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Axel Christensen (BlackRock): “In the Short-Term, the New Mexican Government May Bring Good News in Terms of Increasing Consumption”

Axel Christensen, Head Investment Strategist for the Latin America and Iberia region at BlackRock, and a member of BlackRock Investment Institute, has recently relocated from Santiago de Chile to Miami. On July 19^th, he participated in the 2018 Mid-Year Outlook presented by the BlackRock Investment Institute at the Mandarin Oriental Hotel in Miami, sharing his views on Latin American markets and the concerns that BlackRock’s clients in the region -pension funds in Mexico, family offices in Brazil or insurance companies in Peru- are conveying.

After being in negative territory or close to zero in 2015 and 2016, last year, the GDP growth forecast for the Latin America region started to pick up. For next year, market analysts are expecting a growth of about 3% a year.

“Probably due to the increase in uncertainty and risks, the final growth rate will be somewhere lower than a 3%. But I would like to say that the glass looks half full when looking at the region. The numbers in aggregate look good. We have seen a recovery in growth. Additionally, inflation, which has been a problem in the past, has been converging nicely into their target zone for most of the central banks in the region. The current account deficit, which is very important in rising rate environment because it tells you how exposed the region is to changes in flows, and the fiscal balance, meaning how much money is the government overspending in comparison to their income, are probably still two of the more challenging issues,” explained Christensen.

“If we look at the region as whole, I would say that the picture is a good reflection of a fairly looking awkward environment. A lot of the economies in the region are very synchronized with the US economy, something that we look forward that should continue. It we look at things at a more specific level, the region starts to become much more interesting, especially from the risk perspective. Perhaps, the risk that most investors are spending time on while looking into Latin America is political risk. There is a good reason for that. If we look at the past twelve to eighteen months, we had a very busy electoral cycle. We had Congressional elections in Argentina in October last year. We also had a General election in Chile. This year we had Presidential elections in Colombia and Mexico, and next October a major election will be held in Brazil. And, guess what? We do not know who is going to win”, he added.

In Latin America, BlackRock uses an index specifically built for the region, that they named the ‘Increase of Latin American populism’.

“We are concerned that changes in government will bring back policies in the economic space that not necessarily fit well with financial markets, being for instance a new President in Mexico that has come in with a very strong mandate to change things. We are concerned that change might mean removing some of the recent reforms that the current government has put in place, like opening the energy sector to private investment. And of course, in Brazil, we are concerned because whoever will lead the government, starting next year, will have to face very tough decisions from the first day in office: to solve a situation of high fiscal deficit on top of a lot of public debt being issued to finance that deficit. There is a lot of concern from investors on who is going to lead these countries and whether they are going to take right decisions that eventually will lead their economies to grow and therefore companies to prosper. The macroeconomic backdrop is pretty good, so is not that we are overly concerned in an overall sense, but we do identify there are specific challenges that may make the difference.”

Latin America is signaling green

The Latin American heatmap, the visual representation of economic indicators using red, yellow and green colors that BlackRock prepares to have a better grasp of what is going on in the region, is overall signaling green. The macro indicators of the two largest economies, Brazil and Mexico are also green, despite their higher exposure to political uncertainty.

Mexico and Brazil

Investors in Mexico are in a “wait and see” mood. They want to see how the new government comes in. A lot has been said during the campaign, and investors want to check to which extend AMLO (Andres Manuel Lopez Obrador) is going to fulfill his electoral promises.

“This uncertainty is going to create interesting opportunities. As investors, we are seeing valuations on fixed income and equities that have not been at this levels for some time. A couple of Mexican companies, that we have visited there, see that in the short-term the new Mexican government may bring good news in terms of increasing consumption. As the new government wants to increase wages, people will have more disposable income to buy more goods and services. There is also an ambitious infrastructure investment agenda. However, they are concerned that the government may get too ambitious in terms of spending too much, and that the longer-term effect on Mexican economy may end up being negative. Not only in terms of fiscal situation deterioration, but also in terms of a delay on investments decisions, that may affect economic growth, and eventually although we may have a couple of very good initial years, the Mexican economy may end up paying higher financial costs because the risks of holding Mexican assets goes up,” he clarified.

The case in Brazil is somewhat similar, BlackRock does see some green lights on the macro side. However, they are concerned with the high level of debt that the government carries and the uncertainty about the election. There are 13 candidates for the first round at the beginning of October, the frontrunner has slightly around 20% of voter support. Brazilian investors are holding to see who wins.

Argentina and Venezuela are signaling red

A couple of countries have, unfortunately, more red lights. Of course, there has been a very difficult economic situation in Venezuela, for some time now, in terms of geopolitical risks and hyperinflation. And then, Argentina, who used to share more green lights with the other countries, is now signaling more reds. As of recently the situation has become a lot more difficult, because the interest rates have come up responding to very high inflation level that has been reflected in the strong devaluation of the Argentinian peso against the dollar.

