The 29 October statement from the Federal Open Market Committee (FOMC) doesn’t lend credence to the idea that the first rate increase is off the table for June 2015. Yields have dropped recently on broad-based disinflation, geopolitical concerns and fears of a slowdown in global growth. Yet these lower yields simply don’t reflect the US Federal Reserve’s current forecasts.
If you believe, as I do, that Fed policymakers will start to raise rates as early as next June, then they probably won’t begin to fully signal their intentions until the FOMC meets again in December. In the absence of a major deterioration in macro or financial conditions, the October statement primes the market for further “hawkish” guidance at the next meeting.
My view is that the Fed needs to start raising rates sooner rather than later. We’ve had negative real rates for a very long time, and that has almost certainly led to a misallocation of resources. Labor slack is being taken up; capacity utilization is rapidly normalizing. I think the Fed needs to slowly but assuredly take away the punch bowl, even though the party may just be getting started.
In the near term, as we assign a higher probability to the Fed’s first hike in mid-2015, rates will likely move modestly higher from here — especially at the front end of the yield curve. And as this environment of diverging central bank actions looks to be a multiyear trend, I believe the US dollar should continue to strengthen.
Opinion article by Erik Weisman, Ph.D., Fixed Income Portfolio Manager at MFS.
Pixabay CC0 Public Domain. Mark Mobius: El regreso de Argentina
Xavier Hovasse, manager on the Carmignac Emerging Discovery fund, has said that while the near term focus will be on Brazil in Latin America, it is the longer term prospects of Argentina that could shine depending on factors such as next year’s presidential election there.
Latin American makes up about 30% of the portfolio. Carmignac has previously stayed away from Argentina, for reasons such as the uncertainty surrounding the country’s participation in bond markets.
Currently, the country’s administration is fighting a battle with bond holders, who are owed debt in dollars. Going forward, the government might push to change the debt denomination to the local currency, Hovasse suggests.
Beyond that a key moment will take place with elections next year, which could mark the start of a different type of administration in terms of its dealings with international investors. Besides a new president, there are also Senate and Deputy elections taking place. Should that occur then Hovasse describes the country as “some day becoming the best frontier opportunity”. “The country has a relatively large population, that is well educated, and where you can find good entrepreneurs.”
Locals do not have credit because they do not want to put their money into the bank; so the deposit to GDP ratio is very low compared to similar sized economies. Hovasse estimates that debt to GDP ratio is around 45%.
The country has significant estimated reserves of onshore shale gas, which could become economically extracted if the government could encourage investment into the oil industry.
One of the challenges to investing is that the country has been involved in some unusual developments. For example, Hovasse said that the country was the only one in recent times that managed to have hyperinflation despite also enjoying surpluses, effectively leading into quantitative easing while having no debt. This is a completely different situation to a market such as the US, where quantitative easing occurred at a time when the government hit a sovereign debt crisis.
However, while Carmignac is not invested currently it is preparing to invest massively when it it feels there is a sound basis for change in the country. Hovasse said this might not be immediately following next year’s election, but at the same time there are potential candidates already putting forward policies that in his opinion look interesting.
Looking around Latin America more broadly, Hovasse, who joined Carmignac Gestion in 2008 from BNP Paribas Investment Management, said Colombia was one of the most interesting markets in the region, with sectors such as food retail still in a situation of low market penetration – about half of food sales in the country are still via non chain independent stores.
Colombia generally is enjoying the dividends of a peace deal between the government and FARC, which looks to be withing striking distance, and local politicians are impressing investors, for example, via a fiscal responsibility law. Ratings agencies have upgraded the country in recent years, and it is seen as less dependent on commodities exports than a number of other countries in the region.
Mexico offers potential in the banking sector, as about half the population do not have bank accounts – the result of previous financial crises that saw retail banking customers leave and never come back. Government reforms are progressing, and there is scope to privatise the country’s oil industry.
Insurance is another sector across the region where market penetration rates are low, thus offering good scope for growth, Hovasse added.
Brazil is set to provide the most immediate challenges to investors, after the presidential election. The country enjoyed a commodities and credit boom over the past decade, but the credit needs to be paid off, while commodities prices have weakened.
Cashflow and demography
Two key factors in determining investments in emerging markets are cashflow and demography, Hovasse said. His portfolio looks for companies with good cash flow growth; it is seeking companies with good prospects of self funding their growth. This varies by sector, with industries such as mining being capital intensive.
