Tracey Brophy Warson Named Head of Citi Private Bank in North America

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Citi Private Bank announced that Tracey Brophy Warson has been named Head of Citi Private Bank in North America. Ms. Warson succeeds Peter Charrington, who was recently named Global Head of Citi Private Bank. Ms. Warson will report to Mr. Charrington and be based in New York. She will be a member of the Private Bank Global Leadership Team.

“Since joining Citi Private Bank in 2010, Tracey has done a remarkable job growing our footprint on the West Coast. Since that time, she has significantly increased revenues and AUMs and built an exceptional team of private bankers and specialists who are doing a superb job serving the fast growing number of ultra high net worth clients in that market,” said Mr. Charrington. “We are excited by this appointment and look forward to her leadership in North America.

Ms. Warson has nearly 30 years of experience working with ultra high net worth individuals, families and institutions. She was most recently Western Region Market Manager for Citi Private Bank in North America. In this role she oversaw ultra high net worth banking offices in Beverly Hills, Los Angeles, Orange County, Palo Alto, San Francisco, Phoenix and Seattle. Before joining Citi, Ms. Warson served as West Division Executive for US Trust, Bank of America Private Wealth Management where she built and ran the Western Region. Prior to joining US Trust she was Executive Vice President and Regional Managing Director of Private Client Services at Wells Fargo Private Bank. In this role she was responsible for Wells Fargo’s investment management, trust, private banking, wealth planning and brokerage businesses in the Bay Area. Previously Ms. Warson served as an Executive Vice President and Head of Sales and Distribution for Wells Fargo’s foreign exchange and financial risk management businesses nationally. Ms. Warson worked in the investment banking division of Citi in Los Angeles and started her career in banking as an International Banking Officer at Toyo Trust & Banking Company in Los Angeles.

Ms. Warson earned her BA in Business Administration and French from the University of Minnesota. She also completed a fellowship at the Université de Tours, in Tours, France. Ms. Warson has repeatedly been named one of “The Most Influential Women in Bay Area Business” by the San Francisco Business Times.

Population and Wealth of U.S. High Net Worth Individuals Reaches Record Levels

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A continued economic recovery, strong equity market performance, rising real estate values, and an “energy renaissance” that pushed U.S. oil production to its highest levels in over 20 years, boosted the population and wealth of High Net Worth Individuals (HNWIs) in the U.S. to record levels in 2013, according to the U.S. Wealth Report 2014 released by Capgemini and RBC Wealth Management.

The population of U.S. HNWIs jumped 17 percent to 4 million and their investable wealth by 18 percent to reach $13.9 trillion. Growth rates of both the HNWI population and HNWI wealth in the U.S. exceed the global averages of 15 percent and 14 percent respectively.

“Steady GDP growth, reduced unemployment, a falling deficit, and an energy renaissance boosted investor confidence and energized risk appetites in 2013,” said John Taft, Chief Executive Officer, RBC Wealth Management – U.S. “These factors contributed to record wealth levels in the U.S. Over the last five years, some of the strongest growth in wealth occurred in the energy and technology-centric cities of Dallas, Houston and San Jose, indicating that a broader mix of geographies and industries is driving wealth creation in the U.S.”

Twelve cities are home to the majority of U.S. HNWIs

Growth in U.S. HNWI wealth was driven by the top 12 cities by HNWI population – New York, Los Angeles, Chicago, Washington D.C., San Francisco, Boston, Philadelphia, Houston, San Jose, Dallas, Detroit, and Seattle – which are home to more than two-thirds (69 percent) of U.S. HNWIs and three-quarters (75 percent) of U.S. HNWI wealth.

While New York still reigns, holding almost three times more HNWIs (at 894,000) and wealth ($3.2 trillion) than second-ranked Los Angeles (at 330,000; $1.2 trillion), it recorded the second lowest growth rate (12 percent) in HNWI population of the top 12 MSAs, ranking only slightly higher than Detroit (11 percent).

Tech and energy-centric cities increasingly leading HNWI population and wealth growth

The Texas cities of Dallas and Houston were stand-outs, leading in both HNWI population growth – at 20 percent and 18 percent respectively – and wealth growth, at 24 percent and 22 percent respectively. In fact, Dallas entered into the top 10 HNWI population centers for the first time, edging out Detroit.