“The prospects of growth in Argentina are very concerning: To what extent can a country withstand such a high interests rates? It is very difficult for the Argentinian economy not to be affected in terms of growth. We are also concerned about the current account situation and their high level of debt. But if anything, we still think that the government is strongly committed to bring forward the necessary reforms at the Argentinian economy, and it needs to start resolving some of the more worrying aspects.”

Fortunately, most of the other economies in the region are doing quite well. Some of them are signaling green. Definitively Chile, Colombia and Peru are going through a more favorable part of the cycle. “We see growth in the Andean Region. Thanks to the comeback of commodities prices that are very important for the economy of this region -being copper, because of Chile and Peru, being oil, because of Colombia- the situation looks pretty good. At the same time, if we look at markets and their valuations, a lot of that good situation is already in the price,” he concluded.

Terry Simpson (BlackRock): “We See Macro Uncertainty Rising, Both To The Upside and Downside”

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Against a backdrop of rising trade tensions, BlackRock Investment Institute’s 2018 Midyear Investment Outlook remains pro-risk, but it has partially tempered that stance given the uneasy equilibrium that BlackRock perceives between rising macro uncertainty and strong earnings. On July 19th, at the Mandarin Oriental Hotel in Miami, Terry Simpson, Multi-Asset Investment Strategist of BlackRock’s Global Investment Strategy Team, discussed the macroeconomic environment and how investors should position their portfolios with investment professionals from the Latin American and US offshore business.

According to Simpson, a year ago, the global economy was facing a very different scenario: a very favorable environment brightened by synchronous global growth with still relatively high levels of monetary accommodation, in which everything was going well and there was an abnormally low volatility. But, these conditions have shifted, and the BlackRock Investment Institute is debating whether there is a new market regime change.

BlackRock’s base scenario sees strong US growth extending positive spillover effects to the rest of the world, sustaining the global economic expansion. The corporate tax reform has fueled US earnings surprises. However, the range of possibilities for the economic outlook has substantially widened due to US-China trade war tensions and tighter financial conditions via rising US rates and stronger dollar. This greater uncertainty argues for building greater resilience into portfolios.

Fiscal stimulus spurs US growth

With fiscal stimulus, US companies are rewarded for accelerating their expending on capex, something that could lift potential growth. According to the data provided by the Duke-Fuqua CFO Survey, the Deloitte CFO Signals survey and an average of regional Fed surveys, there is a notable pick-up in expected capex relative to two years ago. Over the next 12 months, capital spending is expected to grow about five times as much, as compared to first quarter 2016 projections.

The S&P 500 first-quarter earnings results confirmed US companies were investing at multi-year highs. “One of the struggles of this economic recovery is that it has yielded a subpar amount of capital expenditures or investment. Now, the government is willing to help finance business capex intentions, and firms are eager to invest. This could potentially extend the current business cycle as some supply side stimulus that may be very beneficial for changes on the potential GDP growth of the US economy”, explained Simpson.

“Developed market capex cycles are very beneficial for emerging markets. Specifically, it could be very beneficial for the Asian region, due to their dependency on global trade”, he added.

The range of possibilities for the economic outlook is widening

This year, the most significant development in the macro environment has been a rising dispersion in consensus forecast for US GDP growth. Economists see a wider range of potential outcomes for future economic growth, as the tails (outliers) of the distribution of the expected GDP growth have widened. On the upside, there is a chance for U.S. stimulus-fueled surprises. On the downside, that same stimulus could spark economic overheating. Resulting inflationary pressures could prompt a quicker pace of Fed tightening and bring forward the end of the current business cycle. Any further escalation in the US-China trade war also could have a knock-on effect on business confidence, hitting growth.

“Last year, forecasters were optimistic due to tax reform and fiscal stimulus. Now in 2018, forecasts have been reduced, something which could have a negative effect on sentiment, both business and households” he stated.

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With higher U.S. short rates has come dollar strength

The rising cost of US dollar financing has hurt Emerging Markets (EM), especially those dependent on external funding. “We all know the relationship between the dollar and emerging market assets, there is high sensitivity. The latest episode is proof that when the dollar rises, EM assets are tested. EM local debt and equities have gone down in aggregate. But there have also been idiosyncratic stories in places like Argentina and Turkey. But these are countries that have significant current account deficits. They are going to be challenged whenever the external cost of financing goes up. Regional and country selection is needed and can enhance investing outcomes that have relied on making an aggregate beta call on EM”, said Simpson.

According to the expert, some of this tightening on financial conditions has created new opportunities. Higher US rates have led to a renewed competition for capital and there is less need to search for yield as US dollar-based investors can get above inflation returns in short-term debt -as of midyear, the two-year Treasury was around 2,5%. The result is a higher risk premium all around. This repricing of risk free rates has made selected hard-currency EM debt look attractive again, both relative to EM local debt and to other alternatives, such as developed market credit.

“Emerging market dollar debt has widened out much more meaningfully, whereas local currency has widened out but not as much as the dollar-based debt. The historical yield advantage of local over hard currency EM debt has vanished”.

