CC-BY-SA-2.0, FlickrPhoto: Paul Falardeau. BofA Merrill Lynch Fund Manager Survey Finds Investors Hiking Cash Holdings in the Face of Lowered Confidence in China
Global investors have raised their holdings of cash significantly in response to a weaker global economic outlook, particularly in China, according to the BofA Merrill Lynch Fund Manager Survey for July. Overall, equity allocations are unaffected by the higher risk aversion, however.
Main findings:
Confidence in the global economy falls sharply: 42 percent of investors expect strengthening over next year, down from 55 percent a month ago.
China heads concerns: net 62 percent expect economy to weaken in next 12 months; eight out of 10 see GDP below 6 percent by 2018.
Cash levels soar to highest level since 2008 crisis – 5.5 percent of portfolios; gold judged undervalued for first time in five years.
Increased pessimism on China led further weakness in assets linked to China: Commodity allocation drops to six-month low, and Global Emerging Market equities stays as most unloved region with allocations at 16-month low.
Bonds still seen as much more overvalued than equities and more at risk of volatility-driven crash; equity overweights rise to net 42 percent.
U.S. dollar bullishness strengthens despite postponing of expected U.S. rate rise to Q4 2015 or later, replacing June consensus of Q3.
Appetite to overweight European stocks rises, although potential eurozone breakdown now biggest “tail risk.”
“Rising risk aversion and stretched cash levels provide a contrarian buy signal for risk assets in Q3,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
“Despite the Greek newsflow, intention to own European assets is high and rising, though global growth remains vitally important for European stocks,” said Manish Kabra, European equity strategist.
Dagong Europe has published a commentary entitled Luxury Industry: Grow Big or Stay Niche – Upcoming Season Trends. The commentary gives an overview of the main trends and developments in the luxury industry, examining the drivers in its future development. It also considers the comparative positioning, strategies and market approaches of the main luxury players, focusing on the strengths and weaknesses of the changing Chinese market.
“The global luxury market grew +3.3% in 2014, the lowest since 2009, underpinned by the subdued European economy, the recent US recovery and changing consumer habits in the Asia-Pacific region”, says Richard Miratsky, Head of the Corporates Analytical Team.
“While the luxury sector is dominated, in terms of revenues, by the three major European brand-aggregators, the niche approach of smaller players has proven successful in the super-premium segment. Although very different, both strategies are effective in the current market conditions, if strong brand identity is supported by extraordinary customer experience, excellent service, effective media communication and wise geographic store location – the key drivers of success in luxury”, concludes Mr Miratsky.
“Future developments in China’s rapidly slowing luxury market are a major concern for the main players. In 2014 luxury market revenues in China reached EUR 16.8Bn, up by 4.3% year-on-year” adds Marta Bevilacqua, Director of the Corporates Analytical Team. “European players will have to manage the Euro depreciation that is encouraging the Chinese habit of travel-for-luxury shopping and undermining the sector’s margins; and the anti-bribery campaign which has constrained the historically high volumes of absolute-luxury gift-giving”, concludes Ms Bevilacqua.
Dagong Europe expects the European majors to employ new strategies to refocus on personal luxury, relying not only on brands but on quality, and implementing new value propositions to encompass the affordable luxury segment.
Main findings:
Luxury sector to sustain mild growth in the medium term, despite the subdued world economy. Emerging markets, led by China, should support industry growth at lower-than-before averages, but volatile macro patterns and political interference poses significant uncertainties.
Although size carries weight in the luxury industry, smaller players can defend their niches. Large groups can build on their extensive knowledge and experience in creating and maintaining a strong multi-brand environment. Significant synergies and economies of scale in logistics, marketing, sales channel development and back-office functions can also be achieved. For smaller players, niche strategy has been effective only where product quality and brand perception have justified extra-premium prices.
Two crucial attributes emerging behind success in the luxury sector: the combining of history and innovation. Successful brands are able to blend the past, evoking the brand attributes and distinctive style, with new technologies, enhanced services, alternative retail channels and new customer experiences.
