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Investec: “The General Growth Backdrop Will be Supportive for Equity Markets”

Investec: “Las perspectivas son constructivas para la renta variable" — CC-BY-SA-2.0, FlickrFoto: Jônatas Cunha. La renta variable de los mercados emergentes ya acusa la salida de capitales

Looking into 2015, it’s a good moment to review both the most important issues of 2014 and the challenges we face for next year. Philip Saunders, Co-Head of Multi-Asset at Investec Asset Management highlights the outlook for 2015, which will come marked by a deflationist environment and the strength of equity markets.

What has surprised you the most in 2014?

I think what has surprised me the most was the market’s resilience to macro negatives throughout most of 2014 until October. We saw a long period when we did not see any meaningful correction despite some fairly serious threats in the form of ISIS and energy, lacklustre European growth and the weakness of the Chinese economy. In the autumn we saw a more conventional correction and that, I think, is generally healthy for the markets.

What is your outlook for global growth for 2015?

Our outlook for global growth in 2015 is relatively constructive. We think some of the concerns about economic weakness in the short term are overdone. Although we are not expecting a blisteringly strong global economy in 2015 it should continue to register positive growth in the vicinity of just over 3% internationally, which is very similar to the experience we have had over a number of years. The composition of that growth has shifted. It has moved away from emerging economies, where we have seen weaker growth, towards a stronger US economy, which seems to be firing on a lot of domestic cylinders, including energy. Weakness in China will probably continue, but it is a growth recession and we think that expectations for Europe are excessively negative. We think the general growth backdrop will be supportive for equity markets. The global economy is not going to race away and we think that interest rates are likely to remain low. Inflation prints around the world are likely come in at pretty low levels allowing central banks to pursue easy monetary policies, which should support growth.

What type of growth are we currently seeing and how does this affect market cycles?

The kind of growth we are currently seeing is pretty anaemic and unbalanced. Many economies are at different points in cycles, which we call asynchronous growth, i.e. it is not synchronised and therefore it is still positive, but it is not as dynamic as we have seen in periods in the past when all economies have tended to strengthen on a coordinated basis. That is quite good for investors because overly strong growth tends to result in inflation, which tends to encourage central banks to tighten policy. We are not seeing that and we do not think that we will see that for some time. Low inflation, low interest rates and a long economic cycle are constructive for equity markets in particular and also means that real long-term interest rates do not have to rise as much as would otherwise have to be the case.

What are the biggest risks to these views?

We think that the biggest risk is on the deflationary side rather than the inflationary side. We think that inflation is unlikely to be a problem because we are in a fundamentally disinflationary environment. Global growth is unbalanced at the moment because it is overly dependent on the performance of the US economy. We think the US economy is going to perform just fine and that will help to underpin growth internationally at a time when other economies are having to adapt. However, if the US economy were to weaken significantly that would compromise our global growth outlook, which will raise risks and affect corporate earnings. Our equity view depends on constructive corporate earnings. In practice, the corporate sector is performing better than national economies and we expect that to continue.

How are you positioning your portfolios?

Our portfolios currently reflect a strategic bias towards equities. We think that equity markets are fairly valued at current levels and we think that they are supported generally by an improving earnings dynamic. We also prefer equities within the growth space to other growth assets, such as high yield bonds or emerging market debt. The skew towards equities is less than in the post summer of 2012 period, but is still positive. That is balanced by defensive assets. We continue to be happy to hold bonds, even though yields are relatively low at the moment, simply because we see the principal risk to our primary scenario as being a deflationary one. This would result in undermining the prospects of earnings and it would mean that yields would fall even lower than they are at currently.

Ana Botín Appoints José Antonio Álvarez as CEO of Banco Santander, Replacing Javier Marín

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Ana Patricia Botín destituye a Javier Marín como consejero delegado de Santander — Ana Botín, Group Executive Chairman, with the new CEO, José Antonio Álvarez. Ana Botín Appoints José Antonio Álvarez as CEO of Banco Santander, Replacing Javier Marín

The Board of Banco Santander today announced the appointment of José Antonio Álvarez as Chief Executive Officer replacing Javier Marín.

It also announced the appointments of:

Bruce Carnegie-Brown, as first Vice Chairman and lead independent director of the Board;
Sol Daurella and Carlos Fernández as independent Board directors;
Rodrigo Echenique, a current non executive Board Member, as Vice Chairman.  The three new independent directors will fill the vacancies left by the death of Emilio Botín and the resignation of Fernando de Asúa and Abel Matutes.