According to BlackRock, there is a case for favoring hard-currency EM debt over US credit, yet the firm remains neutral across both. The spreads have tightened in the latter asset class, paced by the outperformance of the riskiest portions of the market. Wider spreads in EM debt make valuations more attractive. They also see floating-rate bank loans having an edge over high yield bonds, given their lower duration and that they can benefit from rising income as short rates reset higher.

“We believe the Fed will raise rates four times total this year. The Fed has expressed their concern about trade tensions, but at the same time they are aware that the US economy is operating above potential. The U.S. economy is creating 200,000 jobs per month on average for the last 36 months, that is something very interesting in this given the duration of this economic cycle”.

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More volatility

Global financial conditions are tightening as US rates rise. Monetary policy is shifting, with the Fed pushing on with normalization and the European Central Bank (ECB) set to wind down its asset purchases by year-end. Additionally, US-China trade tensions have added new worries to the market. However, BlackRock still has a very positive risk stand stance, valuations have corrected enough in global equities and with 2018 earnings across the global coming in positively, there is still room to maintain equity exposure with a preference of equities over bonds.

“Most global investors are still positive on equities over bonds, even with all the risks the market is facing this year. According to EPFR funds flows, investors are putting more money in the equity funds than in bond funds. In 2018, we are seeing negative Sharpe ratio on a traditional 60/40 global portfolio, with higher volatility and negative returns. Going forward we are going to maintain risk on in our portfolios, but there is a need to adjust client expectations; it is unlikely we obtain the same returns that we gathered over the last few years of this bull market. Meaning, we now have to think where we want to take the risk in our portfolios”, he said.

Commodities

Oil prices are still at good levels, though they have already decreased a 10% from their recent peaks. Most of the worry was whether the OPEC was going to deliver a tremendous amount of supply back into the market, but BlackRock maintains their base scenario of global oil inventories remaining in a deficit into year-end; from a fundamental supply-demand view they do not think there is enough oil production to add back. In the next six months. If this view proves correct, oil prices should remain supported at these levels.

The metals picture looks a bit different. Copper prices, considered a barometer of global growth along with other industrial metals, have weakened on slowing global growth momentum and global trade tensions that are likely to persist for a while.

Allocation

BlackRock sees factors like momentum in equities outperforming, giving preference to quality exposure. They prefer US equities over other regions, as US stocks have outpaced other global markets on strong earnings growth, but they are also positive on Emerging Markets Equities, particularly on Asian equities including China. They are also neutral on Japan and underweighting Europe.

In fixed income, they are favoring short-term bonds in the US and taking a bias towards quality in credit. They are favoring Emerging market debt denominated in dollar versus local currency and selected private credit and real assets for diversification.

Dick Weil, Named Sole CEO of Janus Henderson Group

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Dick Weil is now the solo Chief Executive Officer (CEO) of Janus Henderson Group. In this role, he is responsible for the strategic direction and overall day-to-day management of the firm. He also leads the firm’s Executive Committee. Prior to this, Weil was Chief Executive Officer of Janus, a position he had held since joining the firm in 2010. Weil spent 15 years with PIMCO. He has 23 years of financial industry experience.

According to the company, while not an easy decision, due to having two highly qualified candidates, the CEO decision was based on a very rigorous process over several months, supported by expert advice from external consultants. “This decision was made with the full support of the Board, and the Board believes Dick is most appropriate to take Janus Henderson to the next level,” they mentioned in their earnings release.

“Now that our integration plans are significantly progressed, our Board has determined that the co-CEO structure has achieved its goals, and now is the appropriate time for Janus Henderson to be led once again by a sole CEO. Dick brings a breadth of skills and experience from prior roles in his career where he successfully led organisations through challenge and change”, said Richard Gillingwater, Chairman of the Janus Henderson Group plc Board.

The Board wishes to thank Andrew Formica for his tremendous leadership over the past 10 years, and especially for the dedication and collaboration he has demonstrated since announcement of our merger. While Andrew will resign his co-CEO role and Board seat effective immediately, he has agreed to continue on as an advisor to assist with final integration efforts through the end of the year”.

Commenting on his appointment as sole CEO, Dick Weil said: “I am honored and excited to have the opportunity to lead Janus Henderson. We have established a strong platform from which Janus Henderson can continue to drive deeper client relationships”.

Andrew Formica added: “It has been a pleasure to work with Dick in the creation and formation of Janus Henderson this past year. I am also proud of what we achieved at Henderson over the 10 years I was CEO. Janus Henderson is an outstanding business with a fantastic and talented workforce. I wish Dick and the team the very best going forward”. In connection with the Board’s decision, the firm will take a severance charge of approximately US$12 million, including the acceleration of long-term incentive compensation, that will be reflected in the third quarter results.

Phil Wagstaff, Global Head of Distribution, has decided that now is the right time to take a career break, given that the integration work is significantly progressed and the distribution team is well in place. Phil will work closely with Dick Weil over the next 6 months to ensure a full and smooth transition. Commenting on Phil Wagstaff’s departure, Richard Gillingwater said: “Phil has been instrumental in the development of our global distribution team, first at Henderson following the acquisition of Gartmore and then with the merger of Janus and Henderson, where he has played a key role in welding the two distribution teams together, creating a world-class distribution organisation. We are grateful for all Phil’s efforts”.

