Foto: Dave Haygarth. Los factores cíclicos apoyan un dólar estadounidense más fuerte
Investec Asset Management presents its latest Multi-Asset Indicator. The main catch is a stronger dollar, and a positive economic and investment outlook, especially for equities.
Economic data from the US is consistent with above-trend growth. For now, the US Federal Reserve (Fed) continues to highlight slack in the labour market, but if employment growth continues at close to its recent pace, the Fed is likely to move forward the date of the first interest rate rise to the first half of 2015. This should support a stronger US dollar, which is beginning to perform well, especially given softer inflation in Europe and some disappointing Japanese data.
Second-quarter corporate earnings have, once again, beaten expectations and company management teams are no longer guiding analysts’ estimates downwards. A combination of expected earnings growth of roughly 10% for this year, even stronger earnings growth the following year and forecasts stabilising after long periods of relentless downward revisions, has contributed to the passage of time slowly reducing the market’s valuation. This makes further market gains likely in the remainder of the year.
The clearest trends in developed market sovereign debt remained in euro-zone bonds, with German Bunds, in particular, extending into strength. Further evidence of a loss of economic momentum across certain sectors, another lower-than-expected inflation print and on-going geopolitical concerns all encouraged this strength. In contrast, data in the US remained firm, although US long rates remained at the lower end of their multi-month ranges.
July could represent a watershed for global corporate credit markets. Spreads widened across both investment grade and high yield markets, with credit quality determining the extent of weakness. US markets led the sell-off, accompanied by outflows from high yield ETFs. The sell-off in credit assets during July has improved valuations.
Across all currency markets, the dominant force in July was the broad-based strength of the US dollar. The most resilient G10 currencies to this strength were sterling and the Japanese yen which were secondary beneficiaries of a reduction in global risk appetite. An aggressive extension of the appreciation of the US dollar is improbable in the near-term, although cyclical drivers remain skewed towards greater US dollar strength thereafter.
Overall, the inevitable never-ending sequence of geopolitical events in various corners of the globe does not detract from a positive economic and investment outlook, especially for equities.
You may access Investec Asset Management’s full Multi-Asset Indicator through this link.
Wikimedia CommonsJames Swanson, Chief Investment Strategist at MFS. U.S. Markets: A Curious Investing Conundrum
According to James Swanson, Chief Investment Strategist at MFS Investments, we are experiencing an interesting combination in the US: “We have accelerating growth, rising profits and still, stable to falling interest rates”.
On the other hand, outside the US growth is faltering, especially in China, Japan, and recently, also in Europe.
Within this environment, James Swanson highlights that there are several signals supporting US Equities:
Rising revenues, profits and margins.
Capex has started to move up from relative low levels
Lending to financial companies and basic sectors is also begging to rise, something that hasn’t been seen for the last five years
In the attached video, James Swanson alerts investors to “be choosy, be diversified”, and to “focus on US large caps” which are doing very well, though “some support may be needed from slower outer markets”.
CC-BY-SA-2.0, FlickrStephen Hunnisett es el nuevo analista de crédito para EMEA. Schroders amplía su equipo de Renta Fija con Stephen Hunnisett
Schroders has announced the appointment of Stephen Hunnisett, as EMEA Credit Analyst, to further strengthen its analytical capabilities in the Fixed Income Credit Research team.
Stephen joins Schroders from BlackRock where he was Head of European Financials Fundamental Credit Research. He is a European insurance industry expert with over 20 years of experience as an actuary, analyst and investor in the sector. Stephen will specialise in European fixed income providing Schroders with invaluable insights in this area.
Stephen joins the European Fixed Income team, headed by Patrick Vogel, with current assets under management, for clients around the world, of £10.5 billion1. The eighteen-strong team is made up of nine analysts, together with a team of nine portfolio managers and quantitative strategists. Stephen’s appointment is part of an aim to grow the team in size over the coming months.
Philippe Lespinard, Co-Head of Fixed Income, said: “I am delighted to announce Stephen’s arrival which will continue to strengthen our analytical capabilities within the Fixed Income team. Stephen brings with him a wealth of knowledge within the European credit markets. This will boost our ability to identify attractive opportunities at a time when European fixed income markets look well supported.”