José Antonio Álvarez, prior to his appointment as CEO, served 10 highly successful years as Chief Financial Officer at Banco Santander. His tenure has received wide external recognition for best industry practices specifically in the areas of Investor Relations and transparency. As a result of Mr. Álvarez’ move, several other senior management changes have been made, each by promotion of internal executives.

José García Cantera will assume the responsibilities of Banco Santander CFO. Mr. García Cantera was a top-ranked bank analyst at Citi before serving as CEO of Banesto, a leading bank in efficiency, balance sheet strength and customer satisfaction that was integrated with Santander Spain in 2013. Replacing Mr. Cantera as the global head of Santander Global Banking and Markets (SGBM) will be Jacques Ripoll, previously the head of SGBM in Santander UK.

These appointments will take effect from 1 January 2015 and are subject to regulatory approvals.

Ana Botín, Group Executive Chairman, said: “On behalf of the Board, I would like to express our gratitude to Javier Marín, for his great work for Banco Santander for 23 years and especially for his service as CEO. During his two years in this role, he has led the commercial transformation of our bank, bringing innovative management to lead our customer segmentation and service improvement initiatives, while also improving our profitability and efficiency”. “We would also like to acknowledge the contributions to our Board of Fernando de Asúa and Abel Matutes, whose work has been crucial to our success”.

“The financial services industry today faces many important challenges. But Banco Santander is uniquely well-positioned to succeed, thanks to our strong local retail and comercialbanking presence in 10 European and American markets. Our leadership team’s vision is to create a bank that is “Simple, Personal and Fair” for our teams, our customers, our shareholders and communities”, Ana Botin said.

The Banco Santander Board will now have 15 members, of which nine are independent, with highly relevant and current management experience in diverse business sectors with strong customer-focused expertise. Five members — 33 percent — are women, and represent a wide diversity of international perspectives, including the US, the UK, Mexico and Spain.

Pouring Oil on Troubled Waters

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CC-BY-SA-2.0, FlickrFoto: Sten Dueland. El high yield seguirá sufriendo con los precios de petróleo bajos

Brent crude, the benchmark world oil price, has tumbled by 22% in the year to date, sending a barrel of oil down to $84 in early November, its lowest level in over five years and below the cost of producing it for many countries.

However the ability of the world’s leading oil cartel, OPEC, to cut production levels in order to artificially raise the oil price is quite limited, says Léon Cornelissen. In fact, the leading Middle Eastern producers have been strangely quiet on the issue, partly because they could wage a price war with the US, he says.

The US shale oil revolution has been partly responsible for massively raising supply, as it cuts its dependence on Arab oil, while at the same time demand for oil is falling as cash-strapped consumers use less fuel, and as countries resort to using greener power.

“The oil market has experienced a perfect storm from supply and demand side developments in recent months,” says Cornelissen. “On the one hand, the oil market is currently experiencing a supply boom – the strong production volumes generated by the continuing oil revolution in the US has surprised everyone. US oil output is now running at the fastest pace since measurement began in 1983.”

“At the same time the macroeconomic growth momentum of the global economy has slowed, leading to a less bright demand outlook for oil. The International Energy Authority cut its estimates for global oil demand growth by 250,000 barrels a day for 2014 and by 90,000 barrels a day for 2015.”

“So the question that is now prevalent is whether the oil market is going to rebalance next year and if so, in which way this rebalancing process is going to take shape.”

Benefits of low oil price

Cornelissen says the low oil price is mostly beneficial to the West, with research showing that a drop of more than 20% in oil prices typically generates an additional 0.4% in real GDP growth. This is mainly caused by consumers getting more spending power as fuel prices drop.

Investors should also remember that OPEC, a collective of 12 highly diverse and often troubled countries from Angola to Venezuela, is not always unified, Cornelissen says. “The reluctance to cut production by Saudi Arabia could also be aimed at bringing more alignment and discipline among OPEC producers for a more meaningful production cut later on,” he says.

“History (and game theory) has shown OPEC members to have an incentive to ‘cheat’ on production levels that were agreed at OPEC meetings, and the Saudis could use the recent price drop to increase their leverage over non-abiding members. It means the discussion at the forthcoming OPEC meeting on 27 November will be as tense as it will be crucial, as Venezuela has been calling for a production cut.”