While HNWI wealth remains mostly concentrated along the East and West coasts, the report notes that, between 2008-2013, three of the four fastest-growing cities in HNWI population and wealth have been those with ties to energy – in the case of Dallas and Houston, and technology – in the case of San Jose, pointing to a new pattern of HNWI wealth creation in the U.S.

Greater risk-taking supported by surging trust in wealth industry

According to the report’s Global HNW Insights Survey, U.S. HNWIs’ trust in all aspects of the wealth management industry surged by double-digit rates between early 2013 and early 2014.  Trust in wealth managers and firms increased 12 percentage points each to 84 percent and 87 percent respectively, putting U.S. HNWIs well above their peers in the rest of the world (71 percent and 72 percent respectively).

Increased trust supported a greater appetite for risk, with allocations to alternative investments up by four percentage points to 13 percent of portfolios, while equity allocations remained the highest across the globe at one-third of portfolios (and up to 41 percent in Washington D.C., highest in the U.S.).  U.S. HNWIs were also more inclined to invest beyond North American borders, with their international allocations up to 33 percent in early 2014 from only 20 percent of portfolios a year earlier.  This trend was particularly driven by HNWIs aged under 40 who invested 53 percent of their wealth in foreign markets.

Despite increased trust in wealth managers, HNWIs’ assessment of wealth manager performance dropped by six percentage points to 73 percent, though remains much higher than the rest of the world average of 59 percent. Declining scores signal opportunities for firms to reposition their offerings to meet specific HNWI preferences, especially for HNWIs under 40 versus their counterparts aged 60 and over.

Younger HNWIs are more likely to classify their needs as complex (38 percent vs. nine percent), seek family wealth advice (35 percent vs. 13 percent) and demand digital (internet, mobile, email) contact over direct personal contact (39 percent vs. 15 percent).  Given the strong preference for digital interactions, wealth management firms will need to take proactive steps to meet increasing demands in this area.

“There is great opportunity for wealth management firms to reposition and strengthen their offerings in response to declining performance scores,”said Jean Lassignardie, Chief Sales and Marketing Officer, Capgemini Financial Services. “One way to respond to clients is by developing an integrated channel experience that not only maintains their wealth manager relationship but enhances it through digital enablement.”

As U.S. HNWIs expressed a pronounced preference to work with a single firm (54 percent vs. 11 percent multiple firms), firms that work with them will need to continue to deliver against the specific needs of their clients to drive high satisfaction levels.

Younger and female HNWIs could signal shift in causes supported by U.S. wealth

Making a positive impact on society through investing time, money or expertise is important to the vast majority (88 percent) of U.S. HNWIs and extremely or very important to 56 percent. HNWIs under 40 are particularly focused on driving social impact, with 81 percent citing driving social impact as extremely or very important.

Younger HNWIs also favor different causes than their older peers (aged 60 and over), citing social programs, race relations, gender inequality, energy security and unemployment as their top five priorities, while their older counterparts favor child welfare, education, and health. Given the rising wealth among younger HNWIs, there could be a shift in the types of social issues that get the most attention in the U.S. moving forward.

Female HNWIs are likely to have a greater influence on driving social impact going forward. As with younger HNWIs, female HNWIs place great value on driving social impact, with 62 percent citing it as extremely or very important, compared to 50 percent of male HNWIs.

View the report at this link.

Guggenheim Partners Hires Securities Executive Gerald A. Donini

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Guggenheim Partners has announced the hiring of Gerald A. Donini as a Senior Managing Director. Mr. Donini will work closely with senior management to identify and develop business opportunities for the firm.

“We are pleased to welcome Jerry to our team,” said Alan Schwartz, Executive Chairman of Guggenheim Partners and CEO of Guggenheim Securities. “Jerry’s reputation as a leader and his expertise in building markets platforms will enhance our ability to scale our businesses.  Moreover, Jerry is a perfect fit with our team-oriented culture.”

