From left to the right: Jaime Gilinski, main shareholder of Banc Sabadell; Juan Manuel Santos, President of Colombia, and Josep Oliu, Chairman of Banco Sabadell. Courtesy photo. Josep Oliu, Chairman of Banco Sabadell, Opens Representative Offices in Bogota and Lima
Last week, Josep Oliu, Chairman of Banco Sabadell, opened the entity’s new representative offices in Bogota and Lima. Both Colombia and Peru represent key markets in the consolidation process of the entity’s international project in Latin America.
The representative office in Bogota was opened last Wednesday. Some 150 guests in total attended this event, including the President of the Republic, Juan Manuel Santos, and representatives of the business, economic, political and social sectors in Colombia. Among these guests was Jaime Gilinski, with whom Banco Sabadell has recently formalised the acquisition of 4.99% of the local bank BGN Sudameris and signed a strategic cooperation agreement.
Colombia, with an average growth of over 4% since the beginning of the last decade, has become the fourth largest economy in Latin America. Its per capita income has more than doubled, and is now close to the average levels of the region.
The representative office in Lima was opened on Thursday, and over a hundred people attended the event. Peru has experienced an average growth rate of over 5% since 2000, and is now one of the most dynamic economies in Latin America. There has also been a marked improvement in the country’s rank in global competitiveness indices.
The office in Bogota is located in the Stock Exchange building and is managed by Victor Leaño, a Colombian specialist in corporate banking who has worked at Banco Sabadell for over 16 years. His latest role has been as Head of International Development for the Entity in Mexico, Colombia and Peru.
The office in Lima is located in the Umayuq building, on Avenida Victor Andrés Belaunde, in the San Isidro district. The office manager is Juan Ignacio de la Vega, who also has extensive experience in Latin America, having worked in countries like Guatemala and Ecuador. For the last seven years, he has been further developing his professional career in Peru.
The network of Grupo Banco Sabadell’s representative offices and international branches, including Global Corporate Banking activities, are coordinated by the Directorate-General for the Americas & Global Corporate Banking, led by Fernando Pérez-Hickman. At present, Banco Sabadell’s turnover in America is already in excess of 16 billion dollars.
Photo: Arek Olek. Navigating The Storm: In Risk Budgeting and Alpha We Trust
Sailors and mountaineers know it: weather can vary all of a sudden and change a nice family journey into a dangerous endeavour. 2015 started like a beautiful year, blessed by as many as fourteen central banks’ simultaneous efforts to support the economy, with the BoJ and ECB at the forefront. The family picture on 31 March was great: equities and bonds were up during the first quarter; European equities were finally catching up with US equities (up 22%), while Asian stocks were also posting double digit gains, led by China and Japan.
Then, storm clouds gathered. Having bottomed out at 7 bps on 20 April, the 10-year bund yield soared unexpectedly to 98 bps in just a month and a half, generating an unprecedented loss in value of 8.3%. As soon as bond markets stabilised, the Grexit drama came back to haunt investors and policymakers. These clouds dissipated eventually after another marathon all-night summit. But this was a short term relief. Concerns over China’s foreign exchange regime and uncertainties over the Fed’s stance caused unprecedented movements in equity markets in August.
There are fundamental weaknesses that justify market jitters. The economic recovery in Europe and in Japan is weak, large emerging markets ranging from Brazil to China and Russia are experiencing a severe growth deceleration and deflation risks remain significant across the board. Meanwhile, the Federal Reserve will sooner or later have to reverse an unprecedented accommodative stance. The valuation of US equities signals that they are now historically expensive, whether measured by the price-to- book ratio or by the cyclically adjusted price-earnings ratio.
That said, it seems to us that in the medium term, the positive developments on the US recovery front will outweigh the negative implications of the above. Overall, the world economy is likely to be supported by buoyant growth conditions in the United States. However, the sharp growth deceleration in emerging markets implies that aggregate demand will likely remain depressed. In this environment we continue to prefer European and Japanese equities. Their valuation remains attractive in relative terms and earnings momentum has recently been supportive. For the reasons listed above we maintain a neutral stance on fixed income: a low growth environment and deflation fears are supportive but valuations are expensive.