Patrick Vogel, Head of European Credit, commented: “Stephen is a highly regarded EMEA analyst with a wealth of experience in credit research. His knowledge will add further depth to our coverage of the European financials and insurance sector, as we continue to grow our team.”
In late July 2014 Global Evolution visited Tanzania as part of an East Africa trip. During the trip they met with Central Bank officials, Ministry of Finance officials, local banks and pension funds, IMF and independent consultants. A summary of the investment notes from this trip follow.
We currently see the monetary framework as the weak link in the Tanzanian economy as the monetary policy seems caught in a transitory phase as it migrates from a monetary aggregate targeting regime to an interest rate regime. This is expected to strengthen the relationship between the yields on T-bills/T-notes and the interbank rate. Under the current monetary framework the central bank is extremely focused on the quantity of reserves and set up levels for expected future reserve levels.
In the light of this intense focus on reserve accumulation and management of hard currency flows the deregulation of Tanzania’s capital account will be interesting to follow. Today, in order to protect the Tanzanian Shilling from hot money/speculative investors, foreign investors are not allowed to buy local financial assets. However, according to plans this will gradually change. From September 1, 2014 investors from the East African Community (EAC) will be allowed to invest in Tanzanian fixed income while other investors from the rest of the world are not expected to get access before 2016. We clearly had the feeling that several amendments will have to be made to the current regulatory framework that has strict restrictions attached. EAC investors will be the first to test these restrictions;
A maximum 40% of a bond series can be purchased by non-residents while the level for equities will be 60%
In primary bond auctions foreigners cannot buy tenors shorter than 1yr
Foreign investors are obliged to hold a position for 1 year as a minimum unless sold to another non-resident investor
We find the above restrictions very unappealing for foreign investors as you basically will have to lock up your position with little chance of being able to sell for 1 year. The central bank sees the current regulatory framework and the restrictions as a way to protect the shilling from huge swings in the capital account. Still, we think the worry is overdone. If capital markets were genuinely opened we believe that capital market dynamics automatically would adjust. In fact, we rarely see huge moves in the capital account in other frontier countries and – if opened – Tanzania would likely be rewarded for pursuing prudent fiscal and monetary if so deserved. Like the rest of East Africa Tanzania suffered from drought in 2011. This caused inflation to spiral and the shilling to weaken. However, contrary to Kenya and Uganda that significantly raised policy rates and attracted portfolio flows that helped stabilize currencies and slow inflation, Tanzania continues to struggle with the aftermath of the 2011 drought. Today’s elevated level of real yields (5yr bonds around 15% with inflation at 6.4%) seems to be the only feasible solution for the central bank to support the currency while running a substantial current account deficit (since 2011 the CAD has ranged between 12.4% and 16.9% of GDP).
Oil and gas potential
In 2013 GDP growth was 6.9% expected to accelerate to 7.1% in 2014 led by services, construction and manufacturing. Tanzania has been able to generate impressive growth rates over the past decade and keeping promising gas discoveries in mind nothing suggest that growth will slow in the foreseeable future. Tanzanian gas reserves are estimated at 35tn cubic feet according to recent reports and exploration is ongoing. Today several major energy companies are involved in Tanzania. Generally speaking, the government faces some tough decisions on how to capitalize on the gas potential. Should the state profit only from production sharing, revenue agreements, royalties and general corporate income tax or simply enter as a strategic investor? Often the last option is preferred by governments as a way to obtain more control with exploration but we tend to disagree. In Tanzania gas exploration and development costs are estimated to as much as USD 20- 40bn over the coming years and if the government decide to become a strategic investor (let’s assume a 10-15% share), the government’s financing needs and debt stock will increase. Instead the government could opt for royalties and corporate taxation only.
