ECB QE Extension (Given a Lack of Alternatives)

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Fabio Balboni, European Economist at HSBC and his team expect the ECB to announce another six-month extension of QE at EUR80bn per month at its 8 December meeting. He believes that due to the recent rise in bond yields, this may only require increasing to 50% (from 33%) the limit for bonds without Collective Action Clauses (CACs). Nothing is certain, however, and there is a risk the ECB opts to wait a few months before extending, announces a shorter extension, or opts for another form of monetary stimulus altogether, although they think this is unlikely.

In their view, the underlying inflation situation warrants further easing. Despite a waning drag from energy prices, core and services inflation remain muted and they see few signs of emerging pressures in the key drivers of inflation (wages, pricing behaviour of firms). “We think financial markets got carried away about the European re-inflationary consequences of the US election result, as reflected by the rise in 5yr-5yr forward eurozone inflation swap rates.” He notes.

He believes though, that the ECB will be reluctant to withdraw the monetary stimulus before it sees signs of domestic inflation emerging in the eurozone and will be wary of repeating its 2011 mistake, when it tightened prematurely. Recent speeches, including by ECB head Mario Draghi, have hinted at possibly changing the policy mix, to achieve the most effective stimulus. “But we think the ECB currently has little alternative to QE. Deeper negative rates have potential negative implications for banks’ profitability. Bolder measures, like purchasing equities or NPLs (to spur bank lending) are unlikely at this stage.”

Although the marginal benefits of QE on financial conditions might be waning, it still plays a crucial role supporting fiscal policy via lower government bond yields. And calls for more outright fiscal expansion from the ECB and the European Commission have fallen on deaf ears, particularly in Germany where fiscal headroom exists.

The ECB will publish new forecasts in December. Not much has changed on the economic front since the last meeting, so they don’t expect any major revision to its growth and inflation forecasts. The ECB will, however, present for the first time its forecast for 2019, which Balboni suspects will be very close to 2% for inflation.

“The ECB might also address the question of tapering, using its new 2019 forecast as a hook to say how it intends to unwind QE. However, it’s unlikely they will want to tie their hands on a set date for tapering and the eventual exit should be well flagged.” He concludes.

The 3 Things to Know Before You Hit The Art Fairs This Week

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The 3 Things to Know Before You Hit The Art Fairs This Week
CC-BY-SA-2.0, FlickrJeff Koons Chica con delfín y mono, 2014 - Foto: Art Basel. Tres cosas que debes saber antes de lanzarte a las ferias de arte esta semana

Whether you are going to Art Basel Miami with or without your art advisor this week, the fairs are an excellent opportunity to view what’s hot in today’s contemporary art market. Tang Art Advisory´s senior art advisor Annelien Bruins shares in the firm´s blogg 3 tips to make an art fair experience as enjoyable as possible.

Prepare

If you are intent on thoroughly reviewing the art that’s on offer at the many fairs, make your life easy and do your homework in advance. View the floor plans of the fairs and mark your favorite galleries to make sure you don’t miss them once you get there (it is easy to get lost or overwhelmed). If you are interested in particular works, do some research or have your art advisor do it for you (i.e. on artnet.com) to have price points available.

Resist the pressure

With so many fellow art collectors and art enthusiasts roaming Miami Beach it is easy to feel pressured into buying a painting or sculpture on the spot. Try not to fall into this trap. If you are seriously considering a purchase, many galleries will allow you to reserve a piece for a limited amount of time. Use that opportunity for a stroll around Miami Beach to determine if you really want the work or if you could live without it.

Use your iPhone

You will have your iPhone with you so why not use it? When you see a work you like, take a photograph of it, as well as of the wall label and gallery sign. I find that keeping your photos in a certain sequence will make it easy to retrieve them and jog your memory the next day. It would be devastating if another collector scooped up the artwork of your dreams because you forgot which gallery had it on offer!

Andreas Markwalder, New Country Head of Switzerland at Schroders

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Andreas Markwalder will be appointed Country Head of Switzerland at Schroders, effective on 3 January 2017, bringing more than 22 years of industry experience to the role.

Andreas joins Schroders from GastroSocial, the largest Swiss pensions fund in terms of members with assets under management of CHF 6.3 billion. Prior to becoming CEO, he was Head of Investments for 13 years. Andreas sits on a range of boards of investment funds and is the founder of AFIAA, a global property fund with over 40 Swiss pension funds invested and assets under management of CHF 1.4bn.

