Photo: Ed Schipul from Houston, TX, US (running with the seagulls) . Brave New World
The major themes driving markets in Q1 were all negative: disappointing economic and corporate data, recurrent problems in emerging markets, and the political crisis in Crimea. Still, the resilience of markets (global equities +1.4%; emerging markets -0.4%[1]) against such a challenging backdrop suggests underlying market strength and the promise of better returns in the months ahead if the news flow does improve.
While we have some sympathy for this theme, we’d be wary of getting carried away with it. One reason is that market resilience in recent months seems partly due to the fact that our positive outlook for growth in the major economies has now become a consensus view. Investors have probably disregarded weak data because they expect a rebound in the next few months. If that’s right, then risk assets might need good data just to validate current expectations. Also, it’s possible that any positive growth news in the UK and the US will shift investors to a more bearish view on monetary policy.
Monetary policy really matters – it has been the key driver of financial markets in the post-crisis era. Q2 2013 was a high point for investor confidence in central bank liquidity provision. Since then, markets have begun to accept that US quantitative easing is ending and have begun to focus on the timing of the first interest rate hike. The imprint of this theme on markets is clear. While global equities and high-yield bonds have recently made new highs, every other asset class is still trading below its 2013 peak.
The broader theme here is that markets are in the midst of a transition away from a world in which central bank liquidity boosted all assets, to a world of more limited policy support. In the major economies, the expansion of central bank balance sheets has peaked. In China, policymakers are now focused on restraining the credit boom. In other emerging markets there has been more policy tightening than easing. As markets confront the limits to policy support, the growth outlook becomes increasingly important. In gloomy emerging markets, positive growth surprises would be unambiguously welcomed. In the UK and the US, market reaction to positive growth surprises will be somewhat tempered by concerns about the impact on monetary policy.
Liquidity-driven markets are powerful and straightforward: everything goes up. We are now in transition to a more complex environment in which market reaction to news will be more nuanced and less predictable. That’s a world in which we’d expect asset performance to remain quite widely dispersed. A world with more volatility, more challenges and more opportunities.
Fernando Borges, Managing Director and Co-head of Carlyle Group operations in Brazil has just been elected new president of the Brazilian Association of Private Equity & Venture Capital (ABVCAP) for the period of two years (2014-2016). The voting of the new president by the members of the ABVCAP boards occurred before the opening of “ABVCAP Conference 2014”, hold last week in Rio de Janeiro. The new vice presidents are elected Clovis Meurer, Partner and Superintendent Executive at CRP, and Luiz Eugenio Figueiredo of ABVCAP.
“The perspective for the industry to participate in the country is promising and positive, as we believe the resumption of economic growth, the recovery of the capital market and the strength of the Brazilian productive sector,” said Borges , during the press conference.
According to Clovis Meurer, former president of ABVCAP, the market for private equity funds and venture capital in Brazil is experiencing an extraordinary moment with immense opportunities in various fields like education, infrastructure, consumer and retail.
“Increasingly, the private equity industry sees Brazil as a country with endless possibilities, with increasingly high wages, natural resources and a wonderful industrial park. Brazil is a natural destination in world affairs,” he says.
ABVCAP Conference is the largest gathering of industry interests in Latin America, bringing together major players of the national and international scene. The event has featured names like David Rubenstein, co-founder of The Carlyle Group; Gustavo Franco, a founding partner of Bravo Investments; Clovis Meurer, vice-president of ABVCAP and superintendent of CRP – Companhia de Participações, among other industry experts, local and international managers. The Congress of ABVCAP is sponsored by the BNDES, FINEP, KPMG, BM&FBovespa, Guernsey, Thomson Reuters, Bradesco BBI, Merril Datasite, RR Donnelley, CAF, Deloitte, PWC, IBM and UOL Diveo, beyond institutional partnership ABDI, Apex-Brasil and the IDB / MIF.
See the members of the deliberative council elected for 2014-2016:
François Gobron, gestor del fondo Generali IS European Recovery Equity, lanzado recientemente. "El tema de la recuperación es más acusado en Portugal y Grecia que en España e Italia"
François Gobron, fund manager of the recently launched Generali IS European Recovery Equity Fund, expains in this interview with Funds Society that there is a lot to earn in Greece and Portugal as these markets were the most impacted by the financial crisis.