‘History has shown OPEC members to cheat on production levels’

No ‘game of chicken’ with the West

Cornelissen says that OPEC may contemplate a ‘game of chicken’ with the US, given that many US oil producers are also suffering from the low oil price, and therefore they may be tempted to cut production themselves. However, this is countered by the scale of the US shale oil revolution and American political resolve to stop being reliant on the Middle East following the Iraq wars and continuing tension with Iran. And such a policy might also backfire within OPEC members, he says.

In the US, Cornelissen believes that the dominant strategy is likely to be a continuing increase in production. “The lack of OPEC-like coordination mechanisms in the US industry and its history of maximizing output instead of cashflow leaves us with the view that the US oil revolution will continue,” he says.

Headwinds against oil price hikes

Further out, Cornelissen believes that headwinds for a rebound in oil prices will remain strong due to the impact of non-OPEC members such as Russia, which is one of the world’s largest producers. “Even if there is a production cut by OPEC, non-OPEC supply will be encouraged to rise even further in reaction,” he says. “Struggling emerging economies like Russia, Mexico and Brazil are clearly in need of additional oil revenues and will react with higher output if prices are propped up by OPEC.”

Another impediment is the steadily appreciating dollar, he says. “A stronger dollar, as we expect for 2015, will be troublesome for the oil market as well because this makes the oil bill for importers outside the US more expensive.”

“Therefore, our view is that oil prices are going to stabilize, but a significant rebound back to the USD 100-115 per barrel bracket will not happen next year. Prices will likely drift higher, but remain below USD 90 for Brent.”

No Fooling

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Sin engaños — Photo: Grant Wickes. No Fooling

I often hear about the connection between the bond-buying actions of the US Federal Reserve and the rise in stock prices. Indeed, the two do appear to have moved higher in tandem. The S&P 500 Index is up almost 200% since 2009, while the Fed has added trillions to its balance sheet to provide the US economy with extra liquidity to fuel growth and create jobs.

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Something else has been happening during the same period, and I would like to draw attention to that. Not only have bond purchases and liquidity measures gone up on the Fed’s actions, but earnings have also risen — in the economy as a whole and by about 190% in particular for the companies traded on the major exchanges.

Enlarge

Over long periods of time, the observed behavior of stock markets has been directly linked to the amount of profits created by companies. That the market is up roughly in line with earnings over five years suggests to me that profitability has been much more of a driving force than Fed liquidity.

As I see it, there are five reasons why this is so important for investors to consider.

First, S&P 500 profits have continued to expand throughout this business cycle, well beyond the bounce that could be expected from recession-induced lows. Even in the third quarter, more than five years into the cycle, profits have risen at a rate of about 8.5% year over year as the US economy has regained momentum.

Second, the performance of companies in the major indices has been so robust that profits increased even when the US economy was shrinking. In the first quarter, the US government reported that economic activity contracted by an inflation-adjusted 2.1% — effectively a mini-recession. Earnings rarely, if ever, expand in the face of a shrinking economy, yet we saw that when first-quarter profits rose 4.5% year over year.

Third, the net profit margin —that is, the profit booked per dollar of sales— has continued to rise. To achieve profit margins that now exceed long-term averages by 100%, companies have limited their costs and improved their productivity to a dramatic degree — producing more goods and services per labor hour worked, turning assets more quickly, realizing lower natural gas costs, reaping the advantages of lower interest expense and so on.

Fourth, the gains in profits and profit margins are showing encouraging signs of breadth, occurring simultaneously in nearly all sectors and industries — including the much maligned health care and technology sectors.

Fifth, the US economy is expanding, almost alone among the major economies in the world. In fact, evidence is piling up that the US cycle is moving forward with solid support from consumer income, capital spending, pent-up demand, competitive improvements in global sales, wage gains and falling unemployment rates.

Won’t get fooled again

The investment world is on the lookout for bubbles, wary of asset categories filled with little but air, ready to be punctured by the slightest jab of interest rate increases or the withdrawal of government-injected liquidity. After all, only six years ago the collapse of credit pierced a genuine bubble in the housing market. No one who has sacrificed hard-earned savings to market breakdowns and defaults wants to be fooled again.

But today, there is no major flood of credit sweeping prices upward. Companies and consumers have demonstrated more responsibility with their borrowing. When the private sector borrows, incomes and cash flows are now supporting that debt.

So I agree, let’s not be fooled again. At the same time, let’s not suppose that the Fed is powerful enough to drive up profits in all categories when energy prices, labor costs and asset turnover are helping companies do well. In my view, the market cannot ignore the truly impressive results coming not from a world of liquidity, but from a world of real economy improvements.