Investment Strategy
Going forward, we expect interest rates to drift lower as the Bank of Tanzania seems to be in a good position to ease. In our opinion this should lead to a bull flattening of the local yield curve. Unfortunately foreign investors cannot get access yet so we are basically left on the sideline. As to the opening of the capital account for EAC investors starting September 1 we sensed a rather muted excitement not least from professional investors in Nairobi. Still, if Tanzania succeeds to attract EAC investors we think the current regulation will create a segmentation of the market that could see 40% of outstanding debt trading offshore in Nairobi and the remaining 60% trading domestically in Tanzania.
From an exchange rate perspective we believe the shilling will continue to depreciate modestly thereby keeping REER unchanged. There is a chance though that the opening of the capital account can attract sufficient inflow to strengthen the shilling but as mentioned above inflows are likely to be modest in our opinion. Furthermore, more recently forward rates have collapsed so we do not see much scope for investment opportunities in the offshore forward market. This leaves the potential launch of a Eurobond as the most promising investment opportunity.
Global Evolution, an asset management firm specialized in emerging and frontier markets debt, is represented by Capital Stragtegies in the Americas Region.
You may access the full report through the attached pdf file.
Columbia Management has announced that Joseph D. Kringdon has joined the firm as Managing Director, Head of Intermediary Distribution, based in Boston. Mr. Kringdon leads intermediary distribution across all channels and reports directly to Ted Truscott, CEO – Global Asset Management. In addition, he serves on Columbia’s Senior Leadership Team.
In this role, Mr. Kringdon is responsible for the distribution of investment products and solutions across all of the firm’s retail channels as well as the DCIO and 529 businesses. Mr. Kringdon will work closely with sales, product and investment leaders across the organization.
“We are pleased to welcome Joe to Columbia Management,” said Mr. Truscott. “His experience and proven leadership track record will be an added strength for the firm. The appointment reinforces our commitment to our distribution partners.”
Mr. Kringdon brings over 30 years of experience in financial services, including multiple leadership roles in sales and marketing. Mr. Kringdon joins Columbia Management from Pioneer Investments, where he served six years as Executive Vice President and Head of U.S. Retail Sales and Marketing. Over the course of his career he has held distribution and investment positions of increasing responsibility at Putnam Investments, Smith Barney and Merrill Lynch. He is a graduate of the College of the Holy Cross.
Northern Trust Asset Management has made a number of senior hires in support of its growing Outsourced Chief Investment Officer (OCIO) services.
Patrick Groenendijk, a Client Investment Officer in Multi-Manager Solutions, comes to Northern Trust from Pensioenfonds Vervoer in the Netherlands, where he was responsible for managing the transport industry pension fund with $19 billion in assets. James Hayes, formerly of Allstate Investments, and Tracey Nykiel, formerly with consultant R.V. Kuhns & Associates, also recently joined as Client Investment Officers. Nazneen Kanga, formerly with Morgan Creek Capital Management, has joined as a Solutions Strategist focusing on foundations, endowments and global family offices. Kurt Zemaier, who was most recently with investment consultant Hewitt EnnisKnupp, has joined as a Pension Risk Strategist.
“As demand for investment outsourcing continues to grow, we are pleased to add executives who will support our expanded client base while adding new dimensions of experience and talent to our team,” said Joseph W. McInerney, head of Multi-Manager Solutions at Northern Trust Asset Management. “Patrick Groenendijk has extensive global investment knowledge and regularly speaks at global conferences on topics relating to the effective outsourcing of asset management and innovative investment strategies to manage pension funds. Jim Hayes, Nazneen Kanga, Tracey Nykiel and Kurt Zemaier bring deep investment expertise and practical perspectives that will help our clients navigate a complex economic, investment and regulatory environment.”
Northern Trust has experienced rapid growth in investment outsourcing services, adding $14 billion in new assets in the 12 months ending June 30, 2014. New clients, including corporate defined benefit pensions, a multi-employer pension plan, family offices and not-for-profit institutions in the United States, Canada and Europe, bring Multi-Manager Solutions to more than $99 billion in assets, including approximately $58 billion in assets under management and $42 billion under advisement.