Andreas Markwalder will be based in Zurich and will report to John Troiano, Global Head of Distribution. He succeeds Stephen Mills who has been in the Country Head role since the 1990s.

Stephen Mills will take on a new senior role within Schroders. He will become Chairman of Schroder Investment Management, continue on the board of Secquaero Advisers and take on a number of additional internal board responsibilities across Europe. He will lead our relationships with the largest Swiss distributors and work to develop our growing private asset business across Europe. Mills will report to John Troiano, Global Head of Distribution.

Further Schroders is also appointing Serge Ledermann, until recently Bank J. Safra Sarasin’s Head of Asset Management Switzerland, as Deputy Chairman on the Board of Schroder Investment Management AG Board.

John Troiano, Global Head of Distribution at Schroders, said:”We welcome Andreas to Schroders as Country Head of our Swiss business. The appointment of an executive with Andrea’s experience and deep financial industry knowledge highlights our continued commitment to growth in Switzerland. Stephen has built and led our successful and highly-regarded Swiss business for the last 33 years. His extensive knowledge, skills and experience within the firm, specifically in the area of managing relationships with large Swiss distributors, are highly valued.”

Stephen Mills, newly appointed Chairman of the Board of Schroder Investment Management (Switzerland) AG, said: “I am delighted that Andreas Markwalder will be joining Schroders. Andreas brings with him a wealth of knowledge and experience as a pension fund manager and innovator. I am also pleased to welcome Serge Ledermann to the Board of Schroder Investment Management (Switzerland) AG. With 30 years of experience in asset management and of the Swiss institutional business, Serge Lederman brings unparalleled expertise. We look forward to working with them both.”

Andreas Markwalder, newly appointed Country Head of Switzerland at Schroders, said: “During my time as CEO and Head of Investments at GastroSocial, l had the opportunity to witness first hand the quality and professionalism of Schroders. I am delighted to join the firm as the new Country Head of Switzerland and look forward to developing the business further.”

Trump Policies Could Affect New Housing Costs as New Buyers Enter the Market in 2017

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Trump Policies Could Affect New Housing Costs as New Buyers Enter the Market in 2017
Foto: Andy . Las políticas de Trump podrían afectar al mercado de viviendas en 2017

In 2017, recent trends will reverse course as the housing market’s economic recovery enters a new stage. According to Zillow, renting will become more affordable, more Americans will drive to work, and the homeownership rate will bounce back from historical lows. Millennials will play a significant role in increasing the homeownership rate. Nearly half of all buyers in 2016 were first-time buyers, and millennials made up over half of this group of buyers.

The 2017 real estate portal´s predictions include:

  1. Cities will focus on denser development of smaller homes close to public transit and urban centers.
  2. More millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.
  3. Rental affordability will improve as incomes rise and growth in rents slows.
  4. Buyers of new homes will have to spend more as builders cover the cost of rising construction wages, driven even higher in 2017 by continued labor shortages, which could be worsened by tougher immigration policies under President-elect Trump.
  5. The percentage of people who drive to work will rise for the first time in a decade as homeowners move further into the suburbs seeking affordable housing – putting them further from adequate public transit options.
  6. Home values will grow 3.6 percent in 2017, according to more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey. National home values have risen 4.8 percent so far in 2016.

“There are pros and cons to both existing homes and new construction, and the choice for home buyers can often be difficult. For those considering new construction in 2017, it’s worth considering the added cost that may come amidst ongoing construction labor shortages that could get worse if President-elect Trump follows through on his hard-line stances on immigration and immigrant labor. A shortage of construction workers as a result may force builders to pay higher wages, costs which are likely to get passed on to buyers in the form of higher new home prices,” says Dr. Svenja Gudell, Chief Economist, Zillow.

“Those looking for more affordable housing options will be pushed to areas farther away from good transit options, in turn leading more Americans to drive to work,” he adds. “Renters should have an easier time in 2017. Income growth and slowing rent appreciation will combine to make renting more affordable than it has been for the past two years.”