Pioneer Investments Names Fixed Income Client Portfolio Manager

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Pioneer Investments announced that Craig Anzlovar has been named Fixed Income Client Portfolio Manager. He is based in Boston.

Prior to joining Pioneer, Craig was a fixed income Institutional Portfolio Manager at Fidelity Investments, and a member of the firm’s liability-driven investing (LDI) strategy team. In this role, he was responsible for developing custom LDI solutions for institutional clients. He was also responsible for client servicing and representing the firm’s fixed income strategies to the marketplace. Prior to that Craig was an Investment Director at Fidelity responsible for product management and client servicing for the firm’s institutional high yield, bank loan and emerging market debt strategies.

“Pioneer has one of the industry’s strongest and most tenured fixed-income teams, and we have a continued focus on providing the highest level of service possible to our growing client base, said Kenneth Taubes, Chief Investment Officer, U.S. “We’re pleased to have someone with Craig’s experience joining us,” he added. As of Sept. 30, Pioneer Investments managed approximately $148 billion in fixed income asset globally, including approximately $40 billion in the U.S.

Craig earned his B.S. from Fairfield University and his M.B.A. from Babson College. He is a CFA^® Charterholder and a member of the Boston Security Analysts Society.

RBC WM Confirms its Departure from the Caribbean and its International Advisory Centers in the US

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RBC WM confirma su salida del Caribe y de otros centros internacionales en Canadá y EE.UU. — RBC Toronto. . RBC WM Confirms its Departure from the Caribbean and its International Advisory Centers in the US

RBC Wealth Management has confirmed it will leave its international wealth management business in the Caribbean and other international private banking and international advisory groups in Toronto, Montreal, and the US, as confirmed to Funds Society by a company spokesman, who wished to emphasize that these segments “only represent a small part of the RBC Wealth Management business.”

According to a release by the firm earlier this year “the international division of RBC Wealth Management-U.S. serves high-net-worth and ultra-high-net-worth clients worldwide from offices in New York, Houston, Miami, San Diego, Seattle and Wilmington, Del. More than 50 international financial advisors and private bankers serve the needs of international and domestic clients through private banking, credit, investment management, asset management, trusts and other solutions”.

Refering to the closure, RBC Wealth Management said it “is undertaking a process of realigning certain businesses within their international operations as part of a focused strategy that allows us to achieve sustainable, controlled, and profitable growth in our core markets, while providing an excellent service to our customers.”

This closure is in addition to those already announced in October and which resulted in the closure of the private banking offices in Miami and Houston, two units which specialized in cross-border business, which is now in the process of decommissioning. Now, the closure also affects the broker dealer business in the US and Canada related to international clients. We must recall that in April, the largest Canadian bank also announced its departure from the Chilean market after six years in the marketplace, a decision which was also due to a “strategic review” of its business in Latin America. A year earlier, RBC closed its offices in Uruguay.

RBC Wealth Management ensures that it looks at the business in a scalable way and aims more towards the business of wealth management focused on serving high-net-worth and ultra-high-net-worth clients from their key operations centers in Canada, United States, the British Isles and Asia, “because we know that we are more successful when we leverage and build on the strength of the other RBC businesses.”

Finally, the same source stressed that they shall continue to serve their customers as they strategically exit those businesses.

The business of RBC WM is among the five largest in the world. RBC Wealth Management has more than $ 442 billion Canadian dollars (392 billion US dollars) in assets under management.

Threadneedle Investments Launches Multi-Asset Income Fund

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Threadneedle lanza un fondo multiactivos enfocado a la generación de rentas — Photo: JJBAS. Threadneedle Investments Launches Multi-Asset Income Fund

Threadneedle Investments has launched the Threadneedle (Lux) Global Multi Asset Income Fund with immediate effect.

Managed by Toby Nangle, Threadneedle’s head of Multi-Asset Allocation, the Sicav is focused on income generation, targeting an income level of 5%. To be able to target this income in the current investment environment, the fund uses derivatives to enhance the anticipated yield. It is expected that this portfolio will be less volatile than a pure equity portfolio, Threadneedle said.

Nangle has 17 years’ investment experience and a proven track record in multi-asset fund management. As Threadneedle’s head of Multi-Asset Allocation, he is responsible for managing and co-managing a range of multi-asset portfolios, as well as providing strategic and tactical input to the Threadneedle asset allocation process.

The fund was previously launched with an absolute return investment strategy, but the company recently decided to revamp it betting on “Threadneedle’s core investment capabilities: asset allocation and income,” the company said.