“I am excited about the business that Alan and the team at Guggenheim are building,” Mr. Donini said. “In a short time, Guggenheim has emerged as a highly respected partner known for its client service and differentiated approach within the securities industry. That recognition and trust from the clients provide us with a great foundation to move forward.”

Mr. Donini was most recently the Chief Operating Officer of Barclays Global Corporate and Investment Banking. Prior to that, he served as the Global Head of Equities at both Lehman Brothers and Barclays. Mr. Donini served on both firms’ Executive Committees.

He graduated with a B.A. in Economics from Brown University.

Flows Should Prove Supportive for Emerging Market Debt

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Flows Should Prove Supportive for Emerging Market Debt
Foto: Phil Whitehouse. Los flujos de fondos podrían apoyar la deuda de mercados emergentes

Outflows from emerging market debt during the 2013-2014 correction amounted to a significant US$31 billion. In the subsequent months, Investec AM has been encouraged by sustained inflows into the asset class as investors re-engaged with the asset class, attracted by the higher yields on offer. Certainly Investec’s own investor base has added to their holdings on average and new institutional clients have entered the asset class over the past year.

The period of continuous inflows came to an end in August, with some outflows from hard currency debt. According to the asset manager, this is entirely healthy – the asset class had performed well and some profit taking was inevitable – and it is likely there will be more two way movements in flows in the coming months.

While Investec AM does not expect 2015 industry net flows to reach the heady $40 to 80 billion levels, they do expect a gradual improvement. Given the scale of the 2013-2014 sell-off, the asset manager still views overall positioning as relatively light and expects supportive flows from institutional investors, particularly in the US, who are expected to address their under-allocation
to the asset class. The broader reform agenda across many emerging markets should also help to sustain positive investor sentiment and encourage flows into emerging markets assets.

You may access the full report by Investec AM through this link.

Marathon Asset Management Appoints Diego Gradowczyk as New Co-Head of Emerging Markets

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Marathon Asset Management, a New York-based global investment advisor overseeing approximately $12.5 billion in assets, has announced that Diego Gradowczyk, former Head of Emerging Markets Trading at Barclays Plc, has joined the firm as a Senior Managing Director and co-Head of Emerging Markets. In his new role, Gradowczyk will co-run the firm’s emerging markets group with Partner and group co-Lead, Gabriel Szpigiel and be a member of the firm’s executive committee. Marathon also announced that it has added Andrew Szmulewicz, a former Executive Director at J.P. Morgan Chase in the Global Index Research Group, to its emerging markets team.

A focus of the firm since its inception in 1998, Marathon’s Emerging Markets Group is comprised of a highly experienced global team of professionals in the firm’s New York, London and Singapore offices. The group takes an opportunistic, flexible approach to capitalize on the wide array of opportunities available across the different emerging market geographies, including Latin America, Eastern Europe and Asia.

“Emerging markets is one of our core competences and main strategic areas of focus,” said Louis Hanover, co-Managing Partner and Chief Investment Officer for Marathon Asset Management. “We are highly committed to continually looking for ways to strengthen this team to provide our clients with best-in-class investment opportunities. Adding these two extremely accomplished individuals is a testament to this promise and will help us ensure we continue to deliver cutting-edge investment ideas in this space.”

“We are very excited to announce the addition of Diego and Andrew, two very high-caliber investment professionals, to our emerging markets team,” said Gabriel Szpigiel, Partner and Co-Head of Emerging Markets for Marathon Asset Management. “Together, they will help us increase our franchise and investing capabilities in these geographical regions. We look forward to integrating Diego and Andrew into our team and working with them to grow our business.”

Gradowczyk added: “This is an amazing opportunity and I am extremely honored to join a world class firm like Marathon Asset Management. Right now is an exciting time in emerging markets and I am greatly looking forward to working together with Gabriel and the rest of the team to help grow the firm’s emerging markets business.”

With more than two decades of experience working in the space, Gradowczyk brings a tremendous amount of emerging markets investing experience to Marathon. After joining Barclays in 2001, he ran the firm’s Emerging Markets Trading desk for nearly ten years. Prior to Barclays, Gradowczyk was a partner and portfolio manager at Compass Group, a New York-based investment management firm focused on emerging markets.