Northern Trust is a provider of multi-manager investment solutions for institutional and personal clients. Northern Trust invests with more than 300 external managers worldwide, offering personal and institutional solutions that include outsourced CIO services, alternative asset classes, single asset class solutions and emerging manager programs.
Asset Management at Northern Trust comprises Northern Trust Investments, Inc., Northern Trust Global Investments Limited, Northern Trust Global Investments Japan, K.K., NT Global Advisors, Inc. and investment personnel of The Northern Trust Company of Hong Kong Limited and The Northern Trust Company.
CC-BY-SA-2.0, FlickrAshish Goyal ha sido nombrado director del Equipo de Renta Variable Emergente de ING IM. ING IM impulsa su equipo de Renta Variable Emergente con dos contrataciones senior
ING Investment Management International has announced two senior appointments to its Emerging Market Equity team. Ashish Goyal has been appointed Head of the Emerging Market Equity (EME) team and Robert Holmes joins as Senior Portfolio Manager Emerging Market Equities.
Ashish Goyal joins as of 1 October and will be tasked with expanding ING IM’s EME capacity and capabilities. He will be based in Singapore and report to Eric Siegloff, Deputy Chief Investment Officer. Ashish joins ING IM from Eastspring Investments (formerly Prudential Asset Management). Over the past 20 years he has held positions including Investment Director Asia Equity, Chief Investment Officer Asia and GEM Equities, Head of Asian Equities and Analyst/Portfolio Manager.
Robert Holmes will join ING IM in early September and report to Ashish. He has more than 20 years of experience in the field of EME. Over the past 10 years, he worked as a specialist fund manager in EMEA and before that held various positions – including management roles – covering institutional sales and proprietary trading on the equity brokerage side.
Robert joins ING IM from Griffin Capital Management, where he worked as a fund manager for the past seven years. Based in London, he will take responsibility for ING IM’s Emerging Europe strategies.
Eric Siegloff, Deputy Chief Investment Officer at ING IM: “We’re very pleased to welcome these talented investors to ING IM. Both Ashish and Robert have excellent track records and these appointments give us the opportunity to further strengthen our Emerging Market Equity capabilities.”
Foto: Jim Mullhaupt, Flickr, Creative Commons. EDM: buenas perspectivas en Europa después del temporal
After a modest start to the year, equity markets – especially in the Eurozone – registered painful losses over the last few weeks. While the Eurostoxx 50 has lost 9.3% since its highest level in June, the Italian FTSE MIB tumbled almost 15% over the same period of time. Once more we got confirmation that while market participants can swallow one or two pieces of negative news – in this case the Ukraine crisis and the conflict in Gaza – they tend to reduce risks once a third one occurs. The recent catalyst was certainly the better than expected news from the US economy, which led investors to believe that the US Federal Reserve could increase its leading interest rate sooner rather than later. This fear coupled with, among other things, the aggressive positioning of market participants and deterioration of issuance quality, had already led to a widening of high yield bond spreads ahead of the equity market correction.
But should we really be afraid of a possible earlier Fed intervention? According to UBS Global AM, some wage indicators have certainly reached their lowest points – especially when it comes to smaller companies – but the general inflationary pressure in terms of CPI and PCE remains under control. Also, rate expectations have barely moved in the US.
Two year yields are lower now than at the start of the quarter, even though this could be, up to a certain point, also due to risk aversion rather than a shift in rate expectations. Taking another measure, US primary dealers continue to take a dovish view of Fed actions. In a Reuters survey conducted after the Non-Farm Payrolls released on 1 August, 12 of 18 respondents forecast that the first hike wouldn’t be before the second half of next year. Out of these, half thought the Fed would opt for a 25-50bp target range. So the sell-off has not been driven by a broad based change in market expectations for the Fed. Finally, history might not repeat itself, but usually equity markets are not really affected by rises in interest rates in general, particularly if announced well in advance by the Fed, which is the case presently.