It is now available in Austria, France, Germany, Italy, Luxembourg, Netherlands, Spain, Sweden and Switzerland.

“The investment approach of the fund enables the manager to invest directly across asset classes, principally in global equities and bonds. The fund may also invest up to 10% in other Threadneedle funds and uses derivatives for investment purposes and hedging, including the generation of additional income. It draws on the scale and diversity of Threadneedle’s wider investment platform and sophisticated risk management framework,” the company said.

Toby Nangle, head of Multi-Asset Allocation and manager of the Fund, said: “This fund offers investors the opportunity to receive a regular, targeted level of income from a range of assets. With investors looking for a degree of certainty around the level of income they receive from their investments, we aim to offer an appealing solution to these investors who are also concerned with the control of volatility. We aim to do this through our active asset allocation and risk management processes.”

Gary Collins, head of EMEA Wholesale distribution at Threadneedle, said: “Threadneedle has a strong asset allocation heritage, with around €52bn – 44% of assets under management – in some form of asset allocation mandate. Our income investment capability is very well known in the industry with a top performing product range.

“The combination of these two capabilities represents the blueprint behind our successful investment philosophy – working across asset classes and using the knowledge of our whole investment team to gain a perspective advantage and deliver the outcome desired by our clients.”

OMGI Signs LatAm Distribution Agreement

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Old Mutual Global Investors has entered a distribution agreement with Aiva in Uruguay to help broaden the business’s sales capability through third party channels in the US Offshore and Latin American markets.

Headquartered in Montevideo, Aiva is a Latin-America platform business. Over the last 16 years, it has provided savings solutions and long-term investments to clients in Latin America, as well as administration services to Old Mutual in the region.

Old Mutual acquired a majority stake in Aiva in November 2012.

As part of this agreement, OMGI will be serviced by three dedicated sales professionals who will support Chris Stapleton, head of Americas Offshore Distribution.

Veronica Rey and Santiago Sacias will operate from Montevideo, with Rey providing day-to-day field sales coverage in the cross-border investment hub in Uruguay, as well as a regular presence in Chile, Brazil and Argentina. Santiago will be supporting the efforts of both Veronica and the wider team as an investment analyst and broker desk consultant.

Andres Munho will operate initially via a satellite presence in Miami, Florida, USA and, from 2015, will be based out of a local office in Miami’s financial district. Andres’s distribution coverage will encompass the gateway offshore investment hubs in South Florida and Texas, as well as Northern Latin America, which includes Mexico, Panama, Colombia, Peru and Venezuela.

Warren Tonkinson, head of Global Distribution, commented: “This new agreement demonstrates that Old Mutual Global Investors is committed to expanding its international footprint. After investing in the strengthening of our Hong-Kong based team over the last year, we are now delighted to have finalised this Distribution Agreement with such a well-respected and successful company in AIVA, a sister company within our parent company.

Old Mutual Global Investors recently announced key investment and distribution hires. Joshua Crabb has been appointed head of Asian Equities, supported by a new team of two investment analysts.

Ian Ormiston has joined as a European Smaller Companies Portfolio Manager and Russ Oxley and his Fixed Income – Absolute Return team will join in 2015. In addition, Allan MacLeod joined the company as head of International Distribution in November to spearhead Old Mutual Global Investors’ international growth plans.

Africa: An Abundance Of Low-Hanging Fruit

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África: una gran oportunidad — . Africa: An Abundance Of Low-Hanging Fruit

The African continent offers huge growth potential for international investors. Coming from a low base, it is relatively easy for African economies to achieve high growth and companies’ valuations are still very reasonable.

The proportion of African equities in institutional investors’ portfolios is quite small however. The exposure they do have is usually to South Africa, as part of an allocation to emerging markets. The amount of listed equities in African frontier markets is still modest and only a few of them trade in big volumes every day. However, as investors’ interest in African frontier markets is growing, we expect this to change gradually.

Equity culture

This change will take place through two channels: the establishment of more stock exchanges and an increase in the number of companies going public. Algeria and Angola, for example, have concrete plans to introduce stock exchanges in the next three to five years. These are countries with large companies and local investors with a lot of money to invest. We see that the English-language countries, such as Kenya and Nigeria and, to a lesser extent, Ghana and Zambia, already have some sort of equity culture. This is less the case in countries with a French colonization history, such as Cameroon.