Szmulewicz previously worked in J.P. Morgan Chase’s Global Index Research group, where he contributed to many of the firm’s emerging market indices, including being a key contributor to the CEMBI index.

Barclays appoints Akshaya Bhargava as Chief Executive of Wealth and Investment Management

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Barclays has today announced that Akshaya Bhargava has been appointed as Chief Executive of Wealth and Investment Management. He will join Barclays on 13 October 2014.

With over 35 years’ experience in the financial services industry, Akshaya joins from InfraHedge which he founded in 2010 and was acquired by State Street Corporation at the end of 2013. Prior to this he was CEO of Butterfield Fulcrum Group and founding CEO of Infosys BPO. He spent 22 years at Citibank, leading teams in London, India and the Czech Republic.

Announcing the appointment, Ashok Vaswani, Chief Executive of Barclays Personal and Corporate Banking, said:

“I’m delighted that Akshaya is joining to lead our Wealth and Investment Management business. Akshaya brings with him deep management experience and a strong track record of business development and growth. Appointing Akshaya, with his breadth of global financial services knowledge and experience in creating bespoke investment platforms, is a significant coup for the business.

“The wealth management industry is evolving and clients’ needs are changing. A leader who can drive success through transformational times and harness new technologies to enhance the client experience will help to position Barclays at the forefront of this industry revolution.”

Akshaya Bhargava, Chief Executive, Barclays Wealth and Investment Management, said:

“Barclays Wealth and Investment Management is well placed to deliver a market leading set of global banking and investment solutions to high net worth clients. This is an exciting time to be joining Barclays and I feel privileged to be taking charge of the next chapter in the growth and evolution of the business.”

Akshaya began his career at Citibank in India in Operations and Relationship Management roles before moving into Transaction Services, based out of London. He was Chairman and Country Manager of Citibank in the Czech Republic for four years, before heading back to London as Global Product Management Head for Small Business Banking.

After 22 years with Citibank, he was approached by Infosys to set up a Business Process Outsourcing offering in India. He led the business from a start up to No 7 rank in the industry in four years by focusing on the more complex and high value segment of the market. After Infosys absorbed the business in 2006, he took on the CEO role for the hedge fund administrator Butterfield Fulcrum. He saw the business through the financial crisis, restructuring it into a profitable business. In 2010 he set up InfraHedge, a hedge fund managed account platform, which was acquired by State Street Corporation at the end of 2013.

Akshaya graduated in India with a BA in Economics and MBA in Finance and Marketing. At State Street Bank he holds the following 3 active authorisations from the FCA – CF1 (Director), CF3 (Chief Executive) and CF30 (Customer).

CONSAR Approves the Funding of the Mandate Awarded by Afore Banamex to Pioneer Investments

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La Consar aprueba el fondeo del mandato otorgado por Afore Banamex a Pioneer Investments
. CONSAR Approves the Funding of the Mandate Awarded by Afore Banamex to Pioneer Investments

CONSAR, the Mexican regulatory authority for pension funds, has given the green light to the funding of US$400mn for the European equity mandate which Afore Banamex awarded to Pioneer Investments in October 2013. The total amount of the mandate, which was also awarded to BlackRock, BNP Paribas, Franklin Templeton, and Schroders, is for US$1bn. As Gustavo Lozano, director of Pioneer Investments in Mexico, confirmed to Fund Pro, the contract between the asset management company and the Afore will  be signed this week.

Pioneer Investments is the second firm which obtains the funding of a mandate, after the two Afore Banamex mandates awarded to Schroders, in global and European equities, which have been funded already.

Meanwhile, in a telephone conversation with Funds Society, Gustavo Lozano expressed his great satisfaction at having received authorization for this mandate by the regulator as “that means that a Mexican Afore now has two managers,” adding that “in two to three weeks, once the contract is signed, the transfer of funds will occur.”