Although the fund intended to play the current economic recovery, is it a good idea in the long term, although countries may not always be in “recovery” mode? Why?
The recovery theme we are managing with our fund is focused on Southern Europe, on the peripheral countries, that is Italy, Spain, Portugal and Greece. Indeed, we see lots of opportunities in Southern Europe, mainly in companies with a large domestic exposure.
We are taking into account three major drivers which will have a strong positive impact on South European companies. These are: firstly, the economic recovery itself of these countries, with a focus on leading private companies focused on their domestic markets; secondly, the re-rating by major rating agencies, which will reduce the cost of these companies’ debt and facilitate their access to the debt markets; and thirdly the ongoing restructuring of many public or para-public companies and new regulations, in many cases imposed by the Troika (IMF, ECB and EC), especially in Greece.
We are convinced there is a lot to earn in Greece and Portugal as these markets were the most impacted by the financial crisis. We have thus a stronger focus on these two countries. It is also a bit unfair, from my point of view, to put Italy and Spain in the same bag of Portugal and Greece. Although it is true that some of these countries will not always be in “recovery” mode, there are always good opportunities and special situations that can make good investment cases, especially by capable stock-pickers with a clear focus on strategic analysis.
It is true that the peripheral economies’ recovery it is not priced in their respective stock markets? How do you see the current valuations? Is it currently a good entry point?
If you only look to P/E 2014, it is correct that valuations in Southern Europe do not look particularly attractive: at around 15x they are on line with the rest of Europe. But if you do a strategic analysis, trying to understand what could be normalized margins once volumes are going back to normal (or even just increasing a bit), you will see that you have a lot of opportunities in some companies with a large, underutilized asset base.
On top of that, there’s a huge variance in stocks performance and valuation, so there’s a need to be particularly selective and cautious on stocks we include in our portfolio. As an example, we are not exposed to the Spanish media market as the media stocks (TVs…) look too expensive to us given the kind of recovery we can expect in the short to medium term in this industry. For this fund, we avoid companies not enough focused on their home markets, meaning we prefer to not invest in companies with a strong international presence (large blue chips); we also avoid regulated business when regulation can be at risk, like energy in Spain; and finally we try to stay away from value traps like companies with overvalued assets, such as the Spanish real estate sector, in our opinion.
What kind of opportunities in the periphery still have an interesting potential?
We see a lot of opportunities in companies listed in Southern Europe, as all these countries will benefit from re-rating from the major rating agencies. We usually prefer companies having a strong footprint on their local market, that will benefit the most from the local recovery; still having a potential to restructure (para-public companies pushed to make strong cost cutting by the Troika); in the near future, we believe there will be interesting opportunities in the Italian financial sector.
Which recovering country could provide more benefits to investors? Spain / Italy / Portugal / Greece?
The recovery theme is more present in Portugal and Greece than in Spain and Italy. We chose not to include Ireland in our fund because the Irish stock market has already more than doubled since the 2009 lows.
In which sectors can there be the greatest recovery? What about the financial sector?
Heavy industries (cement metal), infrastructures (water, energy, telecom). The financial sector has a huge leverage on activity, with ROTE that could go as high as 15% in the long run in Greece and Portugal (on a normalized 9% CT1). In Italy ROTE could normalize from 7% today to 10% in a few years and we expect some sort of consolidation in the coming quarters/years in the Italian banking sector.
Is the recovery fully on the way? What risks do you see that could affect economic recovery in southern Europe ? How could these risks impact your portfolio?
Recovery is now a reality, at least we can now see that the worst is behind us, but it is still a very early phase of economic recovery in South European markets. The main risk I would like to underline is not an exit of Greece from the eurozone. Instead it is more a slower recovery than expected that could take 5 years instead of 3 to materialize.
Do you believe that deflation will occur ?
We think we are not in a deflation mode and that political institutions will take measures to avoid it. We are quite immune from deflation coming from emerging countries, as stocks included in the European Recovery Equity Fund are not exposed to anything else then their domestic market. For instance, the crisis of emerging currencies back in January had no specific impact on our fund.