Alejandro Di Bernardo and Joel Ojdana Joined Jupiter

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Jupiter Asset Management has added two new analysts to its Fixed Income Team. Alejandro Di Bernardo and Joel Ojdana have joined Jupiter this Summer as the firm continues to broaden its Fixed Income capabilities.

Katharine Dryer, Head of Investments, Fixed Income and Multi-Asset commented: “Fundamental credit research is very much at the heart of our Fixed Income approach and we are delighted to be able to add two new analysts of such high calibre to the team. The ongoing development of our regional credit expertise is a key step in Jupiter’s initiative to strengthen and broaden the capabilities we offer clients in Fixed Income.”

Alejandro Di Bernardo, who is relocating from New York for the role, joins from Deutsche Asset Management where he worked as a High Yield and Leveraged Loans Analyst since 2012. Prior to that, he worked at Citigroup and Accenture in South America. A CFA charterholder, Alejandro will be joining the team as an Emerging Market Debt analyst focusing on Latin America. Alejandro will primarily support fund manager Alejandro Arevalo on the Jupiter Global Emerging Markets Corporate Bond fund and the Jupiter Global Emerging Markets Short Duration Bond fund (SICAVs).

Since 2015 Joel Ojdana has worked as a credit analyst at Balyasny Asset Management and Seaport, having previously spent seven years in investment banking working for firms including Mizuho Securities and BNP Paribas. A US Citizen based in London, Joel will work alongside Charlie Spelina and the broader Fixed Income team in generating US focused ideas for Jupiter’s unconstrained bond strategy, led by Head of Strategy Ariel Bezalel.

Tariffs, Treasuries, Taxes and Technology, the Four Ts Shaping the Second Half of 2018

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Recent M&A News: As background, Akorn (AKRX-NASDAQ) agreed to be acquired by Fresenius SE & Co (FRE GY-Munich) for $34 cash per share in April 2017, valuing the deal at approximately $5 billion. Akorn competes in the $90 billion U.S. generic drug market as a developer and manufacturer of generic and branded prescription pharmaceuticals with a focus on injectables. On February 26, 2018, Fresenius announced that it was investigating Akorn’s alleged breaches of FDA data integrity requirements related to product development. Later, on April 23, 2018, Fresenius attempted to terminate the acquisition on the basis that Akorn had failed to fulfill several closing conditions, including a material breach of FDA data integrity requirements. Akorn responded by filing suit in Delaware Court seeking Specific Performance to enforce the merger agreement.

Akorn Inc. and Fresenius SE & Co. met in Delaware Court, from July 9-13, capping off a long and tumultuous back-and-forth between the two companies as Fresenius has attempted to terminate its acquisition of Akorn. A decision is expected to be handed down by Delaware Chancery Court Judge Travis Lester in the weeks following August 23rd.

In summary, Fresenius claims that Akorn did not operate in the ordinary course of business during the pendency of the merger, Akorn breached the Representations and Warranties as stated in the DMA, Akorn denied Fresenius access to certain information and Akorn suffered an MAE (Material Adverse Effect). While many believe Fresenius likely did not meet the historically high bar of proving an MAE or breach of reps and warranties, they were able to instill some doubt that Akorn operated in the ordinary course of business in the period after the DMA was signed. On the other hand, it has been said that Fresenius’s actions stemmed from buyer’s remorse given Akorn’s recent struggles due to direct competition to key products, supply disruptions, and pricing pressure.

While we still believe Akorn has slightly better odds than Fresenius in receiving a favorable court ruling, we will continue to monitor the situation due to the large potential downside in Akorn’s stock and the difficulty in handicapping how the judge will assess the ordinary course claim given limited precedent.

The Aftermath of a Major Deal Break:

As background, NXP agreed to be acquired by Qualcomm for $110 cash per share in October 2016. Under pressure from activists, the deal price was raised to $127.50 in February 2018.

It was announced last week that Qualcomm will no longer pursue its offer to acquire NXP Semiconductors as the deadline for the deal passed without receiving antitrust approval from China’s State Administration for Market Regulation (“SAMR”), which was the last regulatory approval needed to complete the transaction. Qualcomm reported earnings and subsequently announced a $30 billion share buyback program in the absence of receiving approval from SAMR. Ultimately, it is our view that the merger became a victim of the U.S.-China trade war.

Most investors owned NXP because like us they saw the deal as both strategically and financially compelling for Qualcomm. It would have diversified Qualcomm’s revenue base and been strongly accretive to EPS. While many did not view antitrust as a risk, we underestimated the impact that Sino-U.S. trade relations ultimately had on the fate of the deal.