CONSAR’s president, Carlos Ramirez Fuentes, has reaffirmed an opinion which he has already stated on other occasions, that the mandates are an important vehicle for diversifying the management of Afore’s  assets, but that the process should be more streamlined. In this case, although the mandate was awarded a year ago, they have been unable to fund it until now, so a very significant part of the rally experienced by European equities has been missed. Gustavo Lozano commented to Funds Society in this regard that all parties involved “have learnt a lot from this process and are working in conjunction with authorities, the different funds, and the asset management firms so that these investment projects become more agile and may be funded within a maximum period of six months from time of awarding.”

As was disclosed to Funds Society, certain constraints and problems posed by State Street, the mandate’s trustee and liquidator, have been the main cause of the delay in this particular case. Pioneer Investment was also awarded a global equities mandate by Afore Sura totaling US$700mn, for which BlackRock, Investec AM, and Morgan Stanley Investment Management were also selected.

 

Emerging Market Debt: Revisiting the Trouble Spots

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Emerging Market Debt: Revisiting the Trouble Spots
Robert M. Hall, Institutional Fixed Income Portfolio Manager. Los “Tres Terribles”: revisitando la situación de los focos más problemáticos para los mercados de deuda emergente

The performance of emerging market (EM) debt has exceeded investor expectations so far this year, thanks to falling US Treasury yields and the persistence of broadly accommodative global monetary policies and low volatility in the capital markets. While these benign conditions could continue for some time, MFS’ experts Robert M. Hall, Institutional Fixed Income Portfolio Manager, and Matthew W. Ryan, CFA, Fixed Income Portfolio Manager, review the primary systemic, global risks for EM debt, along with the idiosyncratic, country-level events that have dominated the headlines. As valuations stretch and liquidity recedes, the portfolio managers anticipate that the market will increasingly differentiate among EM credits based on the issuers’ fundamental strength.

Global rates and monetary policy

Central banks of major developed markets (DM) have tried to suppress rate volatility and keep rates artificially low, and they have largely succeeded. According to MFS, intervention by the US Federal Reserve has contributed to Treasury yields that are too low given underlying growth trends. If US economic activity continues to improve, and the Fed’s forward guidance takes a more hawkish tone as a result, Treasury yields are likely to rise, creating a headwind for EM debt and other bond sectors.

How EM debt fares in this scenario would depend on the speed and size of the rate movement. MFS is inclined to expect a more muted and gradual move in Treasury yields this year than last year, when the magnitude of the rate spike prompted a wave of selling that pushed EM spreads wider.

Country-level events

Earlier this year, MFS singled out Venezuela, Argentina and Ukraine, which they called the Terrible Three because these markets all hit crisis points at the same time. How does MFS view these situations now?

Venezuela. MFS remains concerned about the ineffectual policy responses to the challenges facing Venezuela. While the devaluation of the bolivar earlier this year could have been a step in the right direction, it needed to be accompanied by fiscal and monetary restraint. Instead, increased fiscal spending and further monetary growth has fed surging inflation.

By nearly every metric, the economic and financial situation in Venezuela continues to show signs of stress and deterioration. Foreign exchange reserves are low, potentially straining the country’s ability to honor its debt obligations. Yet with the risk-on carry trade still in play, the market appears to be willing to accept the government’s market-friendly rhetoricat face value. In the absence of any policy improvements, MFS continues to believe that Venezuelan debt dynamics are ultimately unsustainable.

Argentina. Argentina has defaulted on coupon payments to investors in its foreign-law, restructured sovereign bonds. Though the technical default will likely have adverse implications for the country’s economic and financial conditions, Argentina has indicated a commitment to service its US dollar- denominated debt governed by local law. MFS believes the yields on those bonds offer reasonable compensation given current risks.

As the outcome remains difficult to predict, MFS is watching the ongoing developments and continually reassessing the risks related to this fluid situation. Longer term, one bright spot is the prospect for a more market-friendly regime following next year’s election.

Ukraine and Russia. Tension between Ukraine and Russia has remained high, and the likelihood of a near-term resolution appears remote. The ongoing conflict has a negative impact on economic activity and, by extension, Ukraine’s ability to meet structural targets established in the reform program backed by the International Monetary Fund (IMF). External funding from the IMF as well as the United States and the European Union has provided a critical fiscal lifeline, yet it will almost certainly become necessary for Ukraine to obtain additional assistance. MFS thinks this could increase the risk of a “bail-in,” with private investors forced to share the burden by having a portion of their debt written off.