It is precisely because there are bad times that there is a long-term premium in investing into markets. If our scenario is correct, markets will keep on conveying the value generated by the growth of the global economy, possibly in a perturbed manner.
More than ever we believe that combining risk-budgeting and alpha strategies delivers returns in the long run. Risk- budgeting generates sound risk-adjusted returns. Aside from this Market Premia harvesting, diversified Hedge Fund portfolios contribute to smoothing the ride. Let us review why.
Alpha strategies
Hedge Fund strategies have proven very resilient this year. Event Driven/ Risk arbitrage have suffered but most Equity L/S or Global Macro managers have managed to smoothen the global turmoil. As of end-September, the Lyxor L/S Equity Broad index is up 1% year to date, while global equity indices are down almost 10%. The HFR Fund of Fund was still positive end of August even if September moves will likely bring it in negative territories. At that date, some Funds of Hedge Funds were displaying positive performances, some of them above 2%, which is quite remarkable in this environment.
Alpha strategies have been under pressure over the 6-year market rally. But over the course of 2015, investors have increasingly allocated to such funds due to traditional long- only funds being less attractive in relative terms. Interestingly, inflows into liquid alternatives in 2015 are reaching record levels in Europe, at EUR 50bn between January-August 2015. This confirms, if any proof was needed, the long-term hedging properties of Hedge Funds as long as investors put enough emphasis on due diligence matters.
Risk budgeting strategies
The short term case for risk budgeting strategies is more involved. They have been roasted by some commentators recently for two reasons:
they have contributed to downward market movements
they have posted disappointing performances. Not only risk budgeting has been wrongly charged of exacerbating market movements but we point out the remarkable long-term properties of these strategies.
Certainly risk budgeting strategies can lead the manager to sell despite having a positive outlook on the market. But this is like reducing the sail surface of a boat when the wind picks up. It might prove costly if the wind falls back but might also avoid a very difficult situation if the wind picks up again.
As the VIX soared brutally from 13% on 17 August to 41% on 24 August, some people judged that risk budgeting strategies would have immediately cut their position in the same proportion (by 3) hence worsening the sell-off. In our view, this is very much exaggerated.
As far as their performance are concerned, risk- budgeting strategies cannot escape the global market sell-off, particularly when they are long-only. This said, most of them deliver returns above traditional balanced funds since they have reduced gradually their exposure as long as market risk was increasing.
On top of that, the remarkable long-term properties of risk budgeting should be kept in mind. AQR Asness, Frazzini and Pedersen (2012) published a very long-term simulation of a typical risk parity strategy in a article in the Financial Analyst Journal.
Interestingly, these simulations show that not only risk parity strategies do extremely well since 1980 but they would have also been quite resilient between 1930 and 1980. Similar results can be found in many textbooks such as the authority on the matter published by T. Roncalli in 2013.
Even if not doing it in a systematic manner, we definitely recommend thinking in terms of risk allocation more than in terms of dollar allocation since this has proven to be and will likely remain much more efficient.
Nicolas Gaussel is Chief Investment Officer for Lyxor Asset Management.
. Amundi Registers Its Document de Base for IPO With The French Autorité des Marchés Financiers
Amundi announces last week the registration of its document de base with the French Autorité des marchés financiers under number I.15-073 dated October 6, 2015.
The registration of the document de base is the first step towards Amundi’s initial public offering on the regulated market of Euronext Paris. The completion of the IPO remains subject to receiving the AMF’s visa on the IPO prospectus and to market conditions.
Amundi’s document de base is available on the websites of the company (www.amundi.com) and of the AMF (www.amf-france.org). A printed copy is available free of charge upon request to Amundi at 90 boulevard Pasteur, 75015 Paris. Amundi draws your attention to Chapter 4 « Risk Factors » of the document de base registered with the AMF.
Yves Perrier, Chief Executive Officer of Amundi, commented: “Since its creation in 2010, Amundi has transformed into a European leader. Thanks to its diversified business model, Amundi has enjoyed a strong growth momentum of its activities and earnings. The planned IPO signals the next phase of Amundi’s growth.”
Courtesy photo. Ugo Sansone Appointed as Allfunds Consolidates its Luxembourg Operations
Allfunds Bank has appointed former Eurizon Capital Ugo Sansone to head its business in Luxembourg to help drive the firm’s international expansion.