With NXP now trading in the low $90s, many arbs and event managers have exited the position. There will be pressure on the stock, as most hedge funds may sell their positions, but there are several positives that may lend support to NXP going forward. Firstly, they will receive a $2 billion termination fee which translates to about $5.80/share. Secondly, management held a conference and their general tone was upbeat. The company also announced a $5 billion buyback, approximately 15% of the shares outstanding. Post buyback, NXP will have leverage below 1x EBITDA, less than it has historically had. NXP now trades at trough multiples, below 10x EBITDA, and derives over 40% of sales from the automotive segment, one of the fastest growing segments in the semiconductor space given the increase in electronic contents and shift toward hybrid and electric vehicles. According to Bloomberg consensus 2018 price targets for the stock range between $100-110 currently, though most of the comps are trading at 9-13x EBITDA multiple, we expect the stock to continue to trade lower post deal break, especially as investors unwind the position.

The Markets and the Economy in the Second Half of the Year:

Mario Gabelli who leads our firm recently gave GAMCO’s views on the economy and markets for the balance of the year. He believes the landscape will be shaped by four ”T’s”:

The first is Tariffs. Global GDP is $87 trillion with the U.S just over 23%, the EU about 22%, China 16% and Japan 6%. The U.S. has $20 trillion of GDP and a trade deficit of about $500 billion, including $350 billion with China. That means we are knocking 2.5% off our GDP and delivering money to China. The tariff spat is creating cost inflation at the industrial companies we own, but it is also creating investment opportunities among U.S. companies that serve the domestic market.

The second T relates to the U.S. 10-year Treasury note. The yield was 2.44%-2.73% in January, rose to 3.11% and then fell back to 2.86%. Is the market’s current multiple of Ebitda (earnings before interest, taxes, depreciation, and amortization) sustainable? We don’t think so and expect inflation to pick up sending the 10-year yield back up over 3% by year end and higher next year.

Next are Taxes. The U.S. moved to a territorial tax system from a global system for corporations, which is good. A 21% corporate tax is a magnet for business to locate here. The write-off of capital expenditures drives new demand.

The fourth T is Technology. It is attracting a lot of attention in the stock market, and will continue to do so. The tariff situation is a surprise, but it does not bother us that much. Some of it is good since it creates volatility — the ‘old normal’ in markets. That allows investors to buy the value stocks at lower prices, and makes you look less dumb for not playing the momentum stock game.

Column by Gabelli Funds, written by Michael Gabelli

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Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

Join PARTICIPANT at its Investment Launch Cocktail

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PARTICIPANT Capital, an affiliate of Royal Palm Companies (RPC) that provides individual investors access to projects normally reserved for large private equity, institutional funds, is celebrating the official launch of its tradable note product with a cocktail party in Miami.

The company’s investment strategy enables individual investors to invest in the construction of mixed-use projects side by side with the developer, at the developer’s cost basis.

Guests at PARTICIPANT Capital’s event will enjoy hors d’oeuvres and cocktails at 1010 NE 2nd Avenue on Thursday, August 16th 2018 between 5 and 8pm.

You can RSVP here.

Miami Spice Has Returned, With 246 Restaurants

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Miami Spice celebrates its XVII edition promoting restaurants in different areas of the city, allowing to discover new corners and new flavors. Miami Spice is a mouth-watering restaurant promotion showcasing the very best of Miami cuisine. In this edition, 246 participating restaurants offer three-course meals featuring signature dishes created by world-renowned chefs at reduced prices: Lunch/Brunch is priced at $23 and Dinner at $39.

The deals will last throughout the months of August and September. There is no membership or sign-up required, however reservations are strongly recommended.

To know which restaurants offer promotions on whichs days simply check this list or the individual webpage of the restaurant you want to visit. For questions or comments regarding Miami Spice, please contact MiamiSpice@gmcvb.com.

The Real Story About Growth in China

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China’s economy is undergoing a tricky transition. Recent economic data out of China have underwhelmed, while escalating trade tensions with the U.S. and elevated domestic debt levels have sparked concerns. Yet we see China’s near-term outlook as resilient.

We share our take in our new Global macro outlook China: Quality over quantity. The gist: The tit-for-tat rhetoric on U.S.-China trade may have a real economic impact, yet we see activity holding up in the short-run, with consumption accounting for an ever-greater share of gross domestic product (GDP).

Chinese economic activity

The moderation in Chinese economic activity in the first half of 2018 has been gradual. First-quarter GDP growth beat expectations, due in part to solid external demand. Our BlackRock China GPS points to activity holding steady going forward. Big data signals developed by BlackRock’s Systematic Active Equity teams are an important component of the China Growth GPS. They include earnings guidance from Chinese companies and references to China in global earnings calls. These signals paint a rosier picture about growth than what recent data suggest. This is illustrated in the Steady slowdown chart below by the difference between the now-cast (gray) and the GPS (green), which incorporates the big data signal.

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This outlook could be undermined if trade tensions with the U.S. morph into a full-blown trade war. Our base case sees that scenario being averted, though we do anticipate an extended period of tensions ahead as the tit-for-tat rhetoric heats up between the U.S. and China.