Hovasse does not look to ebitda. The key metric is free cashflow to equity yield before expansion capital expenditure. Hovasse said there is a split between maintenance capex and expansion capex, and he is looking for the figure after maintenance, but before expansion.
On ongoing challenge is the way accounting differs between jurisdictions. But by looking at cashflow and capital expenditure requirements, it means the fund will never buy a Gazprom or Petrobras.
The manager also uses the cash realisation ratio. If this is higher than 1, it means income statement multiples will make a company look more expensive than it is, so it is attractive from a valuation point of view. Cash return on invested capital is another key metric, Hovasse said.
Demographics are another key factor, he added. When women have fewer children they can be more economically active and provide better education to children, as well as result in other advantages to an economy. Hovasse said he is looking for evidence of populations growing “intelligently”. An example of where this factor suggests investors should stay away is Russia. The poor demographics affect the consumer story there, he said, even as investors struggle with other issues such as corporate governance and the impact of the oil price on the economy and a structural capital flight.
. Institutional Investors Expect More High Dividend Investment Opportunities in Emerging Markets
Institutional investors expect to see more emerging market equities paying high dividends over the next few years. New research from ING Investment Management (ING IM) amongst institutional investors reveals that between now and 2016, 61% believe the number of emerging market stocks paying these will increase – 14% anticipate a ‘dramatic’ rise here. The corresponding figures for the next five years are 68% and 18%.
Nicolas Simar, Head of the Equity Value Boutique at ING Investment Management, comments: “Over the long term, dividend investing accounts for more than 70% of total real equity returns and some of the most attractive opportunities here can be found in emerging markets. They are widely expected to be the primary driver of global economic growth due to their strong fundamentals. In addition to this, dividend yields in emerging markets are already relatively high and growing faster than those in developed markets.”
In terms of why institutional investors expect more emerging market companies to pay high dividends in the future, the main reason is many are becoming ‘cash rich’ and can afford to do this – the view of 29% of those interviewed. This was followed by 22% who said improving corporate governance and transparency in the region will fuel a rise in dividends paid, and one in five who believe it is because they are looking to attract more investors. Some 14% believe the main reason will be because more emerging market companies will be listing and they need to pay high dividends to attract investors.
ING IM’s Emerging Markets High Dividend Equity Fund invests in stocks of companies located in emerging markets around the world that offer attractive and sustainable dividend yields and potential for capital appreciation. The strategy combines quantitative screening with fundamental analysis to identify stocks that trade below their intrinsic value and offer an ability to grow their dividend in the future. The fund focuses on finding the strongest dividend payers from a valuation perspective and not the highest yielders.
Photo: Joka Madruga. Maduro Would Do Venezuela a Disservice by Turning His Back on International Investors
Venezuela’s international debt issued in hard currency has increasingly been under selling pressure in disappointment with the governments half hearted attempt to reform the hopelessly ineffective and intransparent currency regime (that includes three official FX rates) as well as President Maduro’s decision to let Rafael Ramirez become Political Vice President and release him from his hitherto duties as Economic Vice President, PDVSA President and Oil and Mining Minister. In his role as Economic Vice President Rafael Ramirez was widely respected as the longest serving cabinet member under Hugo Chavez and as one of a very few pragmatic and reform friendly politicians in the current administration. Global Evolution, an asset management firm specialized in emerging and frontier markets debt, has published a piece of research discussing theses topics.
Should Venezuela default?
Adding fuel to the fire, an article, named ‘Should Venezuela Default?‘, written by two respected Venezuelan economists, Ricardo Hausmann and Miquel Angel Santos, was published at the beginning of September, basically asking if not Venezuela should default on its foreign debt instead of letting its population down by defaulting on food imports, lifesaving drugs imports, transport and services etc. The fact that Ricardo Hausmann is a former minister of planning of Venezuela and former ChiefEconomist of the Inter-American Development Bank, whereas Miguel Angel Santos is a senior research fellow at Harvard’sCenter for International Development explains why the article has been subject to intense focus and discussions.
The economic regime is a run down mess
According to Banco Central de Venezuela real GDP growth was running around 1% YoY in Q4 2013 while inflation has risen sharply since early 2013; from around 20% to more than 63%. In this environment of runaway inflation, price controls are common with some prices remaining fixed for several years and with gasoline being the most extreme example, being fixed for 18 years. Needless to say, a 18 years price fix on gasoline is fiscally costly and has discouraged any attempt onfuel efficiency. Anecdotally, when Global Evolution was on a trip to Venezuela in October 2013,(driving a V8 four-wheel drive SUV) filled up the fuel tank for USD 1.