Ugo is a highly respected and well-known industry figure in the Luxembourg where he has been an active stakeholder across the Investment Fund sector. Ugo has spent his entire career at Intesa Sanpaolo Group, leading the international commercial activities of its Asset Management affiliate, Eurizon Capital for the past ten years. At Eurizon Capital, Ugo led the international commercial and client service activities, with a relevant role at the Company’s SICAV Management Board. Prior to joining Eurizon he held several roles at Sanpaolo Group both in UK and in Luxembourg.
Under Ugo’s leadership, Allfunds’ Luxembourg operations are fully prepared for the new challenges ahead: to support the international growth of the platform across the world and incorporate more institutional clients across France and the Benelux region.
Allfunds Bank’s Deputy General Manager, Gianluca Renzini, said: “We know Ugo very well as both a client and provider. He knows our company inside out and he can really extract the best from it. We consider Luxembourg strategic for our corporate development, as it is one of the most important financial centres at the heart of Europe, is a natural and logical evolution as Allfunds becomes ever more successful in following and supporting our clients and providers in their international expansion”.
Ugo said: “I am really excited to have this opportunity to build upon my long career in European investment funds and apply that experience in a major fund distribution business. Regulatory change and increasing operational efficiency are key to promoting our services and to be considered as the best fund servicing outsourcer in this market. Allfunds is very well positioned in this market and I look forward to bring it to the next level, increasing our regional client book while supporting the international strategic development of the platform”.
Photo: Dennis Jarvis. Made in China 2025: Opportunities and Challenges
Made in China 2025 released by Chinese State Council in early May this year, has established a guiding principle for China’s transformation from a “manufacturing giant” to a “manufacturing powerhouse” in next 10 years. Based on the “Industry 4.0” in Germany, this plan introduces the “three step” strategy. By taking 30 years, which is divided into 10 years of three, it aims to build China into a manufacturing powerhouse in the year 2045 when China celebrates its 100th anniversary.
Develop China from a manufacturing “giant”to a manufacturing “powerhouse”
9 strategic objectives are put forward in Made in China 2025, which include improve innovation ability, promote the integration of informatization and industrialization, establish high-quality brand, implement green manufacturing comprehensively and vigorously promote breakthroughs and development in key areas etc. And it also has 10 key areas covering information technology, energy conservation and new energy, aviation and navigation and biological medicine etc.
The central government will provide special funds and tax preferences for 10 key areas. Although the details are not released, it is believed that the whole planning will improve the influence of Chinese enterprises in global industries and enhance the ability of enterprises to meet the different needs of customers at the same time.
Industry 4.0 can be achieved directly by taking existing advantages
Made in China 2025 is released at this very time and it is of certain advantage for China from the perspective of development process. Compared with developed countries, China and other emerging markets are able to combine industrial systems with the Internet earlier and faster due to the fact that they have invested heavily on infrastructure. This would help emerging markets to promote efficiency and enter the stage of “Industry 4.0” directly by skipping the stage of “Industry 2.0” and “Industry 3.0” which developed countries have experienced. For example, emerging markets do not bother to install electrical cable and wire but use wireless technology directly. By strengthening the connection between enterprises, it will be able to improve the overall economic scale of enterprises and ease the constraints on resources and finance, which makes enterprises more efficient and “smart.”
However, there are still many challenges to cope with in the future in order to achieve the ambitions in Made in China 2025. Firstly, current innovation ability of China is still not high. Although China has 223,000 patent applications in 2014, which make it a country where the most patents are applied for four consecutive years, China is still highly dependent upon importing core materials. In addition, China’s spending on R & D is, all the time, only 2.0% GDP (2013). And it leads to the fact that the added value of the manufacturing industry is only 21.5%, which is far lower than 35% or more in other developed countries.
Innovation ability and image are to be improved
In addition, Chinese brand image has been very poor. There are nearly 10% products which do not conform to the standards within China, and the ratio of Chinese products which need to be recalled is as high as 65% abroad (2012), which is the largest in the world. As far as toys are concerned, on average there are 20 cases where Chinese manufactures are required to recall their toys every month in EU.