Although the mega-mergers of the past are unlikely to re-occur, we expect a substantial number of smaller deals in the coming years. The luxury sector is quite fertile ground in terms of deals and M&A transactions, with the majority of deals closed in Europe. 202 acquisitions took place globally in 2000-14.
SMEs operating in the luxury sector have been historically reluctant to tap the financial markets. The root causes are historical family ownership of luxury companies that have grown on brand recognition, linked to iconic founders and a view that long-established brand unicity is compromised by ownership dilution. Instead, bank debt, equity injections and strong cash flows have historically been the standard funding sources for investment.
Considering the qualitative and quantitative factors, our peer group of European major companies is generally well-positioned within the mid-to-low investment grade range. Although intrinsically different, LVMH and Hermès both position strongly among luxury peers due to their strong financial profiles and successful, divergent strategies. We see Prada as the weaker peer due to its need to streamline the business model and strategy.
. Aviva Investors Continues to Grow Global Equities Team
Aviva Investors, the global asset management business of Aviva plc (‘Aviva’) announces the appointment of Giles Parkinson as Global Equities Fund Manager. He is based in London and reports to Chris Murphy, Head of Global Income, Equities.
In this new role, Giles will work closely with Richard Saldanha on Aviva Investors’ Global Equity Income Fund and across global equity portfolios.
Giles has 10 years’ investment management experience. He joins from Artemis where he was Analyst and Fund Manager on the £1 billion Strategic Assets Fund which he worked on from launch in 2010. Prior to this, he was Global Research Analyst, Oil & Gas at Newton Investment Management.
Chris Murphy, Head of Global Income, Equities, said: “I am delighted to welcome Giles to Aviva Investors. He brings with him a strong pedigree in managing global equity mandates and a deep level of analytical skill across sectors. Giles’s experience will stand us in good stead as we continue to develop our equity proposition in response to changing client requirements.”
CC-BY-SA-2.0, FlickrFoto: Jason Bachman. Demasiado pronto para proclamar la defunción del mercado alcista
Global asset management industry assets under management (AUM) will reach US$106 trillion by 2019, with the non-US percentage share exceeding 50% at the close of 2015, according to the 14th iteration of Cerulli Associate’s flagship report–Global Markets 2015: Key Insights into a Dynamic Landscape. However, managers need to be realistic about the efforts required to win business in high-growth markets.
2015 could be a good year for managers wishing to target Brazil. Positive regulatory changes and the establishment of a truly independent distribution network will further open the market to cross-border managers and fuel demand for global products. Managers should not be deceived by seemingly sparse opportunities elsewhere in Latin America. Chile’s retail segment may look unappetizing because of its tiny asset base but it has great growth potential, while the fast-growing pension market in Mexico is looking increasingly attractive for cross-border managers.
As managers continue their distribution push into Europe, they would do well to keep the growth potential of some markets in perspective. In a Cerulli survey, Spain was cited by firms as a key target in 2015. “Cerulli believes that the market will continue to grow at a healthy pace, yet slower than the one seen over the past couple of years,” said Barbara Wall, Europe research director at Cerulli. “Fund-of-funds vehicles are the cross-border asset managers’ favorite point of entry and this segment is booming–total assets in 2014 grew more than 100% from €15 billion (US$18.2 billion) to €30.6 billion. What is also important is that the majority of these vehicles, 96%, are ex-house–they invest primarily in non-proprietary funds.”
“China may be the jewel in the crown from a growth perspective, but regulation continues to favor local managers,” said Ken F. Yap, director of global analytics at Cerulli. “With the local market firing on all cylinders appetite to invest overseas is minimal. There is also a wealth of private banking and insurance products that offer both liquidity and attractive returns. China is a long-term proposition, but one that cannot be ignored.”