Growth in China is expected to slow only slightly to 6.6% in 2018 from 6.8% last year, according to International Monetary Fund (IMF) forecasts as of April 2018. This comes against a backdrop of Beijing’s progress in implementing reforms, financial de-risking and slower credit growth. A moderate economic slowdown is welcome, in our view, as China shifts to a more sustainable pace of growth less reliant on credit.

An important transition is taking place

Private consumption is making up an ever-greater share of activity relative to investment, as the focus of China’s government moves to quality (sustainability of growth) from quantity (GDP targets). Greater reliance on consumption and a move to quality of growth from quantity should put the world’s second largest economy on a more sustainable path.

Sectors dependent on consumer spending are expected to take the reins of the economy from the long dominant old economy state-owned enterprises (SOEs). Government policy in China could further tilt the economy toward consumption. Consumption is about 40% of GDP, according to data from the World Bank, compared with more than 60% of GDP across developed economies.

China does face constraints in making the shift to a consumption-driven economy. Achieving a smooth handoff to households and consumers is not easy after decades of investment-led growth. Demographics also stack up against China. An aging population lacks a sufficient safety net, explaining China’s high savings rate. Improved productivity, higher incomes and government policies that strengthen social security must support the transition to a more consumer-based economy.

Finally, China’s financial vulnerabilities–including the buildup of leverage in the country’s large and opaque financial system–represent the biggest risks over the medium term. Unresolved, these could lead to a large shock. Yet government steps to curb credit growth are underway. The creation of the Financial Stability and Development Committee and work towards a unified regulatory framework have put authorities in a better position to address financial stability risks.

Bottom line

China’s near-term outlook appears solid, but rising U.S.-China trade frictions are raising concerns. Additionally, consumption’s share of the economy needs to increase further if China is to pull off the balancing act of reining in credit, sustaining GDP growth and shifting away from export- led and investment-led growth. The trend on these fronts is good–yet much more progress is needed.

Build on Insight, by BlackRock, written by Jean Boivin and Tara Rice

Despite Wall Street’s ‘Old Normal’, U.S. Equities Continue in A Global Sweet Spot

| For Gabriela Huerta | 0 Comentarios

The U.S. stock market closed higher for June and the second quarter. Rising volatility, part of what we call Wall Street’s ‘Old Normal’, reflected uncertainty over the eventual outcome of the aggressive trade actions taken by the Trump administration aimed at lowering the protectionist barriers of other countries. A relatively strong economy continues to position U.S. equities in the global sweet spot versus non-US stocks. The Fed is signaling higher rates ahead and this is keeping the dollar strong, emerging markets weak, and inflation in focus. Migration related political risks in Germany are stress testing European unity.

Second quarter earnings reports will start soon and are expected to rise in line with first quarter gains and to fuel deals, capex, dividends and share buybacks. Allocation of capital and financial engineering driven by strategic decisions made by company boards and managements continues to be an area of focus and opportunity for short and long term catalysts we have identified in the businesses we have researched as sound long term investments.

Global merger and acquisition activity set a record high in the first half of 2018 as the value of announced deals spiked to a new high of $2.5 trillion year to date, an increase of 61% compared to the first half of 2017. Cross-border deal making had its best quarter since 2007, totaling $1 trillion in the first half, or 41% of total M&A. Media company deals featuring Twenty-First Century Fox led the charge across the global headlines while deal making in the Energy and Power sector reached an all-time high in the first half of 2018.

One positive development during the second quarter for M&A occurred on June 12th when U.S. District Court Judge Richard Leon issued his decision which denied the Department of Justice’s request to block AT&T’s acquisition of Time Warner. Judge Leon put no conditions on the deal and said the government failed to make its case the merger would lead to higher prices for the consumer. The DOJ’s chose not to seek a stay preventing the merger from closing on appeal, and the deal was subsequently completed on June 15. After Time Warner withstood the government challenge, spreads on other outstanding vertical mergers firmed in response, including CVS’s acquisition of Aetna (AET-NYSE) for $70 billion and Cigna’s acquisition of Express Scripts (ESRX-NASDAQ) for $65 billion.

Research and investment areas that are of high interest for us include the U.S. Pet Population, Live Entertainment, Defense, and Equipment Rental. We continue to analyze major demographic trends in the growing world population. U.S. millennial and baby boomer preferences are of high interest. However, Generation Z is comprised of 1.9 billion people born between 1995 and 2009 and is a larger group than the Millennials born between 1980 and 1994. By 2020, Gen Z consumers are projected by Booz Co to represent about forty percent of the markets in the U.S., Europe, China, India, Russia and Brazil. There will be lots of fundamental investment dynamics ahead and rising deal activity.

In conclusion, the U.S. economy remains upbeat and as always, we are watching world economic and political developments as they may impact financial markets and opportunities.