The bright spots in the economy
The oil export, the current account balance together with a fairly low public debt stock and a benign foreign debt to GDP ratio are the bright spots of Venezuela’s economy. Whereas the economy and the Venezuelan society may well implode if allowed to deteriorate further over the next decade, Global Evolution has no doubt that the sovereign has the capacity to service its external debt in the coming 2-5 years.
Maduro would do Venezuela a disservice by turning his back on international investors
What the article from Hausmann and Santos questions is the willingness to pay and in this respect Venezuela has a very good track record. Of course, things may look different under President Maduro, but with oil production running at 2.5mn barrels per day and proven reserves that holds the potential to raise production to at least 4mn barrels per day (6mn in a best-case scenario) if investments are made, Maduro would logically have little incentive to turn his back on the international capital market since international investors – be it foreign direct investors or portfolio investors – would be the ones to fund PDVSA’s production expansion and the subsequent increase in hard currency earnings. Currently, at face value, Venezuela’s oil exports generate annual hard currency earnings close to USD 100bn. However, when discounted for export financing to Petrocaribe (see below) and earnings used for the repayment of the debt to China, Venezuela’s crude export generates a still sizeable USD 70bn per year.
Low hanging fruits
Given the relative benign debt servicing cost on Venezuela’s sovereign debt in hard currency and the international debt of state owned oil company PDVSA (on average a total around USD 12.5bn per year over the next 10 years), a debt default would not free up much money in a broader perspective. Instead of running the risk of being excluded from international capital markets for years, the government could pick up low hanging fruits such as the heavily subsidized Petrocaribe solidarity program in which Venezuela basically finance the purchase of crude oil for 17 Caribbean countries. If Venezuela sold oil to these countries at market prices this would easily pay for the bond maturities of both Venezuelan sovereign bonds, the bonds issued by state owned oil company PDVSA and US based PDVSA owned refinery and retail gas station chain, CITGO.
Conclusion
Venezuela is one of the few net international creditors in the World with a current account surplus, high per capita income and low levels of external debt relative to peers, so from that perspective it does not immediately appear a high risk credit. Global Evolution does not view Venezuela as a likely default candidate in the near future and expects it to continue to service its debt. Should President Maduro choose to default on Venezuela’s sovereign debt it would be purely a populist ideological decision that would do little to help the Venezuelan people or economy in the medium to longer term perspective.
Venezuela is now yielding significantly above Ecuador that chose to default on part of its sovereign debt as recently as in 2009 and above Ukraine, a country at war, in severe economic contraction and with a much less sustainable debt situation. Global Evolution is aware of the challenges facing Venezuela and remains cautious on several fronts, but all things considered, current market levels appear attractive given the risks involved.
Global Evolution, an asset management firm specialized in emerging and frontier markets debt, is represented by Capital Strategies in the Americas Region.
Photo: Cornelius James . New York Private Bank & Trust Launches Specialty Finance Company for the Film & Television Industry
New York Private Bank & Trust and Aperture Media Partners, LLC have formed a specialty finance company providing comprehensive financing solutions to the filmed entertainment industry. The new company will operate under the name Aperture Media Partners and is structured to create a one-stop shop for producers and distributors seeking financing for film and television projects.
Aperture offers a full spectrum of standard and customized senior and mezzanine credit products including: bridge loans, finishing funds, gap loans, library advances, print and advertising (P&A) loans, production loans, sales agent advances, tax credit monetization, and ultimates financing. The company structures, lends, and syndicates loans through a network of banks, hedge funds, private equity and family offices.
Aperture is managed by Chief Executive Officer and Co-founder, Jared Underwood, and Chief Operating Officer and Co-founder, Andrew Robinson, two leading bankers in film and television finance. The two have over 30 years of combined lending experience and have financed over $10 billion in transactions to nearly every leading independent film company and producer in the industry.
John Hart, Vice Chairman of New York Private Bank & Trust and Head of its Private Banking division, welcomed the Aperture team, stating: “Aperture fits well within NYPB&T given its combination of thorough underwriting and high level of product customization.”
“Jared Underwood and Andrew Robinson already have an industry leading reputation for creative and client-centric thinking,” Mr. Hart continued. “NYPB&T will provide them with exciting new tools to fulfill their vision and further grow their thriving business.”