Taiwan has long been held as the most accessible market in the region with offshore assets increasingly overshadowing those onshore. Last year, offshore fund AUM grew by 21.8% led by bond funds. But there is a fly in the ointment. Managers may soon find their distribution costs rising. The Taiwanese authorities plan to make it mandatory for foreign managers to boost onshore business to obtain fund approvals.
www.syzgroup.com. SYZ adquiere la filial de banca privada de Royal Bank of Canada en Suiza
The Swiss banking group SYZ has signed an agreement to acquire Royal Bank of Canada (Suisse) SA. With approximately CHF 10 billion in assets under management, the Swiss private banking subsidiary of RBC is chiefly active in Latin America, Africa and the Middle East. These are complementary markets for SYZ Group, which will manage nearly CHF 40 billion in assets. This acquisition allows SYZ to extend its international footprint to raise its profitability and to deliver significant synergies.
With the acquisition of Royal Bank of Canada (Suisse) SA, the assets under management of the private banking business of SYZ Group will double, reaching nearly CHF 22 billion and making it one of the top 20 largest private banks in Switzerland. In total, including its Asset Management and Wealth Management divisions, the Group will manage nearly CHF 40 billion in assets under management.
“This acquisition will enable Banque SYZ to access new markets in Latin America, Africa and Middle East, where strong entrepreneurship, one of our founding values, is expanding. It also represents a major step forward in terms of the Group’s growth strategy. I am delighted to welcome these new teams to our organization and I firmly believe that we will benefit enormously from their many skills.” stated Eric Syz, CEO of the Group.
This transaction is still subject to the approval of the Swiss regulatory authorities.
Patricia Carral, SVP, y Mary Oliva, presidente de International Wealth Protection / Foto cedida. International Wealth Protection anuncia la incorporación de Patricia Carral, reconocida líder en planificación patrimonial
International Wealth Protection announced that Patricia Carral has joined the firm as Senior Vice President to support their exponential growth and demand for unparalleled wealth protection strategies.
Ms. Carral has been servicing Latin America’s high net worth clients for over 15 years. She was an integral member of HSBC’s International Private Bank and most recently served as Head of Private Clients – Latin America for Amicorp in Miami. She is a sought after industry expert given her experience in assisting ultra-high net worth families throughout the hemisphere with their generational wealth planning needs. Patricia, an active Trust and Estate Practitioner and a Board Member of STEP Miami Branch, has been a key participant in numerous wealth planning transactions that have involved global financial institutions, local and international accountancy and consulting firms, law practitioners and family offices. She specializes in identifying and creating the most sophisticated and suitable fiduciary solutions for the optimization of wealth preservation and transfer.
“I am honored to have Patricia join our team, her vast fiduciary experience will benefit our clients as the wealth planning and protection landscape is continuously evolving in Latin America and demands comprehensive leading edge strategies. International Wealth Protection represents the next generation of insurance based solutions and truly being able to provide clients with a holistic platform accomplishes this”, said Mary Oliva, President of International Wealth Protection.
“My decision to join International Wealth Protection stems from the realization that insurance based solutions play an integral role in developing a solid estate plan for our multinational clients. The immediate liquidity provided by insurance and its favorable tax treatment in most jurisdictions allows them to enjoy, grow and protect their wealth, for many generations to come”, said Patricia Carral.
. Mark Mobius dejará de ser el portfolio manager de referencia del Templeton Emerging Markets Investment Trust a partir del 1 de octubre
Mark Mobius will be replaced by Carlos Hardenberg as lead portfolio manager of the Templeton Emerging Markets investment trust on October 1st.
Mobius, executive chairman of Templeton Emerging Markets Group, has been leading the trust since its launch in June 1989. He will remain a portfolio manager on the team, the trust explained in a statement.
Hardenberg will relocate to London. Having joined the firm in 2002, he is senior vice president and managing director of Templeton Emerging Markets group.
Hardenberg will be supported by Chetan Sehgal, director of the small cap strategy, who will remain a senior research analyst. Mobius will continue to lead the 52 person Templeton Emerging Markets group and will remain “fully engaged in the team’s research and investment activities.”