Environmental sustainability is also a challenge. Poorly efficient and irresponsible behavior of manufacturing industry in the past has caused heavy environmental pollution. Apart from fog, haze and heavily polluted underground water, utilization ratio of energy per unit is also very high. Therefore, it is not easy for China to achieve significant decrease in energy and material consumption and pollutant emissions so as to fully implement green manufacturing within 10 years.
Capital and talents need to cooperate
Huge capital expenditure could also become obstacles to the implementation of the planning. Although the central government will provide financial and tax preferences, the capital might be very few compared with the funds required in training, machinery and R & D. Talent supply might also be insufficient. Universities may also fail to provide appropriate training facilities. In addition, during the past 30 years, China has been introducing technology and management structure from abroad by taking advantage of its low cost, which results in weak investment and strength in R & D. Furthermore, China has been depending on and developing resource intensive industry such as steel, aluminum, cement etc. It then results in the fact that technology intensive industries such as solar and wind energy industry are underdeveloped. Therefore, the key lies in how to transform the industrial structure and capacity.
China also faces restrictions in order to expand the market. Traditional manufacturing powers such as USA, Japan and Germany have been dominating the market for medium and high-end products globally. So it is not easy for China to seize market share. And developing countries which have relatively weak financial strength may not be able to support products of these kinds or have insufficient demand.
Upgrading the manufacturing industry is helpful for economic restructuring
In addition to market space, China also faces competition from other countries. Over the past two years, the United States has been implementing plans to attract US companies to move manufacturing industry back to the United States. It is estimated that China’s production cost is only 5% lower than that of the United States at present. But this situation is likely to reverse in the future. Due to low efficiency, high logistics cost and poor technology of China, the production cost in the United States is likely to be 2%-3% lower than that in Chinain 2018. At that time, competitiveness of China’s industry will be further weakened.
Overall, there has being a major adjustment in the pattern of global manufacturing industry: On the one hand, developed countries have carried out “re-industrialization” in order to enhance the competitive advantage of manufacturing after financial crisis; on the other hand, other developing countries expand their international markets with costs lower than China. And it leads to the fact China is “facing a severe two-way challenge”, as is written in Made in China 2025. Successfully overcoming the above challenges and gradually transforming China to a manufacturing giant which is characteristic of high-end products, high quality and environmental protection can benefit industries and enterprises which are related to the ten key areas, in overall, as well ashelp to ease the impact of labor cost increase, environmental pollution, limited resource, excess capacity and slowdown in exports and promote economic restructurings.
Victoria Mio is the Lead Portfolio Manager of Robeco Chinese Equities.
Main entrance of La Feria del Mercado de San Miguel in Miami, opening night - Photo Funds Society. Legendary Spanish Artisan Food Market “Mercado de San Miguel” Lands in Miami's Bayfront Park as “La Feria”
El Mercado de San Miguel, a historic Spanish market – originally opened in Madrid in 1916, is bringing their famous homegrown foodtopia to South Florida as “La Feria del Mercado de San Miguel.” The emporium of fresh, regional foods pops-up in downtown Miami in Bayfront Park through January 2016 in an impressive indoor tent and outdoor seating and dining tapas bar, already opened to public.
Miami-Dade County Major, Carlos Giménez; Miami Major, Tomas Regalado; The Consul General of Spain, Cándido Creis; And Montserrat Valle (the owner of the Mercado de San Miguel in Madrid) cut a ribbon made out of sausages, that the guests eat later during the opening celebration.
Inspired by the traveling markets and street fairs of old Europe, the “pop-up” version of the permanent market is scheduled to travel the globe and has selected Miami as its first stop. “Miami was the obvious choice for our first pop-up destination, as no city in America has embraced the Spanish-American cross culture quite like this one,” said Valle.
The Miami site will marry Spanish gastronomy with local artisans, bakers, and farmersto create the legendary dishes and take-home provisions that the Spanish location has become celebrated for world-wide.
La Feria encompasses 9,000 square feet of combined interior tent space and an outdoor tapas bar and seating area, creating a spacious destination for strolling, shopping, eating, and drinking. The tent’s interior will serve as an extravaganza of Spanish foods with numerous kiosks, stands, counters, and carts offering a variety of delights meant to be taken home or enjoyed on site and will also highlight unique regional cooking techniques. A large, circular bar will hold center stage – offering an assortment of local and Spanish beers, specialty Spanish cocktails, such as Rebujito and Tinto de Verano, as well as Gin & Tonics and international spirits of all kinds.
