CC-BY-SA-2.0, FlickrPhoto: Aaron Goodman. The Evolution of China’s Capital Markets
There is little doubt China is going to play a major role in determining the trajectory of global markets. So with the world’s second-largest economy going through a period of profound change, says Investec, it is crucial for investors to gain an understanding of the challenges and opportunities inherent in this transformation.
For the past five years or more China has been rebalancing to make consumption a bigger part of the domestic economy than investment, and services a more important driver of growth than manufacturing. The People’s Republic is also seeking to become better integrated into the global financial system by allowing greater foreign participation in its domestic capital markets and encouraging its companies to invest abroad.
“The recent turmoil in China’s onshore markets was further evidence that this rebalancing process was not going as smoothly as planned, while the global reaction highlighted the fact that many investors have not understood it or the challenges it represents”, points out the firm.
But Investec believe such gyrations should be expected as structural adjustments play out. “As the rebalancing process continues, we anticipate a wealth of opportunities may be uncovered for investors who are prepared to take a disciplined, bottom-up approach with a long-term time horizon”.
According to the Investec´s experts, while many investors may not yet be ready to invest in China’s onshore markets today, there is growing recognition of the importance of developing a more nuanced understanding of the changes taking place in China and the country’s role in the evolution of the global financial system. “We believe that the sharp global reactions to China’s stock market volatility and devaluation of the renminbi over the summer of 2015 make clear that we are embarking on a new era in global markets, one that has China’s increasing integration into the global financial system at its core”.
“This process is only just beginning and the road is likely to be bumpy. Beijing’s policy response to steering the country through its major economic and financial transitions, is not going to be familiar. China is taking an alternative path to financial regulation than that traced by the West by choosing to experiment to find an appropriate position. Beijing will likely make small, regular adjustments to various policy levers to find out what works”, state Investec.
Since the firm established our Hong Kong office in 1997, Investec Asset Management has invested in both onshore and offshore Chinese securities. “Over the past two decades we have learned to navigate the country’s complex and evolving regulatory processes, and understand its unusual market dynamics. We hope to share this insight with our clients and use our knowledge and expertise to help them understand the impact of events in Beijing on their portfolios, wherever they are invested”, conclude.
Jeremy Lawson, Chief Economist, Standard Life Investments said at the publication of the Global Outlook from Standard Life Investments: “We continue to see a moderate global expansion into 2016, supporting modest corporate earnings growth outside the energy and materials sectors. Our view remains that a widespread or systemic emerging market financial crisis is unlikely, but the pressure on a number of large developing economies will not disappear quickly. Global GDP growth is expected to improve marginally but remain below trend.
“The implications for investors are considerable, as they need to consider throughout their strategic asset allocation process what the repercussions are of low returns on bond, cash and equity prices over the remaining part of this business cycle. Listed equities in particular are sensitive to developments in global activity, as they tend to have larger external exposures than do economies as a whole. Moving up the capital structure towards selected credit may have advantages in this environment.
“At the epicenter of the crisis, in China, a hard landing is not our central scenario as we expect extra fiscal stimulus, but the transition to a new growth model will remain bumpy and unfriendly for commodity producers. More deceleration in growth could lie ahead and the Chinese currency is likely to weaken moderately against the dollar.
“Our forecast assumes no further falls in commodity prices and stabilization in the recent levels of financial stress. If stress builds further then there is a large risk that growth will not rebound, through its effect on consumer and business sentiment, when monetary policy easing in the developed economies will quickly come back on to the agenda.”
Global private equity fundraising saw a further slowdown through the third quarter of 2015. One hundred and seventy funds closed, down from 317 in Q2 2015 and 290 in the same period last year. The aggregate capital raised by funds closed in this quarter was $116.9bn, down from $129.3bn in the previous quarter. It was the third consecutive quarterly decline in fundraising, and represents a 29% decrease from the $164.9bn raised in Q4 2014, the most recent fundraising peak. In 2015 YTD, private equity funds have raised an aggregate $385.4bn, down from $388.1bn in the first three quarters of 2014.
“The global private equity fundraising market has continued to stall in the third quarter of 2015. The number of funds closed is the lowest of any quarter Preqin has on record, and aggregate fundraising totals declined for the third consecutive quarter. Despite recent turmoil in Asia, there has been an increase in fundraising for funds focused on the region, and on Rest of World. This, though, does not offset a lack of growth in the mature North American and European markets, as both the number of funds closed and aggregate capital figures continue to fall there.” Says Christopher Elvin – Head of Private Equity Products, Preqin.
Private equity funds closed so far in 2015 have taken an average of 16.3 months to reach a final close. This figure has risen slightly from Q2’s 16.2 months, but is still below the average 16.7 months that it took for funds closed in 2014 to fundraise.