Peter Smith, chairman of Temit, said : “Under the Templeton Emerging Markets Group, Temit has grown to be the largest emerging market investment trust in the AIC Investment Trust – Global Emerging Markets sector, with assets under management of £1.9bn.
“We believe that the appointment of Carlos Hardenberg as lead portfolio manager, supported by Mark Mobius and Chetan Sehgal, will provide renewed focus for the next stage in the company’s development.”
Research from Standard Life Investments suggests that the biggest threat to the global economy is currently China. In the latest edition of Global Outlook, Standard Life Investments investigates what is driving China’s growth slow-down and looks beyond simple GDP figures.
Jeremy Lawson, Chief Economist, Standard Life Investments, said:“China is seeing its slowest rate of economic growth since the financial crisis, along with rapidly declining commodity prices, falling export trade and a dramatic deterioration in nominal activity. However, the epicentres of China’s economic problems are the industrial and property sectors.
“Growth of industrial output has declined from 14% in 2011 to around 6% in 2015, whilst industrial electricity consumption is in outright decline. China’s trade with the outside world is falling, and real estate investment – the primary engine of growth until last year – is going through a prolonged slump.
“The main components of activity preventing a deeper downturn are: private spending on financial services, government-led spending on transport infrastructure, retail sales and services-led electricity consumption. This suggests that China has begun the rebalancing towards a more sustainable, consumption-led growth model – although it’s too early to claim success.
“A hard landing in China would obviously be a large negative shock for the global economy, representing as it does 12% of global GDP and 18% of global manufacturing exports. Some countries stand to lose the most from any failure of China to stabilise growth. On the commodities front, countries like Australia, Brazil, Canada, Chile and Peru stand out. In manufacturing – Hong Kong, Korea, Malaysia, Singapore and Taiwan are most exposed. Whilst developed economies like Germany export a sizable amount of capital goods to China.
“There is good news – our research shows that most of the emerging markets are in a much better position to withstand external shocks than they were in the 1990, thanks to improved fiscal and monetary frameworks.
“Overall, the government has stepped up the pace of structural reforms – liberalising the financial system, cracking down on corruption and loosening fiscal policy, albeit in a targeted way. As a result we expect there to be modest success in boosting GDP although the longer-term glide path is towards slower growth.”
Photo: Eduardo Marquetti. Fitch: Europe Credit Investors See EM Risk Contagion via Brazil
European credit investors see more possibility of contagion from emerging market risks via Brazil than other major emerging markets (EMs), according to Fitch Ratings’ latest senior investor survey.
Seventy-six percent of respondents to the survey, which closed on 2 July, selected Brazil when asked to choose two countries from a list of five where they felt the wider contagion threat of EMs facing imbalances, political challenges, and rising US rates was most acute. This was twice as many as Russia (38%). Thirty-six percent selected China and 30% Turkey. Just 7% identified an acute risk of contagion via India.
EMs face various challenges heading into 2H15. Commodity prices have fallen, an approaching Fed rate rise points to a less favourable external financing environment, and some EMs face structural growth challenges.
Brazil (BBB/Negative) and India’s (BBB-/Stable) sovereign credit profiles are cushioned from external shocks by robust international reserves, and the authorities in both countries have taken policy measures aimed at reducing imbalances. Reliance on portfolio inflows to finance the current account deficit is not significant in either country.
The front-loaded macroeconomic adjustment programme adopted by Brazil’s Rousseff administration in its second term could gradually help improve policy credibility, confidence, and investment prospects. But weak political and economic backdrops (we forecast a GDP contraction of 1.5% this year) may hinder implementation.
Meanwhile, Latin American non-financial corporates, led by those in Brazil, have significantly increased their dollar borrowing while US rates have been low, increasing their exposure to a rising dollar. As the Central Bank of Brazil has tightened policy and allowed the real to depreciate, Brazilian issuers face rising internal and external interest rates during a recession.