Four main kiosks will be featured around the space, offerings various delights paired with a particular theme. One kiosk will highlight Paellas and a wide selection of delicious rice dishes, including Black Paella with squid ink and shrimp – a Madrid Mercado de San Miguel favorite; A second kiosk will feature fish of all kinds, served in a traditional fish market setting; A gigantic brick oven completely covered in gold will be located in the “sailor kiosk”, where sumptuous “Cocas”, the Spanish equivalent of Italian pizza, will be served; And a fourth kiosk will focus on meat. A traditional butcher shop will be erected, offering locally sourced cuts and grounds.
Smaller thematic carts interspersed within the space will feature treats, such as croquetas; Andalusian-style fried calamari; Breads from local bakers; Cheeses; Charcuteries – all locally made -; Embutidos (cured sausages made from old recipes from Murcia); Encurtidos (pickled items), and the famed Arbequina olives marinated in thyme; Olive oils and San Miguel’s addictive vinaigrette.
Spanish classics like pintxos and tapas will naturally be a focus as well with a variety of Montaditos (tapas on bread) and freshly made Spanish tortillas will include different version. One cart not-to-be-missed is the legendary 5 Jotas Cart, featuring their Iberian Jamon, which comes from Acorn fed pigs and is considered amongst the best meat in the world.
Expected food average with a soft drink will be $18. Hours of operation are Sunday to Thursday from 10 am to 10 pm and Friday and Saturday from 10 am to 12 am.
Investec gathers 250 investors from 23 countries in London for its 2015 Global Insights Event. Investec AM Global Insights 2015: Investors Must not Turn Their Back on Emerging Markets
At the Investec Global Insight Conference 2015 being held in London last month, Henrik du Toit, CEO of Investec Asset Management, outlined the company’s vision for the environment in which we currently operate by stating that investors must stop being locally biased to become true global investors.
The South African firm’s assets are a good example of this approach. With offices in Cape Town, London, Hong Kong, and Singapore, and US$120bn in assets under management, they are the only asset management company originating in an emerging country, which plays in the big fund managers’ league. Moreover, its assets under management are equally divided between developed and emerging markets.
Richard Garland, Managing Director for the Global Advisory business at Investec AM, pointed out that the firm has seven investment teams with unique investment philosophies, offering a varied range of products, with a dynamic and business oriented corporate culture which is fully aligned with the needs of their clients.
Proof of this is that 15% of the company is held by the company’s key employees, including all senior professionals involved in the investment process. In addition, portfolio managers invest a significant amount in the funds they manage, to ensure that their goals are fully aligned with the other investors in the fund.
Garland acted as Master of Ceremonies on the conference; Du Toit, the company’s CEO, gave a broad overview on key points of the business, to make way for the speech by James Hand, co-director of the 4Factor Equity team, and a presentation by Michael Power, strategist for the firm, on the “Collision of Two Worlds,” developed and emerging, and its impact on investment portfolios.
Undisputed Protagonists: Emerging markets
Du Toit claimed that, with the arrival of new economies into the global arena, we have embarked on a journey in which the world is changing. He stated that one cannot be left out of the process of wealth creation that is occurring in emerging markets, and that although right now their role is under question, their protagonism is indisputable in the long term. For the company’s CEO, the best advice is to invest with a global focus rather than a country-by-country one.
Power, strategist for the firm, said that deflation is the main issue that any investment portfolio has to deal with. Overheating in the developed world is being offset by the deflationary influence from the emerging markets, which are able to produce at much lower costs due to their specialization and the low cost of labor. Thus, according to Power, the price deflation process suffered by Japan since the nineties is now also affecting the United States, and Europe even more so, as they are also facing a serious demographic problem, “Europe needs more babies,” he said. In fact, Asia is taking the jobs of the Western world, and the institutions in developed countries have reacted by cutting rates, encouraging credit, and increasing spending.
In this environment, Power urges investors not to turn their backs on the economies that are generating wealth. If Korea and Taiwan stole the limelight from Japan in the nineties, creating its problem of deflation, this century China has taken over, and now “we can even envision that ASEAN countries could be replacing China in this process” Power says. In short, and in the words of this strategist, “the white man has lost his job in favor of an Asian woman,” a difficult reality to digest.