It is true that with the euro area headline inflation marking a new cyclical low of 0.5% yoy in March and Spain even recording falling prices by -0.2% yoy, deflation concerns have heightened recently. However, deflation is a situation in which prices fall on a broad scale and consumers as well as firms believe that this situation will continue. This is to be distinguished from disinflation where price increases come down but there is no wide-spread expectation regarding falling prices on a sustained basis. In the euro area disinflation is the name of the game. Looking ahead, we do not expect the euro area falling into deflation for the following reasons: First, the latest data were strongly influenced by technical factors. Base effects from energy prices and an early Easter compared to this year turned to be substantially disinflationary. Second, the economic recovery is on track. Output has started to expand in most of the Southern countries. This should at least stabilize price increases. Moreover, also in these economies the price pressure excluding volatile goods and government effects (tax hikes, administered prices etc.) has stabilized. Third, inflation expectations have come down over the last months but are still at reasonably high levels.
All in all, while low inflation rates will persist for the time being, we do not see the euro area falling into deflation. That said, deflation is a risk that has to be closely watched. For instance, a geopolitically induced negative supply shock has the potential to initiate a process that in the end pushes the euro area into a deflationary environment.
Should the ECB do more … or is it enough?
The ECB has brought down its policy rate close to zero already and implemented a number of unconventional policy options in order to stimulate activity and cushion risks. Most importantly, the OMT program and the forward guidance to “leave interest rates at present or lower levels for an extended period of time” is a clear signal that monetary policy will continue to support activity. However, the major problem of the current recovery is missing credit growth. For instance, loans to the private sector continued to shrink at an unabated pace of slightly above two percent year-on-year. Here, tailored measures to facilitate credit creation especially in the peripheral economies are likely to be adopted. The acceptance of Asset Backed Securities based on credit given to small and medium sized firms or the creation of a Funding for Lending Scheme à la Bank of England are promising possibilities in our view. We do not expect the euro area to fall into deflation. However, a clear and credible emergency plan would help to stabilize expectations. In this respect, it helps that the chorus of policy makers are loudly thinking about quantitative easing, including the President of the Bundesbank. Moreover, should the euro continue to strengthen and become a threat to the recovery we think the ECB will not hesitate to introduce a negative deposit rate.
J.P. Morgan Private Bank has revealed the expectations of Ultra High Net Worth and High Net Worth European investors on market conditions, risk appetite and investment sentiment for 2014, as part of the Bank’s latest Private Client Survey. Conducted as part of the Private Bank’s latest Investment Insights series between January and February 2014, held in 15 cities across Europe amongst more than 900 UHNW and HNW investors, the survey polled participants on their market outlook, including investment views on the key risks for the next 12 months, as well as investment sentiment and their anticipated portfolio positioning.
When asked about European economic growth, almost all investors (95%) are convinced that Europe will grow in 2014. The majority (49%) believe Europe will grow at a rate of 1% in the next twelve months, and a quarter (23%) say a 1.5% growth rate is achievable, while 3.5% of investors think the region will grow by 2% in 2014. Some investors were slightly more cautious, with 20% predicting a lower 0.5% growth rate. Only 5% of investors believe Europe will not grow at all.
More than half (54%) of investors believe equities will be the best-performing asset class in 2014 – with Spanish (70%), German (59%) and Greek (54%) investors being the most bullish. A further third (31%) of investors consider alternative investments and hedge funds to be the other asset class winner for 2014, with respondents in the Netherlands (67%) and Switzerland (32%) particularly supportive. Investors generally agree that fixed income will not deliver the performance of the past 20 years, and less than 5% expect the asset class to be a good performer in 2014.
Europe is expected to be the best performing equity market in 2014, leading the way with 39% of investors’ votes. However, other markets are also listed: 35% believe the US will be the strongest performing equity market; 15% say Emerging Markets will outperform other regions; and 12% believe Japan could perform the best.
For fixed income investments, well over half (59%) of investors consider extended credit (high yield, loans, peripheral debt) to be the best performer for 2014. This was followed by Emerging Markets debt (18%), core/traditional fixed income (12%) and finally, cash (11%).
