portfolio management skills, which gives investment professionals a career advantage.
“The CFA designation is widely recognized as the gold standard of professional knowledge and business ethics in the investment industry,” said Yimei Li, CFA, Deputy CEO of China AMC. “We encourage and support our staff to pursue the CFA charter, as it demonstrates our commitment to our clients that we bring in the best talent to serve their needs.”
New candidates entering the CFA Program in this year’s exam cycle grew by 15 percent to 102,514 candidates, which reflects growing interest in building professionalism in the investment management industry. The growth has been strongest in Mainland China where Level I candidate registrations reached a record high of 22,999, surpassing the number of registrations in the United States for the first time.
The June 2016 Level I, II and III exams were administered in 258 test centers in 197 cities across 91 countries worldwide. The top 10 countries and territories with the largest number of candidates tested are the United States (31,501), Mainland China (26,758), India (12,117), Canada (11,136), United Kingdom (9,717), Hong Kong (5,359), Singapore (3,433), Australia (2,915), South Africa (2,006), and France (1,784).
CC-BY-SA-2.0, FlickrFoto: Hernán Piñeira. Los sectores bursátiles de infraestructuras, seguros o inmobiliario cotizan muy por encima de la media
Columbia Threadneedle Investments announces the introduction of the Threadneedle US Investment Grade Corporate Bond Fund to its SICAV range.
The UCITS fund, co-managed by Minneapolis-based portfolio managers Tom Murphy, CFA and Tim Doubek, CFA, aims to generate a total return from income and capital appreciation by seizing opportunities in the US investment grade corporate bond market, focusing on security selection and industry rotation as the primary sources of value added with a constant focus on downside risk.
The fund mirrors the existing investment grade corporate fixed income strategy managed by the duo for US investors with a strong track record over the last seven years. The fund’s benchmark is the Barclays US Corporate Investment Grade Index and the fund’s performance target is +100 to 150 bps over the index (gross) over a full market cycle of five to seven years.
The fund follows a rigorous, independent, bottom-up fundamental research process resulting in a deep understanding of issuer and industry dynamics. Experienced and dedicated portfolio managers and analysts are full partners in the portfolio construction and monitoring process allowing the team’s best ideas to emerge with a constant focus on maximized return and reduced volatility.
Initially registered in Luxembourg, the fund is intended for distribution across other markets (UK, Austria, Belgium, France, Germany, Italy, the Netherlands, Portugal, Singapore, Spain, Switzerland and Sweden) pending regulatory approval in each country.
Gary Collins, Head of Wholesale Distribution for EMEA and Latin America at Columbia Threadneedle Investments said: “In a low yield environment, exposure to corporate credit can provide an effective way for investors to preserve capital and generate income whilst diversifying their portfolio away from equity markets. Columbia Threadneedle manages c. US$24 billion in US investment grade and we also have successful European and Global investment grade corporate bond strategies available through our SICAV.”
Tom Murphy, CFA, Columbia Threadneedle’s Head of Investment Grade Credit and co-manager of the Fund, said: “Given solid fundamental credit insights, a reasonable time horizon, and the ability to withstand short-term volatility, we believe credit opportunities in the US investment grade corporate bond market can be exploited to achieve attractive risk-adjusted returns. Tim and I have close to 30 years’ experience each and a real focus on finding the best business models with the best management teams that offer solid relative value.”
CC-BY-SA-2.0, FlickrPaul Quinsee / JP Morgan AM. Paul Quinsee, New Global Head of Equities at JP Morgan Asset Management
Paul Quinsee, until now managing director and chief investment officer for U.S. equities at JP Morgan Asset Management, will replace Martin Porter as the firm’s global head of equities.
The appointment will be effective in the fourth quarter, after Porter’s retirement. He will split his time between New York and London and report to Chris Willcox, CEO of global investment management.
Quinsee will oversee a team of more than 400 investment professionals and $430 billion in assets under management. As of June 30, JPMAM had $1.693 trillion in assets under management.
CC-BY-SA-2.0, FlickrPhoto: Quinn Dombrowski. Making Sense of Misalignment
Old Mutual has agreed to sell Old Mutual Wealth Italy to ERGO Italia, owned by Cinven, the European private equity firm. The consideration for the transaction is €278m in cash, plus interest to completion.
The transaction is subject to usual regulatory approvals and customary conditions and is expected to complete within six months. The sale is the final part of the divestment of Old Mutual Wealth’s continental European businesses allowing it to focus on its core UK and cross border markets.
As reported previously, Old Mutual is working on a wider plan to break up its business, cut costs and revamp earnings. On March 11, Old Mutual said it would split into four businesses: a South African bank, an emerging markets unit, a US asset manager and a wealth manager in Britain.
Old Mutual Wealth Italy was established in 1997 and accounted for less than 5% of Old Mutual’s overall wealth management activities.
The business employs 110 people and manages €7bn for more than 53,000 affluent and high net worth customers. The post-tax adjusted operating profit for the year ended 31 December 2015 was €22m.
“We are pleased to announce the acquisition of Old Mutual Wealth Italy. This transaction is the result of a clear vision, whose goal is to create a leading player through consolidation in the Italian life insurance market. We look forward to building on Old Mutual Wealth Italy’s capabilities to enhance our distribution network and our product line, gaining access to a high-growth market,” said Erik Stattin, CEO of ERGO Italia.