Column by Gabelli Funds, written by Michael Gabelli

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Disclaimer:
The information and any opinions have been obtained from or are based on sources believed to be reliable but accuracy cannot be guaranteed. No responsibility can be accepted for any consequential loss arising from the use of this information. The information is expressed at its date and is issued only to and directed only at those individuals who are permitted to receive such information in accordance with the applicable statutes. In some countries the distribution of this publication may be restricted. It is your responsibility to ﬁnd out what those restrictions are and observe them.

Some of the statements in this presentation may contain or be based on forward looking statements, forecasts, estimates, projections, targets, or prognosis (“forward looking statements”), which reﬂect the manager’s current view of future events, economic developments and ﬁnancial performance. Such forward looking statements are typically indicated by the use of words which express an estimate, expectation, belief, target or forecast. Such forward looking statements are based on an assessment of historical economic data, on the experience and current plans of the investment manager and/or certain advisors of the manager, and on the indicated sources. These forward looking statements contain no representation or warranty of whatever kind that such future events will occur or that they will occur as described herein, or that such results will be achieved by the fund or the investments of the fund, as the occurrence of these events and the results of the fund are subject to various risks and uncertainties. The actual portfolio, and thus results, of the fund may differ substantially from those assumed in the forward looking statements. The manager and its affiliates will not undertake to update or review the forward looking statements contained in this presentation, whether as result of new information or any future event or otherwise.

François Pienaar, the South African Rugby Legend and World Cup Champion, talks about leadership at Investec’s Inspirational Event in Miami

| For Meritxell Sedo | 0 Comentarios

Honoring its South African origins, Investec Asset Management invited François Pienaar, the South African Rugby Legend and World Cup Champion, to speak about leadership at their second “Investec Inspirational Event”, celebrated at the InterContinental hotel, in Miami, last June 5^th.

Investec Asset Management business in the Americas region has grown exponentially since they opened their first office in New York, back in 2006. They started with 100 million dollars in asset under management, and now they are managing around 22 billion dollars. A “great journey” that according to Richard Garland, Managing Director of the firm, it’s worth celebrating. That’s the reason why Investec Asset Management brought together over one hundred investment professionals from the Latin American and US Offshore business to participate in an “out of the ordinary” inspirational talk.

Last year, they had the presence of Robert O’Neill, the Navy Seal who shot Bin Laden in May 2011, and this year, they invited François Pienaar, the South African Rugby player who was the captain of the Springboks from 1993 until 1996, who is best known for leading the South African team to a victory in the 1995 Rugby World Cup. An unexpected win that was later narrated on John Carlin’s book “Playing the Enemy: Nelson Mandela and the Game that Made a Nation” and then turned into the film “Invictus”, directed by Clint Eastwood.

A national hero

François Pienaar was born on the 2^nd of January of 1967 into a bad time in South Africa, in which the basic human rights of ordinary South Africans were brutally violated. He grew up in Vereeniging, a small town close to Johannesburg. As a kid, he went to school with white children and never really interacted with black people, except for the lady that normally came his house to do some of the cleaning.

“The kids were not allowed to sit at the table with the adults. So, whenever the adults got together, the kids were going away to play, and we played in the garden with folks that were seated there and would talk about two things, sports and politics. And when it came to politics, Nelson Mandela’s name came up regularly, followed by the word terrorism, and comments about his coming out of jail as a disaster for the country. There was no debate. Very sadly, everyone agreed on that view and no one, me included, said anything or questioned”, explained Pienaar.

From an early age, sports played an important role in his life. It was through rugby that he earned an athletic scholarship to study Law at the Rand Afrikaans University. “My family did not have much money. Sometimes I could not go to play rugby because my parents could not afford it. Sports were my way to getting out of the industrial belt where I grew up. I did well at rugby and I got a scholarship to study law at the University of Johannesburg. There I met people very different from what it was my own world: people that did not believe in god, that had a different religion, people that spoke different languages, and that had strong views about politics”, he continued.

Pienaar attended the University in the late 80s, but there were already rumors that Mr. Mandela was going to be released out of Victor Verster Prison soon. And he was finally released in February of 1990. The negotiations to end Apartheid also had a direct impact on sports, national teams were allowed again to come back to the international arena. In 1992, the Springboks, who had been excluded from the first two world cups in 1987 and 1991, were then readmitted by the International Rugby Football Board (now, World Rugby), to international championship. One year later, the new South African team was announced on television, on the main news, the names scrolled down the screen and Pienaar’s name appeared, he would be the captain of the team.

In 1994, Mr. Mandela is elected the first black President of South Africa. In that moment, he pronounces an unforgettable speech: “The time for the healing of wounds has come. The moment to bridge the chasms that divide us has come. The time to build is upon us […]. Never, never, and never again shall it be that this beautiful land will again experience the oppression of one by another and suffer the indignity of being the skunk of the world. Let freedom rein. The sun shall never set on so glorious a human achievement! God bless Africa”. At that moment, he made a promise to the nation and he delivered on his promise.