Fundraising totals for venture capital, real estate, and funds of funds all decreased, while infrastructure fundraising rose from $4.4bn in Q2 to $13.1bn in Q3.
The number of private equity funds in market is currently at a record high. 2,348 funds are seeking a combined $831bn in commitments, up from 2,248 funds seeking $781bn at the end of last quarter. Dry powderlevels have not continued the rapid increase seen through H1 2015, and currently the overall figure stands at $1.35tn.
Foto: Alice Popkorn
. El número global de millonarios podría crecer un 46% en los próximos cinco años
The size and wealth of the middle class globally grew quickly before the financial crisis, but growth subsided after 2007 and rising inequality has squeezed its share of wealth in every region, according to the sixth annual Global Wealth Report, just released by The Credit Suisse Research Institute, which focuses on how the middle class has developed since the turn of the century.
The report shows that global wealth fell by USD 13 trillion from mid-2014 to mid-2015, due to dollar appreciation. If measured at constant exchange rates, global wealth would have risen by USD 13 trillion since last year. According to the company´s estimates global wealth could reach USD 345 trillion by mid-2020, 38% above its mid-2015 level, and the number of dollar millionaires worldwide could increase by 46% in the next five years, reaching 49.3 million by mid-2020.
The USA again led the world with a substantial rise in household wealth of USD 4.6 trillion. Meanwhile, China -also posted a large annual rise of USD 1.5 trillion- has the largest middle class with 109 million members, surpassing the USA with 92 million. And Switzerland again ranked highest in average wealth, but fell USD 24,800 to USD 567,100 per adult.
Wealth per adult fell by 6.2%to USD 52,400 and is now back below the level of 2013, -shows the report-, and a person needs just USD 3,210 (after debts) to be in the wealthiest half of the world.
In its analysis, the company has taken a new approach to defining the middle class category, using a wealth-based definition – versus an income-based one – that allows for adjustments over time to reflect inflation, and also varies across countries depending on local purchasing power.
Michael O’Sullivan, Chief Investment Officer for the UK & EEMEA, Private Banking and Wealth Management at Credit Suisse said, “We are clearly in a growth industry, with wealth set to continue its upward trajectory. By our estimates, wealth could grow at an annual rate of 6.6%, reaching USD 345 trillion in 2020. Furthermore, the number of dollar millionaires could exceed 49.3 million adults in 2020, a rise of more than 46.2%, with China likely to see the largest percentage increase, and Africa as the next performing region. Overall, emerging markets account for 6.5% of millionaires and will see their share rise to 7.4% by the end of the decade. High-income economies will still account for the bulk of new millionaires, with 14.0 million adults entering this category. Millionaire net wealth is likely to rise by 8.4% annually, as more people enter this segment. Emerging markets will likely account for 9.1% of millionaire wealth in 2020, 1% above current levels.”
Credit Suisse Research Institute’s Markus Stierli said: “From 2008 onwards, wealth growth has not allowed middle-class numbers to keep pace with population growth in the developing world. Furthermore, the distribution of wealth gains has shifted in favor of those at higher wealth levels. These two factors have combined to produce a decline in the share of middle-class wealth.”
Foto de William Warby
. La Fed subirá las tasas, pero no debe cundir el pánico
Eight years after the Federal Reserve (Fed) last hiked its target short-term rate, and over six years since it last touched it, the time has come for a new hike. Monetary policy shifts have always been impactful to the markets, and given the length and extent of global central banks’ interventions since the 2008 financial crisis, the impending rate hike will follow suit.
While rate hikes have often been a response to an overheating economy, this time around is decidedly different. The Fed is simply exiting emergency measures placed in 2008, in a move toward “normal” in a global economy that is inherently different than it was nearly half a generation ago. The Fed has also pledged rates increases will be measured and gradual, which should not derail the U.S. expansion in the long run.
But the changes to the investment backdrop don’t stop there. Looking beneath the surface reveals structural factors that are reshaping the economic, inflation and investment landscape. Understanding these influences is equally, if not more, important for investors developing long term strategies for the post-rate hike economy.
First among these structural factors? Technology and innovation. Essentially reducing total labor costs while simultaneously enhancing efficiencies, technological innovation has the potential to enable asset-lite business models and even act as a deflationary force. The effect is not always easy to measure, but various sectors are showing notable signs (for example the energy industry). Output is able to increase with limited incremental investment, resulting in what is called productive disinflation. So, while wage increases may be dulling despite the labor market tightness, net disposable income can increase because of the lack of inflation.
A second, equally important factor affecting the market outlook is world demographics. Considering that aging populations generally draw more from the economy than contribute to it, the current demographic shift in developed countries is believed to be contributing to the long-term downshift in economic growth. Beyond the long-term implications on economic growth, older demographics also tend to borrow less and exhibit a preference for fixed income, thus driving demand for longer-term bonds while holding yields down and affecting interest rates.