The survey also asked investors whether they plan to commit additional cash to investing in 2014. More than half (52%) revealed they plan to do so through additions to equities, while 18% are willing to commit more cash to alternatives. Roughly one in five (18%) investors would rather hold cash at current levels, while 8% are willing to increase cash positions and even reduce market exposure. “Given the outlook for 2014, it is reasonable that investors are willing to commit additional cash to investing this year, and as 2014 progresses, we expect consensus to be proven right: Stocks will beat bonds. Many investors have carried large cash positions over the past few years and have missed out on strong returns for risk assets, especially equities. We believe 2014 will be another year in which it pays to be invested”, César Pérez, Chief Investment Strategist for J.P. Morgan Private Bank in EMEA, comments.
Slower growth in China was the key concern for investors last autumn. This perception, however, has now shifted. According to the study, the geopolitical/political environment is now the key risk for markets for 33% of European investors in 2014.. Other concerns include the Fed’s exit from quantitative easing (30%), Europe turning to deflation (21%), and equity valuations being too high (17%).
Photo: Sphilbrick. Venture Capital Culture in South Florida, under Analysis in Miami
Miami Finance Forum (MFF), in the framework of Power Breakfast Discussions, will celebrate an event to speak about venture capital in South Florida. On Wednesday, April 23rd, 7.30-10 am at Conrad Hotel, Miami.
The Moderator will be Scott M. Moss, CPA, Managing Partner at Cherry Bekaert Advisory Services. Scott’s client service activities are focused on providing Transaction Advisory Services and numerous domestic and multinational companies and private equity funds have benefitted from Scott’s guidance in all areas of mergers, acquisitions and due diligence. Scott has successfully advised clients on transactions with cumulative transaction values of more than $3 billion.
The speakers will be:
Greg Baty is a principal at the Florida-based company Hamilton Lane and is primarily focused on the activities of the Florida Growth Fund. Prior to joining Hamilton Lane in 2009, Greg hadinvestment positions within the private equity marketplace and previous experience with venture finance at Sand Hill Capital and Garage.com (Garage Technology Ventures).
Thomas “Tigre” Wenrich is a Director at Open English Holdings, Inc., and from 2009 to 2013 served as the COO and CFO, growing the company from commercial launch to over $50M in annual revenues. Today Open English is the leading on-line language school in the Americas, helping more than 100,000 active students to learn English over the internet. Under his leadership, Open English raised over $120M of Venture Capital in four rounds of investment from firms including Redpoint, Insight, and Technology Crossover Ventures.
Susan Amat is the founder of Venture Hive, an entrepreneurship education company that help governments and municipalities develop innovation ecosystems through K-12, university, and incubator/accelerator programs. A serial entrepreneur, she built businesses in the entertainment industry for over a decade, including the first CD-Rom magazine and a national television show on the E! Network.
Albert Santalo is the Chairman, CEO, and President of CareCloud. He founded the Miami-based company in 2009 with the goal of enhancing healthcare delivery through user-friendly, cloud-based technologies that connect physicians to their patients and each other. CareCloud has since become a leading provider of cloud-based health IT software and services, attracting physicians across 50 specialties in 48 states.
Marco Giberti is a successful entrepreneur and angel investor with more than 20 years of intensive experience in marketing and communications with focus on the media, internet and events industry. After several years in a successful career as a corporate executive at Apple computers, Mr. Giberti decided to give free rein to his entrepreneurial spirit and became Co-founder and Board Member of Mind Opener, a leading publishing group in Latin America that was later sold to British Pearson Media Grou, and Co-founder and Board Member of e-mind, an internet and media communications company that was sold to Liberty Medi, among others.
The event will take place at Hotel Conrad in Brickell Avenue. For more information or registration use this link.
Ossiam, an affiliate of Natixis Global Asset Management (NGAM), has today announced the signing of a cooperation agreement with China Securities Index Company, Ltd. (“CSI”), the largest Chinese index provider, based in Shanghai. Ossiam will provide expertise in minimum variance index construction to CSI, which is developing a minimum variance index based on CSI’s own CSI 300 benchmark.
CSI 300 aims to reflect the price fluctuation and performance of the China A shares market. It is widely used as a performance benchmark and a basis for indexing and derivative products. The first index future contract in mainland China is based on CSI 300.
CSI has selected Ossiam as the proven alternative-weighted index asset management expert to provide guidance and research in the design of the new CSI minimum variance index.