Even though the Russian economy could be pushed into recession by the economic sanctions, the Putin government may be willing to endure such an outcome to achieve its broader politicaland security goals.

For now, Russian sovereign credit metrics remain quite strong, with a balanced fiscal account, large foreign exchange reserves and a growing current account balance. Recognizing that valuations could widen to the point where they offer reasonable compensation for heightened risk, MFS continues to monitor the situation closely for possible investment opportunities.

Areas of opportunity

Areas of opportunity still exist within EM debt, yet after solid gains in bond prices, valuations in aggregate appear less attractive now than in early 2014, according to MFS’s team. As US dollar-denominated EM sovereigns and corporates have recovered their losses from2013’s “taper tantrum,” risk/reward relationships have become less compelling, leaving MFS with modest expectations for the performance of EM debt for the rest of the year. Nevertheless, they believe that relative to many other fixed income assets, EM debt valuations are not as stretched.

Although local currency EM debt has yet to fully recover from last year’s selloff, MFS believes that EM currencies may have the highest beta to possible global financial turmoil, given their liquidity and the need for additional macro adjustments in certain EM countries.

In their view, with asymmetric risk to both interest rates and credit spreads, as well as geopolitical and idiosyncratic risk, this is an environment that calls for exercising caution when investing in EM debt.

Bond Yields Suggest an Unlikely Recession in Europe

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A pesar de la baja rentabilidad de los bonos, Robeco contempla pocas probabilidades de recesión en Europa
Léon Cornelissen, Robeco's Chief Economist. Bond Yields Suggest an Unlikely Recession in Europe

Eurozone bond yields are now so low they suggest a recession is imminent, though the European Central Bank’s dramatic action in September along with other more positive macroeconomic factors make that unlikely. Rates were cut again after the Eurozone recovery came to a halt in the second quarter. GDP growth amounted to exactly 0.0% compared to the previous quarter, while gross fixed capital formation dropped 0.3%. The German economy shrank, somewhat surprisingly underperforming France, and the third-largest economy, Italy, fell back into recession. The economic impact of the Ukraine crisis has been much larger than expected, primarily due to its confidence- damaging nature. As a consequence, bond yields have come down to amazingly low levels: German 10-year yields are currently below 1.0%, and Italian yields are currently 2.3%. For the privilege of lending up to three years’ money to governments such as Germany, investors now pay a premium. 
The continuing relentless bull run on bond markets was the striking development this August. Aside from the weakening of the European economies, the downtrend in actual inflation and the growing fears of Japanese-style stagnation that can all explain these low yields, they are also a reflection of the likelihood of further aggressiveness by the European Central Bank. ‘Don’t fight the ECB’ could be an appropriate motto. Léon Cornelissen, Robeco’s Chief Economist, considers the likelihood of a new European recession to be small. Robeco expects a stronger third quarter for a number of reasons and continue to expect an ongoing recovery of the Eurozone economy. The main risk to this scenario would in our opinion be a severe further escalation of the tensions between the West and Russia.

Ukraine crisis ending in a frozen 
conflict?


Evidence is mounting that the 
German economy is being hit by the
 ongoing jitters over the Ukraine 
crisis. German businesses are very
 cautious about making new 
investments. Gross fixed capital 
formation declined 2.3% in the
second quarter. But the Ukrainian
 crisis is now showing signs of
 becoming less heated. Russia has 
made it clear that it won’t allow a
 destruction of the pro-Russian
 separatist region in Eastern Ukraine by sending sufficient troops and weaponry. On the other hand it has demonstrated a cautious attitude because the change in the military balance has not resulted in an offensive to take cities such as Odessa or Kiev. The logic of the situation suggests a stalemate, a so called ‘frozen conflict’. The Eastern Ukrainian provinces including a land bridge to recently annexed Crimea will remain firmly under Russian control, but hostilities will end, paving the way for what will most likely be long-winded negotiations. The current, rather weak sanctions will remain in place, with limited economic impact. Under these circumstances business confidence in Europe could rebound.