What to do in this environment? Power recommended to those investors and advisers present, to prepare portfolios for capital preservation in a deflationary environment, which is going to continue. “The type of high-quality companies in which the Investec Global Franchise strategy invests are a good choice; also invest in bonds and cash, making sure it is in the appropriate currency; equities and Asian fixed income are also interesting, as well as certain private sectors in the United States, such as pharmaceuticals.”
Asian Equities and Value Stocks are Cheap
Several 4Factor Investec investment team members, as well as portfolio managers for the Asian Equities and Fixed Income teams, gave their views on various sectors and investment styles in two panels. One of these concentrated on developed markets and the other one on China. One of the conclusions in relation to developed markets is that even though there is a somewhat more attractive valuation in value stocks, perhaps it is too soon to embark into overweighting this asset class. However, the quality factor, although in higher ratios, is offering opportunities in companies with high generation of free cash flows which justify their prices. “Those stocks with free cash flow yields higher than 5.5% which grow by around 8% annually, mark the path to success,” Clyde Rossouw, co-director of the Quality Factor, pointed out.
James Hand, co-director of the 4Factor Equity team, analyzed the situation by markets, styles, and sectors, concluding that looking at the valuations, the picture shows that emerging markets, Asia, and value stocks are cheap, while by sector, valuations are low in cyclicals versus defensives, “but at the moment, you have to be willing to buy in these markets, which are cheaper, without any evidence that the fundamentals are improving, so unfortunately there is no clear answer” .
The event counted with a stellar presentation by Francois Pienaar, former captain of South Africa’s national rugby team in 1995, year when the team won the World Cup. Pienaar, played by Matt Dillon in Invictus, the film production directed by Clint Eastwood, shared with the audience his sporting and human experience when leading his team to victory at a time when the country was taking its first steps towards democracy. “My main criticism of the film is that in it, I had a disproportionate leading role, the victory in the Rugby World Cup was the work of the whole team,” Pienaar assured. He also shared the inspiration which the team always received from Nelson Mandela, who clearly understood from the onset the power which sport has to unite a people who at that time were divided. “From him, I obtained the motivation to make the world a better place, starting from your own home, your street, your neighborhood, your circle of friends, your city, and your country,” he concluded.
Victoria Mio, co- chief investment officer in Asia Pacific at Robeco.. Robeco, about China: "Some Investors Did Leave The Market, Providing A Good Entry Point for Long Term Investors"
Victoria Mio, co- chief investment officer in Asia Pacific at Robeco and Robeco Chinese Equites’ fund manager, explains in this interview with Funds Society her outlook for the Chinese economy and markets and the impact for the global economy.
How would you explain the volatility that the Chinese stock markets have experienced in recent weeks?
For the offshore Chinese equities listed in Hong Kong and the US, the recent volatility is due to the following factors: continued lack of sign for macroeconomic condition improvement in China; changing of Chinese currency CNY pricing mechanism and 3% one-off CNY depreciation; lack of upside surprise from the 1H2015 corporate earnings result season in August; expectation of interest rate hike in the US causing funds outflows from global emerging markets, including China. For the domestic A share markets, there is a Chinese specific condition: unwinding of margin finance. At the peak, margin financing through the official channels stood at CNY 2.3 trn in mid Jun, and dropped to less than CNY 0.9 trn.
Will the current Chinese government measures be enough? To what extent the Chinese authorities have room to boost the markets?
China government has recently introduced new stimulus as debt-swap (CNY 3.2 trn debt-swap program for maturing short-term LGFV debts to be converted into long-term local government bonds), local government projects (boosting the capital adequacy ratios of China Development Bank and Export-Import Bank of China, and issue policy bonds to support local government projects), infrastructure (support construction in 5 areas: agriculture, urban infrastructure, environment protection, public housing and high-end manufacturing & telecom), property (PBOC cut the down-payment requirement for second homes to 40% from 60%. This will likely lead to an improvement in property investment in 4Q15), export (the State Council pledged on 26 August 2015 to support China’s export by cutting levies on exported goods, increase the transparency of port and customs fees, etc.) and consumption (the government also cut the RRR for auto loan by 300bps to support auto finance).