Funds Society Launches The ETF Usage Survey for Professional Investors in the Non-Resident Market

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Funds Society Launches The ETF Usage Survey for Professional Investors in the Non-Resident Market
Foto: Henri Bergius . Funds Society lanza la encuesta sobre utilización de ETFs para inversores profesionales en el mercado de no-residentes

Since their introduction two decades ago, ETFs have been extremely successful, growing far beyond their initial function of tracking large liquid indices in developed markets. Globally, ETFs hold US$3.38tr in assets, having come a long way from the US$79bn they held in the year 2000 (according to BlackRock’s Global ETP Landscape, September 2016)

Funds Society would like to know if, how, and when the international professional investors are using ETFs.

Responses from this will help us better understand attitudes and usage of ETFs, and share the findings of a growing investment tool with the international wealth and asset management community.

We kindly ask you to take some time in answering this survey, which you can access through this link. We will share its findings in a series of articles in Funds Society and publish a brochure summarizing our results.

To make this survey even more appealing… we are raffling a set of Oculus Rift Virtual Reality glasses among all the qualifying respondents who complete the survey.

We look forward to your participation in the survey.

ACCESS THE SURVEY.

Northstar Launches Range of Index-Linked Investment Plans

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Northstar Financial Services has added index-linked investment plans to its growing product range.

According to a press release, the Bermuda company believes that the Global Index Protect combines the benefits of 100% principal protection coupled with participation in the S&P 500 Index.

Clients have the choice of 5, 7 and 10 year durations and also the option of an annual lock-in feature, that ensures any annual gains in the index are captured and so the guaranteed payment at maturity is increased through the life of the contract.

The Global Index Protect is therefore designed for investors to whom preservation of capital is a priority, but who also wish to benefit from the positive performance of equity markets. As is the case with all Northstar investment solutions, clients also enjoy the benefits of a Bermuda trust structure, which include financial security and enhanced wealth transfer flexibility.

Northstar’s Global Head of Distribution, Alejandro Moreno, commented: “I am very excited at the prospect of introducing these new solutions to our distribution partners. The combination of guaranteed 100% principal protection and in some cases more than 100% of the upside potential of equity markets should prove to be an attractive proposition to our advisors and their clients and perfectly complement Northstar’s existing suite of variable and fixed-rate investment plans.”

Northstar’s Vice Chairman, Mark Rogers, commented: “The addition of Global Index Protect further demonstrates Northstar’s commitment to delivering innovative products to help serve the needs of our international clients more closely. I look forward to working with advisors on our enhanced range of solutions as we introduce Global Index Protect globally.”
 

Emerging Markets May be Down, but They’re Not Out

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    “When the facts change, I change my mind. What do you do, sir?”

These much-quoted words of John Maynard Keynes are appropriate in these surprising times. Back in October, I highlighted opportunities in emerging market stocks and bonds. In equities, I cited improving economic fundamentals and attractive price-to-earnings ratios, while in bonds I lauded their relatively high yields. Not anymore.

Last week our Asset Allocation Committee issued our revised asset allocation framework for global markets over the next twelve months. As a result of the unexpected victory by Donald Trump and the prospect of a unified Republican congress’s proposed economic program of lower taxes, looser regulatory burdens and increased fiscal spending, we raised our 12-month outlook for U.S. equities to slightly overweight. At the same time, we decided to lower our 12-month outlook for emerging market debt and equity.

Our new, more cautious approach towards emerging markets was driven by the realization that the environment had changed—and changed rapidly. Indeed, against a heady combination of higher US interest rates, a stronger dollar and the possibility of increasing tension over trade, we had no other option than to revisit our case for emerging markets. Investing in markets is a dynamic process. And, as Keynes observed, if a situation changes, it’s important that you have the flexibility to respond quickly.

Beyond the noise

But this change of heart is not a ‘deep sell’ mindset. There is still a robust, long-term case for investing in emerging economies and, following recent market movement, fixed income yields and equity P/E’s are more attractive than before. Indeed, while our emerging market stock and bond teams are both cautious about the short-term outlook, they continue to identify compelling opportunities within emerging markets over the longer term.

True, equities have sold off sharply and currency losses have been a major performance detractor. But it’s foolish to regard emerging markets as a monolithic block. There remain many pockets of value. Hard currency sovereign bonds, for example, are yielding 5.8% and commodities have continued their relative outperformance post the election. Indeed, over the longer term, pro-growth U.S. policies could benefit select emerging markets.