The prevailing impact of these technological and demographic trends will be felt in lower inflation than in the past and, to the chagrin of central banks’ attempts, will not be easily swayed by monetary policy. All of this indicates that global economies are likely to remain in a slow-growth, low-inflation low-rate cycle for some time beyond the first Fed rate hike.
Some Ideas to Fine Tune Your Portfolio
In this environment, being aware of duration risk is crucial. Given the current factors shaping the fixed income landscape, ultra short and long duration bonds in the US appear less vulnerable than medium-term maturities to a rate rise. Think of other fixed income assets for your income needs, for example Treasury Inflation Protected Securities (TIPS) and High Yield bonds, but don’t overreach for yield.
Foremost, remember the role of bonds in your portfolio. Whether you are looking for income or risk diversification, or are aiming to dilute the effects of interest rate, credit and inflation risk, be mindful of the motivations behind your bond strategy. Now is the opportunity to rethink your bond strategy and prepare your portfolio for performance in the impending new “normal” economy.
This material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator in any Latin American and Iberian country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein.
Venture capital investment, accelerator programmes and a proactive focus on the deployment of new technologies through allegiances with fintech companies should be priorities for banks as a multiplicity of new payment capabilities come to the fore, according to a new report by BNY Mellon.
The new report, Innovation in Payments: The Future is Fintech, follows on from Global Payments 2020: Transformation and Convergence and hones in on the growing influence of fintech in transaction banking. It assesses the direct and indirect impact of the new technology on payments and the way in which it is moulding client behaviour and fuelling expectations for better, faster and more innovative solutions across the payments spectrum.
Cutting-edge technology holds great potential to transform how consumers and clients initiate and process transactions. It’s no longer just a case of new currencies or faster payment methods, but an entire rethinking of how transfers of any “value” might be undertaken. More fintechs are graduating from the ranks of start-ups to multi-billion dollar listed companies: at least 4,000 fintech start-ups are active and global investment in fintech ventures tripled in 2014 to $12 billion.
“The fintech era is upon us and banks shouldn’t merely be mindful of this; they should also have a clear strategy in place in order to adapt to and benefit from fintech-fuelled changes,” said Ian Stewart, Chief Executive Officer of BNY Mellon’s Treasury Services business. “While the banking industry is traditionally conservative about change, any hesitation or ambivalence here could be costly. In order to position themselves at the centre of the payments industry of tomorrow, banks must act today to understand, interact with, and cherry-pick from the full smorgasbord of fintech developments.”
“BNY Mellon is immersed in the fintech sector,” adds Stewart. “We are focusing on and investing a great deal of time in exploring the opportunities it has to offer the global payments arena in areas such as the potential to reengineer payments, including blockchain and big data technology. We are also working closely with fintech firms to explore the use of new technology capabilities.”
“As a major provider of wholesale banking services to client banks, we’re committed to staying current on evolving conditions in the banking industry, and liaise with our client banks about how the changing landscape is likely to impact their business strategies,” said Anthony Brady, Global Head of Business Strategy & Market Solutions for Treasury Services at BNY Mellon. “Our research into the changing transaction banking ecosystem has important implications for us as a business, and we’re eager to discuss with client banks how our investments in technology are positioning us to be an even better provider of support to them as they align their business plans with the emerging future state of our industry.”
While regulation has put pressure on bank resources, banks must prioritise technology-focused strategies. The financial services industry has one of the highest ratios of IT spend as a proportion of revenue, with levels expected to reach US$197 billion in 2015. That said, over three quarters of this is estimated to be in maintenance rather than new services, so banks need to redress this imbalance. The report examines what strategies banks should adopt in order to understand and access these exciting fintech-fuelled developments, and thereby future-proof their long-held position at the heart of global payments.
To view the report, Innovation in Payments: The Future is Fintech, please click here.
Investors are expressing growing skepticism that the U.S. Federal Reserve (Fed) will raise rates this year amid fragility in the global economy and earnings, according to the BofA Merrill Lynch Fund Manager Survey for October.
Fewer than half (47%) of investors believe the Fed will raise rates in 2015, down from 58% in September.
A net 19% of the panel says global fiscal policy is too restrictive.
Cash balances fell to 5.1% of portfolios, down from 5.5% last month, but remain above historic average levels.
A growing majority of investors (net 26%) say that corporate operating margins will decrease in the coming year, up from a net 18%.
Short Emerging Market Equities was named the most crowded trade in October by 23 percent of the panel, up from 20%.
China is seen as the greatest “tail risk” by 39% of the panel, down from 54% in September, while pessimism over Chinese equities eased.
“As investors debate the timing of a rate hike, they should be anticipating a massive policy shift in the U.S., Europe and Japan from QE to fiscal stimulus in 2016,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
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.
. 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”.