These stimuli may not be enough to stop the deceleration in growth, but they will reduce the downside. We expect that the Chinese central bank will continue to cut interest rate or RRR in Oct this year, and will continue the monetary easing policy next year. We also expect the government to do more fiscal spending to boost growth in the coming months, particularly related to the 13th Five Year Plan (covering 2016-2020). The initial plan is likely to be announced in October 2015 and finalized in March 2016.
Is there anything you may find positive about such markets correction?
Valuation becomes extremely attractive now. Some investors did leave the market, providing a good entry point for long term investors.
Do you see room for further declines in China’s markets?
Given the extreme bearishness in the market, and record low valuation, the downside is limited. The risk is to the upside in the next 3-6 months.
At this moment, what is your strategy: taking the opportunity to buy low or selling because of high volatility?
We remain overweight China within our APxJ/EM coverage universe. We are selective with stock ideas, and prefer sectors/stock names with healthy earnings growth trajectory, and potentially have higher US$ or equivalent revenue exposure while its cost base is more RMB denominated. Such sectors/companies will benefit under the RMB depreciation scenario.
To what extent this crisis will impact in the developed world, especially Europe and the US? Do you think the situation can be spread around, as we saw in August?
Due to capital control in China, the correction in China A share markets will have little impact on global markets, except the Hong Kong equity market, through the Shanghai-Hong Kong Stock Connect.
The net impact of the change in the RMB currency management approach on the global economy is dependent on whether policy-makers also take up easing measures in a way that stabilizes growth in China. A currency move, just by itself, will lead to tightening financial conditions elsewhere in the world (by way of appreciation of other economies’ trade-weighted indices) and could prolong the impact of disinflationary forces on the global economy. We expect this impact to be felt most materially in the Asia ex Japan region and also in the US (given the close trade linkages between China and these economies).
What about the contagion of other markets in Asia? And in Latin America?
From macro perspective, the Asia ex Japan region is highly exposed to the impact of China’s slowdown, as China has emerged as a key source of end demand over the past years. Within the region, Korean, Taiwan and Singapore would be the most affected via the direct trade channel, while Indonesia and Malaysia would be affected via the commodity price channel, owing to their status as the net commodity exporters in the region.
Latin America is less directly exposed to China’s end demand. But with the majority of tis exports basket commodity related, a growth slowdown in China would affect the region via weaker commodity prices and a negative terms of trade impact. Domestic demand could be further affected via weaker consumer purchasing power and reduced attractiveness of commodity related investment. Government spending could be constrained by weaker commodity tax revenues.
From a currency market perspective, the adjustment of the fixing mechanism of the CNY may have a potential impact on other Asia currencies, as the resultant devaluation has resulted in the Asian currencies trading weaker too.
Do you think this turmoil may lead the Fed to delay, even more, the interest rates hikes?
Specifically, for the Fed, China’s move complicates one of the three criteria – a leveling out in the trade-weighted dollar – that the Fed had laid out earlier this that, if met, would give it the confidence to raise the target rate this year. Robeco holds the view that the Fed will start its first rate hike in December 2015.
What impact will the new China have in global growth, commodity prices, and in general, in the world economy?
Unlike the “old China” sectors that are more investment + export driven and more energy intensive, the “new China” is more consumption driven and less energy intensive. If the relatively faster growth in “new China” helps to prevent a major slowdown in China’s growth, in general, China is likely to continue contribute to world GDP growth by a significant share, though commodities prices are unlikely find a meaningful lift from this.
Will there be soft or hard landing?
We expect China to have a gradual pace of adjustment to address the challenges of managing the disinflationary pressure and high debt level. This gradualism approach means that the disinflationary pressure could persist for longer as we believe that the magnitude of excess capacity in China remains large during this slow adjustment process.
As policy makers continue to adopt gradual adjustment, we believe investment growth will continue to slow in an environment of relatively high real borrowing cost trend, particularly for the industrial corporate sector. Moreover, moderation in corporate revenue and nominal industrial growth is resulting in the corporate sector slowing wage growth, which in turn is likely to weigh on private consumption growth. Hence, we expect GDP growth to slow to 6.8% YoY in 2016.