“We are delighted to have New York Private Bank & Trust‘s support and look forward to becoming an industry leader through our affiliation with the bank,” Mr. Underwood said. “With the backing of NYPB&T, Aperture Media Partners becomes a one-stop shop, efficiently providing senior and mezzanine capital to the film and television industry. We will be well positioned to leverage our talents and industry insights to capitalize on a number of existing and future opportunities.”
Fifty-one jurisdictions, many represented at Ministerial level, translated their commitments into action during a massive signing of a Multilateral Competent Authority Agreement that will activate automatic exchange of information, based on the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Early adopters who signed the agreement have pledged to work towards launching their first information exchanges by September 2017. Others are expected to follow in 2018.
The new Standard for Automatic Exchange of Financial Account Information in Tax Matters was recently presented by the OECD to the G20 Finance Ministers during a meeting in Cairns last September. It provides for exchange of all financial information on an annual basis, automatically. Most jurisdictions have committed to implementing this Standard on a reciprocal basis with all interested jurisdiction.
The Global Forum will establish a peer review process to ensure effective implementation of automatic exchange. Governments also agreed to raise the bar on the standard of exchange of information upon request, by including a requirement that beneficial ownership of all legal entities be available to tax authorities and exchanged with treaty partners.
The Global Forum invited developing countries to join the move towards automatic exchange of information, and a series of pilot projects will offer technical assistance to facilitate the move. Ministers and other representatives of African countries agreed to launch a new “African Initiative” to increase awareness of the merits of transparency in Africa. The project will be led by African members of the Global Forum and the Chair, in collaboration with the African Tax Administration Forum, the OECD, the World Bank Group, the Centre de Rencontres et d’Etudes des Dirigeants des Administrations Fiscales (CREDAF).
“We are making concrete progress toward the G20 objective of winning the fight against tax evasion,” OECD Secretary-General Angel Gurria said after the signing ceremony. “The fact that so many jurisdictions have agreed today to automatically exchange financial account information shows the significant change that can occur when the international community works together in a focused and ambitious manner. The world is quickly becoming a smaller place for tax cheats, and we are determined to ensure that developing countries also reap the benefits of greater financial sector transparency.”.
The Global Forum is the world’s largest network for international cooperation in the field of taxation and financial information exchange, gathering together 123 countries and jurisdictions on an equal footing. Peru and Croatia joined the Forum at the Berlin meeting.
Photo: Benh LIEU SONG -. ICBC (Europe) Becomes the First EU-registered Chinese Bank Entering European Investment Fund Industry
On 20 of October, Industrial and Commercial Bank of China (Europe) S.A. has received the approval in principle by the Luxembourg regulator CSSF in relation to its first UCITS in Luxembourg investing in China’s onshore bond market. It will be the first UCITS initiated by ICBC (Europe), which not only enables ICBC to be the first Chinese bank tapping European investment fund industry through its European arm, but also signals the key milestone of business transformation and localization of ICBC in the overseas market.
The UCITS to be launched by ICBC (Europe) is the actively managed “China Concept” investment fund which will mainly invest into the China inter-bank bond market and be distributed to the European investors. The initiation of the UCITS will further enrich the RMB product line of ICBC (Europe) and greatly facilitate the private banking and asset management business of ICBC group in the European market. After local registration, the UCITS will also be distributed through the branches of ICBC (Europe) in France, Italy, Spain, Belgium and the Netherlands.
As the regional hub of ICBC group in Continental European countries, ICBC (Europe) is one of the majors players of cross-boarder RMB business in the European market and provides a variety of RMB products and services including cross-border settlement, deposit and loan, trade finance, RMB FX and Derivatives, offshore RMB bond issuance and RMB asset management, which in total contribute about 35% of its revenues. ICBC (Europe) was awarded “best bank in Luxembourg” by Euromoney in July 2014 as a result of its leading position in RMB business and outstanding performance.
The responsible person of the bank said, ICBC (Europe) will endeavor to provide investment fund products and services through its network around Europe by taking the opportunity of RMB internationalization and leveraging the expertise of the group in RMB business and China onshore bond market.