Meeting Mr. Mandela

A couple of months later, knowing that South Africa was set to host the 1995 Rugby World Cup, the first major sport event held in the country since the end of Apartheid, Mr. Mandela wanted to use the power that sport has to inspire and awaken hope to unite the nation. So, he asked his personal secretary to schedule a meeting with François Pienaar. When they finally met, they talked for an hour in which Mr. Mandela asked him about his family, the rugby sport and the Olympic Games in Barcelona. He also spoke about his imprisonment in Robben Island. Once the conversation ended Pienaar knew that the country was in the hands of a very wise leader and that he felt safe.

Before the opening match against the Australia’s Wallabies, a team undefeated in the previous twelve months and the favorites to win the game. Mr. Mandela went to see the Springboks at the end of the training. His helicopter flew and landed on a field not far from where the team was playing. He went one by one greeting every member of the team. One of the players gave him his cap, and he immediately put the cap on. He wished them good luck, went back to the helicopter and left.

When the first match was about to start, Mr. Mandela appeared in the stadium wearing the Springboks rugby cap, a symbol of the white elite that was detested by the black majority; he got booed by the crowds, but he answered: “This is our team. These are our boys that are playing for us”.

According to Pienaar, that was an incredible moment that boosted the morale of the team. They were able to win the match comfortably, with a phenomenal performance that drove them to the final of the Rugby World Cup.

The final

At the Ellis Park Stadium, the Springboks would have to play against one of the best rugby teams that the world has ever seen, the New Zealand’s All Blacks. This team had the first rugby global superstar and arguably the sport’s biggest name playing for them, Jonah Lomu, “120 kilograms of muscles that ran 100 meters in 11 seconds”, according to Pienaar.

The support for the Springboks had grown during the championship. All the people in the country, independently of their race, were cheering for their rugby team. “The day before the final, there was a group of black kids that saw us, and they started chanting the names of the players, something that they would never have known before the World Cup. They started running next to us with their beautiful smiles”, said Pienaar. “We were receiving messages from kids all over the country, and the kids had pour their hearts on them and they were beautiful to read”, he added.

On that Thursday night, their coach, Kitch Christie, walked to every room and he put a little piece of paper under each door, a poem written by Theodore Roosevelt that said: “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat”.

The following day, hours before the World Cup final, there were thousands of people waiting to cheer them around the bus that would drive them to the stadium. “There were about 50 motorcycles waiting to escort the bus to the final, and what it strucked me was how clean the motor cycles were. They must have been cleaned by the children the day before”, said Pienaar.

The captain had a personal conversation with everyone in the team, asking them about their worries and how he could help to solve them. “Their rhetorical thinking led them to start wondering: What if I make a mistake? What if we miss a tackle? And my counter speech was: What if we don’t take our chances? What if we don’t give up our hope? What if we just play and come back without regrets?

Mr. Mandela came into the changing room with his Springboks’ cap and jersey on. With a beautiful smile he said to us: “Thank you for what you are doing for your country. Good luck”, and when he turned around, he was wearing my number on his back”, narrated Pienaar.

The team learnt to sing the national anthem together, understanding its lyrics, expressed in five languages: Africans, English, Xhosa, Zulu, and Sotho, to represent “one team, one country”, a chance to bridge the cultures and extend hands across a divided society.

The final was an epic match. The Springboks missed their first tackle, but they got better and better, and the game went to the extra time. Pienaar reached the final minutes of the game with a calf strain that prevented him from running, but the coach insisted that he must stay on the field. “At the stadium, the people, mostly white South Africans, were chanting an African tribe song that means move forward. When I started hearing that song, I said to the team: “Live for your country, back each other, and we will be fine. This is the strategy to follow, let´s execute it”, and so we did”.

A drop goal from Joel Stransky led them to a three-point victory over the All Blacks. At the stadium everybody was chanting. At the streets everybody was celebrating and dancing. “I feel incredible blessed to have had the opportunity to experience how powerful sport is. When we won a reporter stuck a microphone next to my face and asked me: “François, tell us what was like to win in front of 65.000 people”, to what I replied: “We did not win in front of 65.000 people, we won for 43 million people. And the reason why I gave that reply was because we had already the feeling that the whole country was supporting the team. The gentleman who served us breakfast at the hotel was a Zulu, and he was concerned on whether we had eaten enough breakfast for the match. The lady who cleaned our room, was a Xhosa, and she asked if we needed extra pillows, so we could sleep better and rest. The trophy could never just be for the lucky few that got ticket to come to the game. As a team, we did win, because we wanted to make our country proud”, said Pienaar.

“Mr. Mandela was one of the greatest politicians of his time, but he was also one of the greatest sportsman, in the sense that he gave us so much joy, which is the main power of a sportsman. He gave me a very clear instruction: “I want you to show love and passion”. When he passed away in December of 2013, the whole world stopped, he was in every newspaper. On the next 18^th of July, it would had been his centenary. And we miss him. But we now have a new leader, Cyril Ramaphosa, who was one the one who held Nelson Mandela’s microphone when he was released from prison in Cape Town. He is now following Mandela’s footsteps. He is an extremely successful businessman who does not need to get involved in politics, he is doing it because he wants a better country”, he concluded.