Possible trade constraints impact Latin America far more than Asia, for example. That’s because the ‘value add’ of Asian exporters is not easily replaceable. And if President Trump’s much-vaunted infrastructure spend becomes reality, this would increase the demand for select commodities and specialist engineering and technology skills. Finally, it’s also worth noting that if the US does ramp up its domestic energy and coal production, this will help emerging markets broadly as many are net consumers.

Elsewhere, China continues to be a source of concern. While the short-term position remains positive, there are risks that its recent stimulus measures have created bubbles and the devaluation of its currency is also causing anxiety, particularly in the Trump camp. Indeed, how China reacts over the next twelve months is vitally important, not just for emerging markets, but for all of us.

In the ditch

Against this backdrop, one sensible approach towards emerging market equities might be to tilt portfolios towards domestic companies trading at a reasonable price with low debt levels. This could help to minimize the threat of interest rate sensitivity and diminished global trade.

In debt markets, the Trump victory is undoubtedly having a negative impact as they experience the double-whammy of higher interest rates and growing risk aversion. However, the pickup in growth and the reduction in the account deficits of many emerging economies should help mitigate some of the downside risk.

Apart from being a renowned economist, Keynes was also an avid art collector. At the height of the First World War, he travelled to Paris to attend a fire-sale of Impressionist art. Among the paintings he purchased was one by Cézanne—Still Life with Apples. Back in England, he drove down to Sussex to visit his friends from the Bloomsbury Group. Close to their house, his car got stuck in the mud. Unable to carry all the paintings himself, Keynes left the Cézanne hidden behind a tree in a ditch, to be retrieved later.

Today, emerging markets may appear to be headed into the ditch. But they have higher average growth rates, more favorable demographics and possess better balance sheets than developed countries. Just like the Cézanne, in time they could appreciate in value.

Unigestion appoints Emanuele Ravano as Chairman of UNI-GLOBAL SICAV

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Unigestion, the boutique asset manager with scale, appointed Emanuele Ravano as Chairman of UNI-GLOBAL, the SICAV comprising 13 Unigestion subfunds.

According to a press release, Ravano will work closely with Unigestion’s senior management team and will be influential in mentoring and supporting Unigestion’s distribution initiatives. He is particularly well placed, given his previous experience, to support Unigestion’s accelerated distribution plans in intermediary markets.

Ravano has over 30 years of experience building long-term client relationships by providing prudent investment advice and consistent portfolio management. His track record of active portfolio management at world renowned institutions include 13 years as Managing Director and Head of Global Wealth & Portfolio Management at PIMCO and 16 years as Managing Director and Head of European Fixed Income at Credit Suisse.

Bernard Sabrier, Group Chairman of Unigestion said of the appointment: “Emanuele’s vast sector knowledge and dedication to delivering measurable results will help us build on our existing strong client relationships and form new ones in the future. We are very pleased he is joining the team.”

Emanuele Ravano commented: “I am excited to be joining such a well renowned organisation, which creates such compelling and unique propositions for investors on a global scale. My passion for quality investment ideas and innovation is shared throughout the whole staff at Unigestion and I look forward to what we can achieve over the coming years.”

Brexit and Trump, a Global Trend?

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Brexit and Trump, a Global Trend?
Foto: Enrique Freire. Brexit y Trump: ¿una tendencia global?

Is the election of Donald Trump the latest example, following on from the Brexit vote and the success of Bernie Sanders and non-mainstream candidates in Europe, of a global trend in demagoguery and isolationism that will sweep all in its path, including the economies of Asia? I doubt it.

First, a psychological observation: There is a tendency to see things in the context of your own country’s experience and extrapolate that to others, even though they may be in quite different situations. For example, there seems to be a desire to see China’s housing market in the same way as one looks at what happened in the U.S. However, they are in fact quite different.

Second, a personal bugbear of mine—there’s also the tendency to view developments in Asia as always being derivatives of what has happened in the U.S. But Asia is home to over half the world’s people. Its politics are determined at home, just as its economic growth is determined at home.

So, how to make sense of the recent shifts in political power? Well, I know how I see it. I try to understand the economic environment first. Then, I see if we have a roadmap that shows us where people’s economic interests lie and whether that explains current political decisions. So here are my two assumptions: 1) the West is in a depression-like economy or what feels like depression because of the slow growth in demand and wages; Asia is still growing at a healthy clip, in nominal terms. 2) The General Theory, written in the 1930s by Lord Keynes, gives us a pretty good roadmap for understanding the forces at play.