Actually, has this really been a risk sell-off? Emerging market equity has held up well, as have Emerging Market currencies. Investment grade bonds have continued to experience inflows. Spreads on Italian and Spanish government bonds have widened versus German bunds but haven’t moved a huge degree in absolute terms (Italian 10yr started the quarter at 2.844% and is now 2.829%, as of 11 August). It would be wrong to think of this as a return to the risk on/risk off world of 2008-2013. Generally, those areas that were over-owned have experienced the worst of the correction, says UBS Global AM.
So what will happen next? “We believe that the recent correction is primarily a market readjustment driven by repositioning and the usual lower volumes during summertime. We don’t think that we have seen the equity peak for this cycle, even though we expect higher volatility and lower yearly equity market returns than we have seen in the past few years. In our view, valuations are not over-extended, particularly outside of the US, and relative to other asset classes offers more value. In particular, the recovery in the US economy should sustain global growth and allow for higher sales numbers in the coming quarters which will compensate for either higher wage growth (in the US) or modest economic growth numbers (in Europe)”.
“Do we have any worries? Yes, we are always retesting our investment views! While we still think the valuation case for European over US equities is very supportive, we are re-examining the macro and earning gaps, particularly in light of the Russian sanctions and growth data in the Eurozone. We are also looking at global saving/borrowing imbalances as we think this is a meaningful longer-term risk for the global economy. Finally, we are also concerned that, as the US economy strengthens ahead of the rest of the world, changes to Fed policy could be inappropriate for certain European and Asian economies still dependent on US monetary policy. In this regard we hope that the Fed has learnt its lessons from the correction of spring 2013. All of this leads us to expect a world of higher volatility for risk assets in the foreseeable future”.
What about geo-political risks? While many of the geo-political events of the last few months have led to significant human misery, in terms of macro-economics or earnings the effects have been rather limited. The possible exception to this may be the Russian sanction on EU food imports. While Russia had already been on a path of limiting European food imports for some time (for example, all EU pork was already banned in Russia due to an outbreak of African Swine Fever in the Baltic states), the latest sanctions increase the breadth. “Our initial assessment is that the consequences will mainly affect citizens of Russia’s larger cities, who will be confronted with higher food prices, leading to a 1 to 2 percentage point rise in inflation rates down the line. This could become quite an issue for the Russian Central Bank which was already forced to raise its leading interest rate to slow down capital outflows and the weakening of the ruble. Of course, any ban on flights using Russian air space would clearly have more significant earnings and potential macro implications”.
Are there upside risks? Yes. If the European economy continues to disappoint the ECB might take firmer steps towards unconventional measures and possibly asset purchases but this is unlikely to happen in the next few months and the Comprehensive Assessment remains the ECB’s focus for 2014. “We could increasingly have to deal with a situation comparable to the one we have had in the US over the last few years: every time the economic landscape deteriorates, the ECB will be tempted to come back with new measures which, in turn, will be positive for risky assets. Furthermore, we shouldn’t forget that outside of the weaker Eurozone data, the global recovery has gained further traction with signs of acceleration in the US and stabilization in China”.
“At this stage the company feels that is too late in the correction to sell further equities and we are looking to the following signposts to potentially add an overweight in client portfolios: A reduction in geo-political tension between Russia and the EU (and to a lesser extent the US) o Positive price momentum or at least stabilization, indicating that the positioning rotation has played out o Supportive policy action, especially from the ECB”.
CC-BY-SA-2.0, FlickrFoto: Picharmus, Flickr, Creative Commons. Los inversores salen de los fondos de bolsa estadounidense en julio por tercer mes consecutivo
Morningstar has reported estimated U.S. mutual fund asset flows for July 2014. Investors withdrew money from U.S. equity funds for the third-consecutive month, and the pace of outflows increased to $11.4 billion in July from $8.3 billion in June and $6.9 billion in May.
Overall, flows into long-term mutual funds remained positive in July at $14.4 billion, but this total is noticeably lower than in recent months. Morningstar estimates net flow by computing the change in assets not explained by the performance of the fund.
Taxable-bond funds continued to see strong inflows despite declining interest rates. For the past three months, taxable-bond funds have seen the greatest inflows among all category groups.