Forty-six percent of our 2Q15 survey respondents think EM corporates will face the greatest refinancing challenge over the next 12 months – more than twice the next-highest category (EM sovereigns, with 20%).
“We think India has made more tangible progress in reducing its exposure to Fed-driven market volatility since the ‘Taper Tantrum’ two years ago. Foreign-exchange reserves have grown and are high in terms of current exchange payments relative to peers. The current account remains in deficit, but has narrowed, initially helped by temporary gold import curbs, but also due to the fall in international oil prices and lower inflation reducing investment demand for gold”, point out Fitch.
Structural reforms and the resulting pick-up in investment support India’s growth outlook, and we forecast growth to accelerate to 8.1% in FY17. But Fed tightening will not be risk-free for India, due to the possibility of large foreign outflows from its debt and equity markets
Fitch’s 2Q15 survey represents the views of managers of an estimated EUR7.8trn of fixed-income assets. We will publish the full results later in July.
CC-BY-SA-2.0, FlickrFoto: Koshirokun, Flickr, Creative Commons. Las mayores oportunidades para el negocio de wealth management están en EE.UU.
The global wealth management industry had a solid business year in 2014 in terms of financial results for the operating model. In spite of financial market uncertainties and currency volatility most lead players experienced overall growth in client volumes. However, the latest KPI growth rates came off the higher ratios in the previous reporting year. The financial year also heralded a landmark breakthrough for two operators – UBS and Morgan Stanley – as their assets under management (AUM) figures surged beyond USD2 trillion (Figure 1).
According to The Global Private Banking Benchmark 2015 released from Scorpio Partnership, AUM for the over 200 industry players annually assessed moved upward by an average 3.4% and operating profits also improved by an average of 3.3%. However, these solid figures are tempered by continued pressure on the operating efficiency measured by cost-income ratios. In the latest report the industry average rose 90 basis points to 84.4% (Figure 2).
“This is a complex moment in the history of our industry. The operating model is facing major growing pains to accomodate the expectations of financial groups for wealth management divisions to deliver sustained high margin results. The good news is client volumes and demand for wealth services are strengthening for many. But the bad news is the industry is still tackling major compression factors in terms of costs versus income. Some are not moving quickly enough with rates of growth slowing,” said Sebastian Dovey, managing partner of Scorpio Partnership.
Based on analysis of reported financials from over 200 wealth management business lines across the globe, this year’s worldwide ranking saw few changes among the top cohort. Aside from UBS and Morgan Stanley breaking through the USD2trn barrier, the majority of the market leaders remained in stasis.
A number of firms – mostly headquartered in Europe – have been adversely affected by the currency performance of the Euro. The most notable step change was posted for BMO Financial Group based on an effective acquisition strategy during the year in review. Meanwhile, based on growth projections it is likely that Bank of America Merrill Lynch will pass the USD2trn hurdle in the coming 12 months.
“Looking ahead, in the intensively competitive market it will be the details that make the margin of difference. The winners will be those that pay the most detailed attention to the optimised commercialisation of the client journey and benchmarking this among peers. Aside from the annual benchmarking, our unique collation of HNW and UHNW client satisfaction ratings of firms identifies who is leading in this context,” added Scorpio Partnership’s Dovey.
Market share of wealth assets dominated by a select few
Now in its 14th year, the influential annual Scorpio Partnership Private Banking Benchmark, estimates that the global industry now manages USD20.6 trillion in investable assets on behalf of high net worth investors. Amid this total industry AUM data point, the market share concentration among the largest houses is significant. The top 10 global operators in AUM terms collectively manage 47.1% of the market (Figure 3). UBS holds a 9.9% industry share.
The US operators continue to dominate the market share ratios driven largely by their domestic franchises. According to various industry estimates the US remains the largest market of opportunity for HNW business. Equally, the scale of the market opportunity is also reflected in the strong growth in AUM posted by US operators. The 10 leading firms are registering an average AUM growth ratio of 7.1% – over twice the global average (Figure 4).