We have seen the slower GDP growth mainly weighed by industrial sectors. The current weakness in growth mainly reflected the difficulties in industrial economy on the back of deceleration in investment growth and systematically weaker external demand. However, services sectors growth continues to outperform the industrial sectors. The services sectors – which represented 48.1% of GDP in 2014 (vs. 44.2% in 2010) – have been outperforming the overall GDP growth. Tertiary sectors growth was 8.4% YoY in 1H15 (vs. 7.8% YoY in 2014), partially offsetting the slower growth in secondary sectors (6.1% YoY in 1H2015 vs. 7.3% YoY in 2014). The strength in the services sectors is reflected in the relatively higher reading of non-manufacturing PMI at around 53-54, well above manufacturing PMI which is hovering at around or slightly below 50.
CC-BY-SA-2.0, Flickr. Pictet Asset Management Launches Robotics Fund
Pictet Asset Management, a pioneer in thematic investing, has announced the launch of Pictet-Robotics, one of the first funds of its kind to invest in robotics and artificial intelligence technologies. A Luxembourg Sicav, the fund aims to capitalize on the growth of an industry that is forecast to expand as much as four times faster than the global economy over the next decade.
Advances in IT, such as cloud computing and the emergence of powerful new microprocessors, are revolutionizing robotics and automation technologies, which are expanding beyond the factory floor into our everyday lives. Modern robotic devices are now equipped with a remarkable capacity to sense, gather, process and act on information, endowing them with dexterity, versatility and cognition. Robots that can detect changes in facial expressions and tones of voice are being used in services and security industries. In the health care industry, sophisticated robots already assist surgeons in complex procedures, while in transport smart sensor technology is being deployed in driverless cars.
Karen Kharmandarian, Senior Investment Manager, Thematic Equities, said, “Robots have long been used in factories to automate dangerous, dirty or dull tasks. But the pace of invention is accelerating as robots are becoming indispensable to our professional and personal lives. Companies active in robotics seem bound to enjoy strong growth from this new wave of innovation”.
The Robotics fund is the most recent addition to Pictet Asset Management’s range of thematic strategies which already include, among others, specialist funds in digital communication, security, health and water. Thematic funds allow investors to capitalize on long-term socio-economic trends shaping our world.
The official launch date of Pictet-Robotics is 8th October 2015 and the initial subscription period for the fund is 2-7 October.
The fund is currently registered in the following countries: Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Liechtenstein, Luxembourg, Netherlands, Portugal, Spain, Sweden and the UK. It will be available in other countries soon.
CC-BY-SA-2.0, FlickrFoto: Oliver Schnücker. Reacciones exageradas del mercado: el enfoque ‘Episode’ de M&G para encontrar oportunidades
Amundi ETF announces the launch of the first ETF in Europe leveraging the theme of European share buybacks, by tracking the MSCI Europe Equal Weighted Buyback Yield strategy index. The launch represents another innovative expansion of Amundi ETF’s European equity Smart Beta range.
The ETF is designed for investors seeking to capture yield from the European equity market via a return-oriented Smart Beta approach, by providing exposure to companies performing share buybacks, a method of distributing income to shareholders which is likely to grow in Europe.
Share buyback programs allow cash-rich companies to repurchase their own stocks. Already widely used in the US, they should become more popular for European companies as they represent a more efficient use of cash in a low rate environment and give companies more flexibility than dividend programs. Moreover, buyback programs are compelling for investors as they can provide higher returns in a low rate environment.
The MSCI Europe Equal Weighted Buyback Yield strategy index reflects the performance of MSCI Europe securities that have performed buybacks in the previous 12 months . Moreover, this strategy index applies an equal weight methodology, thus increasing diversification and providing a purer exposure to the share buyback theme with a reduced bias.
Amundi ETF is launching this new product in response to client demand, following the launch of its US buyback ETF earlier this year, which prompted interest in a European version based on the same theme. The ETF has a TER of 0,30% and will be made available in Paris and subsequently the major European exchanges.
Valerie Baudson, CEO at Amundi ETF, Indexing and Smart Beta, said: “This innovative ETF adds to our broad mono and multi Smart Beta range and reinforces the positioning of Amundi as a leading innovative player in the European ETF market.”