The Ossiam research team has extensive experience in the design and management of rule-based, transparent minimum variance portfolios based on various equity investment universes, including those in Europe, the US, global and emerging markets. It has also proven its capability of providing superior research content and analysis of its alternative-weighted smart beta processes to investors. Ossiam’s strategies are consistent in volatility reduction and their ability to outperform peers, thanks to predictable and transparent processes.
Ossiam manages more than USD 1.29 billion in minimum variance strategies in exchange-traded funds (ETFs) and segregated mandates.
Ma Zhigang, chief executive officer of CSI, said: “CSI calculates nearly 2000 end of day and real time indices covering equity, fixed income, commodities and other alternative assets in mainland China, Great China and other global markets. The cooperation with Ossiam helps to provide more valuable solutions to market participants.”
Bruno Poulin, chief executive of Ossiam, welcomed the announcement, saying: “We are delighted to work with CSI on this exciting project. As the first asset manager in the world to launch minimum variance ETFs in 2011, we have a track record that strongly backs our approach. We believe rigour, consistency and transparency of our own minimum variance process were the reasons why CSI selected Ossiam as a partner to assist in the construction of their minimum variance index. This cooperation also shows our ability to innovate and partner on the global stage, sharing our strengths and capabilities through cooperation with a leading index provider in Asia.”
E-cigarettes and growing momentum to legalize marijuana in the United States could dramatically revive growth for major tobacco companies, which have not introduced a major new product since light cigarettes in 1970, according to The Boston Company Asset Management (TBC), BNY Mellon‘s Boston-based equity investment boutique.
The growing popularity of electronic nicotine-delivery systems (ENDS) has been increasing significantly over the last two years, according to David M. Sealy, senior equity research analyst at TBC and the author of the report, Up in Smoke: Changes Sweep the Tobacco Industry.
While the ENDS industry initially was dominated by small entrepreneurial companies, TBC estimates that the largest three tobacco companies in the U.S. now hold approximately 25 percent of the global market.
“The global market for ENDS is substantial, and we estimate that it now amounts to $3 billion in annual revenue, with roughly half in the U.S. and the other half in Europe, primarily in the UK,” said Sealy. “But this means that the ENDS market share is a mere 0.5 percent of the $670 billion global cigarette industry.” Sealy added that he does not expect regulatory scrutiny to meaningfully slow the growth of e-cigarettes.
Regarding marijuana, Sealy said, “Legalization in the U.S. could be closer than most people think.” The TBC paper notes that the current marijuana policies as measured by consumption are a failure, with consumption growing consistently over the last 40 years. In addition, the costs of current policies including incarceration, enforcement, and loss of taxation are large and growing amid budget woes, the report said.
The report cites growing popular support for legalization and notes the trend for decriminalization in more states. “Until now the markets have focused primarily on the impact of legalization on speculative small cap stocks, but if legalization becomes official federal policy, the big tobacco companies will end up dominating the market,” Sealy said.
Declining sales of traditional cigarettes has been driving the big tobacco companies to diversify into related products, and marijuana would be a natural evolution of this strategy, the report said. The report also notes that the tobacco industry also is well adapted to an environment of high taxation, regulation and litigation, which are expected to accompany any commercialization of marijuana. “From a regulator’s point of view, tobacco companies may be the most desirable entrants in the industry as they may be the most controllable players in the commercialization of marijuana,” said Sealy.
Scotiabank has announced the retirement of Sabi Marwah, effective May 30, 2014. Sabi is currently Vice Chairman and Chief Operating Officer with a 35-year history at Scotiabank.
“Sabi has had an extraordinary impact in shaping the success and character of Scotiabank,” said Brian Porter, Scotiabank President and Chief Executive Officer. “He is a well-regarded business leader with keen insight and an unwavering commitment to excellence. He has also been a role model in the community, giving generously of his time.”
There will be a realignment of key executive reporting relationships with this retirement.
Sean McGuckin, Executive Vice President & Chief Financial Officer, will report directly to Mr. Porter and assume expanded responsibility.
Also now reporting to Mr. Porter are Deborah Alexander, Executive Vice President, General Counsel & Secretary, Jeffrey Heath, Executive Vice President & Group Treasurer, Kimberlee McKenzie, Executive Vice President, Information Technology & Solutions, and Grant Mick, Senior Vice President & Chief Auditor.
Anatol von Hahn, Group Head, Canadian Banking will assume responsibility for Shared Services in Canada.