Of course, the current de-escalation in Ukraine could in the end turn out to be a “judo-inspired trick” by Russian President Vladimir Putin, who has a black belt in the sport. During the winter, when Europe is much more vulnerable to an immediate cut-off of Russian gas, tensions could rise again, though it should be kept in mind that countries such as Germany are already in a position to withstand a five-month boycott. The ultimate aims of the Russian leadership remain unclear. It could easily decide to stir up ethnic tensions in the Baltic region. Possibly we have only seen a couple of moves in what could turn out to be a very long chess game. We cannot be sure. But for the time being, our baseline scenario is a de-escalation of the conflict.

Shale gas revolution helps world economy

Eastern Europe is not the only region in which geopolitical tensions are flaring up. The Islamist insurgency in Iraq is a potential threat to oil supply, although Brent oil prices are trending down from their peak in June. An important factor is the shale oil revolution in the United States. It is currently acting as a ‘supplier of last resort’, a role earlier taken by Saudi Arabia. It is highly uncertain how long the shale oil revolution will last, but the currently well-behaved oil prices are a boon for the world economy, including the Eurozone. The price of oil is an important factor driving down headline inflation. Core inflation in the Eurozone is still 0.9% on a yearly basis, despite all the talk about deflation.

Accommodating monetary policy weakens the euro

The ECB played its part by marginally lowering interest rates to 0.05% and announcing a buying program of Asset Back Securities (ABS), suggesting a possible size of one trillion euros. As the current European ABS market is not well developed, this potential size looks ambitious. It will take time to implement the ABS program and its beneficial effects will be gradual. But in so far as the program helps to weaken the euro it immediately benefits European exporters. Very strong confidence indicators in the US (an ISM manufacturing reading of 59, non-manufacturing 59.6) benefit the US dollar as well. The ECB has still one weapon of last resort – generalized QE of sovereign bonds. But this weapon will only be used if the European economy weakens materially further. This option remains clearly on the table and will help keep down the euro and long-term interest rates.

Macro outlook: Fiscal policy is no longer restrictive

During the Jackson Hole summit, ECB president Mario Draghi sketched the outline of a grand bargain, in which the ECB would do more in exchange for fiscal stimulus (in Germany) and structural reforms (in France and Italy). Chances of meaningful reform packages in France and Italy are low, but there is already a political agreement about a flexible interpretation of existing budgetary rules within the Stability and Growth Pact. Automatic stabilizers in the Eurozone will as a consequence probably get more room to maneuver in the coming months and governments within the Eurozone will start to make a more positive contribution to economic growth.

Remarkably low interest rates and tight sovereign spreads within the euro area will stay with us in the coming months as long as the ECB keeps its easing bias, confirms Robeco’s Chief Economist. The search for yield implies that the Eurozone is currently exporting low interest rates to the US, where 10-year bonds offer a yield of about 2.5%. But as the US economy will continue to strengthen, talk about the timing of the first interest rate hike will get louder, and gravity could be reversed: US long-term interest rates may push up those in Europe. A necessary condition would be a resumption of the European recovery, which partly depends on geopolitical developments. Our baseline scenario is a stronger Q3 GDP which will diminish pessimism about the European recovery. As a consequence Robeco sees little value in European and US government bonds at current yields.

Bestinver’s Parames Leaves for New Project

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García Paramés deja Bestinver para emprender un nuevo proyecto profesional
Francisco García Paramés. Bestinver’s Parames Leaves for New Project

Bestinver Asset Management’s fund manager Francisco Garcia Parames will be leaving the company to start a new project, according to a statement released by Efe.

Parames has spent 25 years at Madrid-based Bestinver where he managed above €7.5bn in Spanish and international stocks. The portfolio manager, known as the “European Warren Buffet” because of his pure value style, has achieved one of the highest returns in the market during this period placing his funds amongst the first places of their category.

The fund manager moved to London from Madrid in June 2013, where he worked with two associates, Alvaro Guzman de Lazaro and Fernando Bernad. Parames thanked Bestinver, part of the Spanish construction conglomerate Acciona, as well as all the investors who trusted him with the management of their savings, for “providing him with the opportunity to develop an exciting professional career”.