The investment case for Africa has many drivers African companies operate in a difficult environment in terms of productivity and corruption. We see this as an opportunity, as there is plenty of ‘low-hanging fruit’ that can be plucked to boost efficiency. We already see that the business climate is improving as governments in various countries are improving accountability. Environmental, social and governance (ESG) factors are therefore important to watch.

Another growth driver is the large amount of investments in infrastructure many African countries are making. Not only do these investments benefit, for example, cement companies and banks that finance these investments; they also reduce logistical problems by providing more ports, better roads and cheaper electricity. This should boost economic growth and earnings in other sectors as well. The emerging middle class in various African countries is growing and will drive strong growth in local consumer spending on both basic necessities and discretionary items.

Finally, as very few international investors are active in smaller markets like Botswana, Ghana and Zambia, we believe many stocks in these markets are undervalued. When frontier investors discover these markets, we expect significant share price increases.

Isn’t it risky?

Investing in Africa tends to be perceived as risky. Of course, we do not contend that it’s risk-free. However, we do want to put this notion into perspective. Research shows that over the last 12 years African equities were less volatile than equities in other emerging and frontier regions. This is explained by the fact that the various countries move quite independently from one another as local factors play an important role.

In addition, global cyclical downturns are felt to a lesser extent in some African countries because of their strong structural growth. Finally, as African stocks have a low correlation with stocks in the rest of the world, an investment in this continent offers diversification advantages in a portfolio context.

Ebola

Of course any article about Africa has to address Ebola. This big human tragedy has already affected the local economies of the three hardest hit countries: Guinea, Liberia and Sierra Leone. International flights to and from these countries have been canceled and domestic transport has also become very difficult. We do not hold stocks of any companies with significant exposure to the domestic economies of these countries. However, we do hold shares in some mining companies that are active there. Production could be disrupted as some foreign engineers will choose to stay out of these countries in the next few months. The share prices of these mining companies have been under pressure. They currently represent 0.5% of the portfolio.

In Nigeria, which takes up quite a big chunk of our portfolio, we were pleasantly surprised by the very effective way in which the Nigerian government tackled the issue. As per mid-October, Nigeria appears Ebola-free after eight patients died and twelve others fully recovered. Barring unforeseen developments, we expect the consequences for our portfolio to remain limited.

Opinion column by Cornelis Vlooswijk, Senior Portfolio Manager within the Robeco Emerging Markets Equities team.

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

Concerns About Frontier Markets Debt? Global Evolution Answers

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Global Evolution has been investing in frontier markets sovereign debt for more than 10 years, which gives the asset management firm a solid background and expertise in identifying investment opportunities with attractive risk-return characteristics.

Nevertheless, investors in frontier markets have some questions or concerns about an asset class that, in many cases, is something new for their portfolios. Funds Society has gathered these questions and asked Soren Rump, CEO of Global Evolution, to give us his insight on these issues. Soren Rump, who will be joining Capital Strategies on a road show across Chile and Peru next week, answered the following:

Is liquidity an issue when investing in frontier markets?

Frontier markets have over the recent years developed significantly in terms of size and liquidity. Liquidity in frontier markets is daily, but bid/offer spreads and the size of individual trades are typically smaller than those in traditional emerging markets, but often with a larger pool of price providers than, for example, emerging markets corporate bonds.

How do you manage the different regulations in each country?

Similar to traditional emerging markets debt, we access the individual regulations, such as holding periods, FX restrictions, withholding tax, etc. before entering individual local markets. We gather ongoing intelligence through our local network of market participants, such as local banks, stock exchange, regulatory bodies etc.

What is the presence and characteristics of institutional investor in these markets?

Local institutional investors are dominated by pension funds and local banks, as the two most dominant investors in the primary and secondary government bond market. By regulation, typically pension funds need to invest in local government bonds which provide a natural bid both at the ongoing auctions as well as in the secondary market.

What is the size of the market?

We estimate a liquid market capitalization of US$400bn based on sovereign bonds from 62 countries with daily valuations on Bloomberg.

What different types of bond issues are there in these markets?

You can find Eurobonds (issued in USD, EUR, JPY, CHF), offered to the market both through primary EMTN issuance programs by international banks, and in the secondary market through international banks and brokers. We also have Local T-bills and T-bonds, both offered to the market through primary auctions, and in the secondary market through primarily local market maker banks. Further to this we actively invest through the FX markets using spot FX, FX forwards, cross currency swaps etc.

Global Evolution, an asset management firm specialized in emerging and frontier markets sovereign debt, is represented by Capital Strategies in the Americas Region.