Scotiabank is a leading financial services provider in over 55 countries and Canada’s most international bank. Through its team of more than 83,000 employees, Scotiabank and its affiliates offer a broad range of products and services, including personal and commercial banking, wealth management, corporate and investment banking to over 21 million customers. With assets of $783 billion (as at January 31, 2014), Scotiabank trades on the Toronto and New York Exchanges.
Boca Raton. Photo: StevenM61. Oppenheimer cuenta con nuevo managing director de Inversiones en Boca Raton, Florida
Oppenheimer & Co. Inc., has announced that Brian C. Kutsmeda has joined the Firm as Managing Director – Investments and Area Manager. He will work out of Oppenheimer’s Boca Raton office and will report to Executive Vice President, Private Client Division, Robert Okin.
Throughout his more than 20 years in the financial services industry, Mr. Kutsmeda has created a distinguished track record as a financial advisor, training director and branch and area manager. He joins Oppenheimer from JP Morgan.
“Brian’s range of skills reflect a determined professional who has put his time to good use in helping clients and helping his associates grow their abilities and their assets under management,” said Mr. Okin.
Mr. Kutsmeda focuses on collaborating with the people in his company, clients and industry partners. His goal is to assist his firm and the financial advisors with whom he works to bring in new clients and assets. His experience as a trainer and mentor helps improve the competencies of advisors and managers to structure their businesses as effectively as possible.
“I am excited to be a part of Oppenheimer,” Mr. Kutsmeda said, “because it offers a strong platform for financial advisors to perform well for their clients while encouraging the entrepreneurial spirit so critical to our business. During the past decade, I have observed the firm’s growth, and my goal is to continue the momentum, making it the best place for successful advisors in South Florida.”
“Oppenheimer has already built a substantial and dynamic presence in Boca Raton. We expect Brian to help expand the firm’s business and reputation throughout the area,” Mr. Okin said.
Oppenheimer & Co. Inc., a principal subsidiary of Oppenheimer Holdings Inc. and its affiliates provide a full range of wealth management, securities brokerage and investment banking services to high-net-worth individuals, families, corporate executives, local governments, businesses and institutions. OAM is a registered investment adviser and a subsidiary of Oppenheimer Holdings Inc.
On two previous occasions, I felt the need to congratulate you for an exemplary first year in office. Today, it can safely be said that in just two and a half years at the helm, you have made the ECB the key institution in the European construction process. You have prevented the euro area from imploding and allowed its most vulnerable members to re-enter the bond market.
The record is plain to see. In January 2012, yields on Italian and Spanish 10-year government debt were close to 7% and 5%, respectively. They have now been halved. Even better, because you made your support for these states contingent on their adoption of a code of good conduct – the Fiscal Compact – it took only minimal ECB involvement to get results. Renewed investor confidence was enough to get the markets working the way they are supposed to.
So these are impressive achievements. But will they really fit the bill? Unfortunately, the answer is no. The two countries I mentioned are expected to produce growth of less than 1% and have an inflation rate barely above zero. This means they will be shouldering an even heavier debt burden this year, with debt service still outstripping nominal growth by a sizeable margin. True, the ECB can only go so far in stimulating member state economies. Yet its duty is to gauge the recessive impact of any fiscal consolidation and structural reform programmes. It is therefore imperative that the European Central Bank counterbalance the inevitable hardships with a resolutely accommodative monetary policy geared to weakening the euro. This would help European companies move back up the competitive ladder and push inflation up into the vicinity of 2%.
What decisive steps will be required to make that happen? I would suggest (1) a zero interest-rate policy, engineered through a token 0.25% cut in your benchmark interest rate; (2) a sovereign bond buyback programme of €50 billion a month, with the breakdown based on the relative economic weight of the various member states. These purchases would amount to 6% of eurozone GDP a year, and it goes without saying that they should not be sterilised.
The higher confidence in the European construction process you have brought about has to be consolidated. At this stage, Machiavelli needs to morph into Super Mario – an equally stellar role when the task at hand is to keep deflation from clogging up Europe’s intricate economic plumbing.
That, in any case, is my hope, and I have no doubt that you can and will do whatever it takes.
Respectfully yours,
Edouard Carmignac
You may also access Mr. Carmignac’s letter through this link.