CC-BY-SA-2.0, FlickrAlan van der Kamp, Vice President, Client Portfolio Manager at Robeco. "In Fixed Income, Technical Factors Currently Are Much Stronger than Valuations"
Mr. Alan van der Kamp, Vice President, Client Portfolio Manager -responsible for representing Robeco’s fixed income investment team on its key capabilities towards investors in the Netherlands, Germany, Spain, Nordics and Latam- thinks that, although valuations generally appear to become less attractive in fixed income universe, the technical factors currently are much stronger than the valuations. Thanks to the support to ECB and this factors, he foresees further spread tightening, in segments as European high yield, subordinated financial bonds and peripheral government bonds. “We therefore currently favor European bonds compared to US bonds”, says in this interview with Funds Society, as the FED will start hiking rates in the second half of 2015.
Are bonds exhausted?
So far this year bonds have performed quite strongly across the board. Although valuations generally appear to become less attractive, the technical factors currently are much stronger than the valuations. This is particular the case in Europe, where the ECB support leads to strong demand for credits and higher-risk asset classes such as high yield and subordinated financial bonds. Also, peripheral government bonds still carry an interesting premium.
Now that prices have been adjusted, is the emerging debt a new source of value?
Value of emerging debt assets indeed looks more favorable after a period of underperformance. Particularly emerging credits stand out relative to developed markets credits while balance sheets of emerging credits are definitely not in a worse state. For local sovereign debt we see quite large differences. Some markets look attractive, but generally economic activity is still subdued which doesn’t help currency performance.
In the developed world … the story seems opposite in Europe and USA. Is there a risk in USA with the imminent rise in interest rates by the Fed?
Definitely the central bank support momentum in Europe is stronger than in US. We therefore currently favor European bonds compared to US bonds. We expect the FED to start hiking rates in the second half of 2015.
Do you expect a European QE?And, how will influence the European bond markets?
For now the ECB has announced the buying of secured bonds and the TLTRO programme. If that would not be sufficient, then we expect the ECB to expand its support programme to other bond categories.
Is there room for further narrowing of spreads on European bonds by the ECB, or already exhausted?
For some pockets in the markets we foresee further spread tightening, such as European high yield, subordinated financial bonds and peripheral government bonds.
Robert J. Horrocks, CIO, and Jonathan D. Schuman, Head of Global Business Development at Matthews Asia . Asia is a Story of Productivity and Domestic Consumption
Today, markets are dominated by monetary policy, and the environment is complicated in general. Central banks are acting more for either political reasons, as in theECB’s case, or academic, as in the case of the Fed, than for economic reasons, but ultimately, we should be aiming towards more average standards in interest rates. What effect does this have on emerging markets? Robert J. Horrocks, CIO and portfolio manager at Matthews Asia believes that in such environments, the best position is to invest in markets that are independent of the evolution of demand in Europe and the U.S., “Therefore, Asian markets, which are more focused and sensitive to domestic consumption, may be an attractive place to invest.”
At a lunch presentation for a small group of investors in Miami, Horrocks pointed out how, in general, Asian markets have been those which have made the greatest advancements in improving their GDP per capita in relation to that of the U.S. during the last 30 years. Countries like South Korea have gone from having a GDP per capita which was equivalent to 20% of that of the U.S. in 1980 to currently (2010) running very close to 80%. The relative progress for Taiwan is also spectacular, and very noticeable in the case of either China or Thailand. “The secret of these markets is simple, work very hard and save your money, that’s how these countries have reached the point where they are now.” Asia is, notes Horrocks, a story of productivity and domestic consumption. In fact, productivity contributes nearly 3 percentage points to GDP growth in countries like China, despite the wage increase, “it is not affecting corporate profits as workers are becoming increasingly more productive and are thus helping the country to sustain a GDP growth of 7% without the assistance of exports”.
However, in recent years, the region has not had a prominent stock market performance. While in the U.S. profit margins have not done anything but improve, in Asia, they have fallen from an average of 9.84% for the EBIT margin during the period 2001-2008, to an EBIT margin of 7.60% during the period 2009-2014. “The margin squeeze is the main reason why Asian markets have underperformed, although in the last year there has been a stabilization, so the growth in earnings per share in the region is catching up to that of the developed world.”
This, coupled with an attractive valuation in absolute terms (according to the consensus, China is trading at an estimated 2014 PER of 9.7x) and especially in relative terms (the U.S. trades at 15.7x according to the same ratio), and the implementation of reformist governments in China, India and Japan, support investment in the region, but above all Asia is “a story of domestic consumption and middle class boom.”