Despite the strong month for the taxable-bond category group overall, high-yield bond funds saw outflows of $7.9 billion in July after much milder redemptions of $466 million in June and inflows of more than $1.2 billion in each of the previous months of this year except January. Bank-loan funds also saw sizeable outflows of $1.9 billion.
Even though U.S. equity funds saw outflows, Vanguard Total Stock Market Index, Vanguard Institutional Index, and Vanguard Total International Stock Index recorded July inflows of $2.6 billion, $2.2 billion, and $1.8 billion, respectively. With four of the five top-flowing funds for the month, Vanguard topped all providers in terms of July inflows, while Fidelity suffered the greatest provider-level outflows as a result of large redemptions from two of its flagship active U.S. equity funds.
Passive funds continued to dominate, collecting $14.1 billion in July compared with inflows of $0.3 billion for active funds.
CC-BY-SA-2.0, FlickrAlex Crooke, Head of Global Equity Income, Henderson Global Investors. Global Investors Are Enjoying a Bumper Year for Dividends
Global investors are enjoying a bumper year for dividends, according to the latest Global Dividend Index (HGDI) from Henderson Global Investors. Overall pay-outs grew 11.7% year on year in the second quarter to a new record of $426.8bn, an increase of $44.6bn. That increase is equivalent to a whole year’s worth of Japanese dividends. The underlying picture, which excludes special dividends, rose an equally encouraging 10.2%. The Henderson Global Dividend Index rose to 157.8 from 151.6 at the end of March, meaning that dividends are 57.8% higher over the last 12 months compared to 2009, the base year.
Source: Henderson Global Investors as at 30 June 2014
The second quarter is especially important, accounting for almost two fifths of the annual total, so the strong growth was very encouraging. Developed markets drove the good performance, with Europe and Japan at the forefront, after lagging behind in recent periods.
Europe, where companies typically pay the bulk of dividends in this period, dominates the second quarter, accounting for over two fifths of the global total. European firms paid $153.4bn, up 18.2% on a headline basis, led by France and Switzerland. Germany lagged behind its peers, up just 3.9%. The European total was boosted by strong exchange rates against the US dollar. Even so, the $16.4bn constant currency growth from Europe is the best performance from the region by far over the five year history of the HGDI.
Japan also showed convincing growth, up 18.5% to reach $25.2bn. With the sharp year on year declines in the yen now dissipating, currency effects only made a small deduction from the Japanese total.
The US continued to show broad based strength (13.8%), but emerging markets saw their pay-outs decline 14.6% in US dollar terms. Emerging markets are lagging behind developed markets, though the fall was exacerbated by index changes, and sharply lower exchange rates.
For the first half overall, dividends grew a headline 18.4%, the fastest in a six month period since 2011. Unlike 2011, when half of the growth came from the effects of the weaker dollar, the increases this year have largely come from companies raising dividends themselves with only a small favourable contribution from currency effects.
Global currencies continue to be volatile. However, the Henderson research demonstrates that over the medium term, currency effects are a limited factor. Over the last five years, they have accounted for just 1.4% of the total $4.5 trillion of distributed dividend income. In the latest quarter, the currency effect was just 1.5% as some currencies rose and some fell against the US dollar.
Alex Crooke, Head of Global Equity Income at Henderson Global Investors said, “2014 looks set to deliver the fastest growth in global dividends since 2011, only this time, most of that growth will come from increases in pay-outs from firms themselves, rather than from swings in currencies. In 2011, more than a third of the growth came from a falling US dollar. Developed markets are leading the charge, and we expect that to continue. It’s especially encouraging to see Europe and Japan delivering big increases to their shareholders, after lagging behind the rest of the world recently.
“Our investigation into how currency moves contribute to investor returns highlights the value of taking a global approach. Over time, such investors can broadly afford to ignore currency risk as currencies rise and fall against one another through the economic cycle. Investors who take a decision to invest internationally, but only focus narrowly on one region will find themselves much more exposed. Generating a good income on your investments is more about understanding the companies themselves, wherever they are operating.”
Yoy may access the full report through this link and you may watch a video featuring Alex Crooke’s comments through this link.