And what are those forces?

Well, in a world of low interest rates, when central banks have given up on being able to stimulate demand, deflation (or disinflation) rules. Wages stagnate. Employment is lackluster. Without wage growth, people feel they are stagnating. And as low rates propel asset markets higher, the difference between the haves and have-nots, and the manual laborer and the equity owner, seem cut in especially sharp relief. In addition, the normal rules of economic policymaking are reversed—monetary policy takes a back seat to fiscal policy; protectionism supports demand rather than causing inefficiencies; productivity gains lead to unemployment rather than spurring growth. The government is forced to “socialize investment” because private enterprise will not invest at a high enough rate to secure full employment. This is the Keynesian playbook. You may or may not agree with it, but you can see in it key elements of policy shared by Trump, Sanders, Brexit supporters, and even Hillary Clinton. It can be seen in the trend of isolationist sentiments and stances against the Trans-Pacific Partnership, the North American Free Trade Agreement and support of massive infrastructure spending, and the key role played by the votes of the forgotten “manufacturing workers” in the U.S. election.

But then, there is no reason to suspect that these political trends of the West will be mirrored in Asia. For Asia has high interest rates and robust wage growth. Asia has room to further grow productivity. Chinese families are chasing their version of the American dream. Southeast Asia is embarking on a build-up of its manufacturing base. The middle class in Asia is growing and developing. In the Philippines, you may question how a leader like President Rodrigo Duterte came to power with populist policies, but his strongman style is not exactly a deviation from the likes of former rulers Ferdinand Marcos and Joseph Estrada. Surely, there are income inequalities in the region, but with growth spread across Asia’s classes and countries, the political strains, whilst not absent, are nowhere near as acute.

So, there is no need for Asia to have the same kind of political reaction; no need for it to react to protectionism by igniting a trade war; no need to abandon the traditional economic logic of raising productivity to spur growth. And by and large, Asian voters have put in place reformist governments intent on following these mainstream economic policies. Yes, there is the potential for U.S. and European isolationism to increase—perhaps the world will divide itself into blocs along these lines, leaving Asia as a distinct and separate bloc of capitalist growth. Perhaps this has consequences for how asset allocators might view the world. But it does little to undermine the basic view of what will drive the growth in Asian living standards—or how we will seek to invest in them.

Column by Robert Horrocks, CIO at Mathews Asia

Global Investors Have Lowered Their Cash Allocations

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Global Investors Have Lowered Their Cash Allocations
Foto: freeimages9.com / Pexels. Los inversores globales han reducido sus exposiciones a efectivo

The BofA Merrill Lynch November Fund Manager Survey shows surging inflation expectations and slumping cash levels among global investors.

“There will likely be a trade in ‘bond proxies’ soon,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch. “But our cyclical view of peak liquidity, globalization and inequality means the ‘yield’ dam has been broken.”

Manish Kabra, European equity quantitative strategist, added that, “Global investors’ equity allocations towards the UK are at their second lowest level since 2008, with the sterling considered the most undervalued in the history of our long-running survey. Europe seems placed for contrarians, with Eurozone allocations at below-average levels.”

Other highlights include:

  • A record net 56% of investors think current fiscal policy is too restrictive and global inflation expectations soar to 85%, the highest in 12 years.
  • Cash levels slumped from 5.8% in October to 5.0% in November, as global growth and profit expectations rise to one-year highs and the US election result is seen an unambiguously positive for nominal GDP
  • However, stagflation expectations also close to 4-year highs as 22% of investors expect below-trend growth and above-trend inflation over the next 12 months.
  • Protectionism is seen as the biggest risk to financial market stability (84%).
  • Forty-four percent of investors think the rotation to cyclical styles and inflationary sectors will continue well into 2017.
  • The US election result accelerates rotation into Banks, out of high dividend yield and bond proxies and catalyzes buying of US equities, selling Tech and EM.
  • Allocation to Eurozone equities improves to 5-month highs of 8% overweight from net 5% last month.
  • Allocation to Japanese equities dips modestly to net 5% underweight from net 3% underweight last month.
  • Allocation to EM equities fall sharply to net 4% overweight from 31% overweight last month.