If the current GDP percapita of several Asian countries is placed in a historical context the conclusions are emphatic. There are a significant number of countries which have a percapita GDP equal to that enjoyed by the U.S. in the nineteenth century, for example India, Philippines, Vietnam, and Pakistan. However much China has progressed in recent years, it is still at the stage that the U.S. was in the 1950s in terms of GDP per capita, while Thailand and Malaysia are not much better and have yet to go through the boom of appliances, tourism, and mass consumption. The more developed markets such as Korea and Taiwan are still in the 1980s; only Singapore and Hong Kong has positioned themselves on the threshold of the 21st century.
As Asianmarkets go reaching the same levels as those in developed countries, “based on working hard and saving,” as Horrocks pointed out at the beginning of this conversation, it opens “huge opportunities for companies that can exploit the consumer boomof the middle class.” The projections presented by Horrocks pointed out that in 2015, the consumption of the middle class in the Asia Pacific region will represent 30% of the total globally. This percentage will rise to 70% in 2040 at Europe’s and North America’s expense.
Toposition their portfolio accordingly, Horrocks’s team discusses the size of certain industries and even individual consumer companies currently operating in the U.S., as an estimate of where their Asian peers could be in a few years. “For example, we identified that the fast food chain business model has incredible potential within the region, while restaurant chains don’t have the same projection. Another area where we definitely want to be present in the future is that of insurance.” Once we identify a sector or business model “we match that with companies available for investing within the region,” adds Jonathan D. Schuman, director of Global Business Development at Mathews Asia, who accompanied Horrocks the presentation. “Likewise, one of the sectors that we like is healthcare, but there are very few companies in Asia where you can invest on that area, so we are very overweight in relation to the benchmark.”
“We are well awarethat when the middle class emerges, it starts consuming not only products, but mostly intangible services, so we see the huge opportunity which exists long-term in sectors such as the afore mentioned insurance and health,” Horrocks added.
The company’sChief Investment Officer concludes by calling attention to the growing importance of dividends as part of the performance of a portfolio invested in Asia. “We like companies that deliver increasing dividends, not only to provide additional yield to our investment, but also because in a market that suffers from questionable and opaque corporate governance, companies that are committed to paying dividends by force are more transparent in their accounts,” says Horrocks.
Photo: Ken Hammond. Markets are Considerably Driven by Herd Behavior
In its last MarketExpress report, ING IM shares its view about the recent setback in the markets: “the reasons for the recent sharp decline in risky assets must primarily be sought in investors’ herd behavior. We admit that some fundamentals – especially in the Eurozone – have weakened, but data suggest that global growth momentum remains intact.”
The asset management firm recons it is not always easy to make sense of the financial market jitters that have plagued us over the past few weeks. When looking for an explanation, it is clear that market technicals should be high on the list. “In this respect we note that the very low interest rates have pushed new types of investors towards risky assets; investors who lack experience with equity investments. As a consequence their behavior is resembling tourists in equity markets who have difficulties to stick to their positions in uncertain times. Instead, they seem more inclined to herd behavior.”
In the meantime, data suggest that global growth momentum remains intact. “Therefore, we stick to our overweight positions in equities (small) and real estate (medium). Having said this, we admit that questions about the underlying fundamentals have also played a role in the market unrest”.
A concern is that markets may disconnect with the real economy
Amidst all uncertainties to ING IM one thing is absolutely clear: There are many moving parts in fundamental space and investors have difficulties to get grip on these parts. This situation is pretty conducive to eliciting bouts of market volatility. Loose global monetary policy has been acting as a very important “dampener” of market volatility. However, in periods in which this dampener is somewhat less effective in calming markets, one invariably starts to hear increased worries that markets may be getting way ahead of the real underlying economic situation.
ING IM thinks there is no widespread overvaluation in risky assets
The firm is clearly not in the camp that believes in widespread overvaluation in risky assets. They give two arguments for their continuous positive view on equities (small overweight) and real estate (medium overweight).
1. Global growth momentum remains intact
Data suggest that global growth momentum remains intact. The Global PMI continues to hover in a range consistent with moderately above potential global growth. Momentum in global retail sales has picked up over the past few months and will receive a further boost from the sharp fall in commodity prices.
2. Global Economy has support from dollar, oil price and yields
Lower oil prices are favourable for disposable incomes of households. Besides, companies will benefit, due to lower input costs. Lower US bond yields imply breathing space for emerging markets. Finally, the stronger dollar is favorable for economic and earnings growth in Europe, Japan and the emerging world.
