Markets are acting in quite a complex way in Europe at present, being pushed higher more by people wanting to increase their weighting in Europe rather than any dramatic improvement in economic data. October and November thus far has seen some pretty strong gains for more cyclical areas of the market. There is a contradiction within the way markets are moving: what I think is potentially exaggerated optimism. Whilst economic news in Europe is marginally better and company news has generally been quite good, people are maybe getting a little ahead of themselves.
Overall, we anticipate a period of fairly low and volatile economic growth. We might get some quite good economic news, or some strong results, but then markets might get scared by renewed talk over tapering, a disappointing piece of data or inclement weather conditions, which could change people’s spending habits.
On the subject of results, the latest round of figures from LVMH and Heineken (neither of which we hold) were pretty weak. But results like this amongst other recognisable quality growth names have been a key reason behind the trend towards more cyclical names, in anticipation of a cyclical recovery that may, or may not, come through. There has been a bit of a ‘dash for trash’ in October and November and that is a part of the market in which we do not really participate. Nonetheless, whilst our long-term ‘quality growth’ investment style could be seen as a little unfashionable in this environment, we think the fund is reasonably well placed.
Tim Stevenson, manager of the Henderson Horizon Pan European Equity Fund
Foto: Awesome Sasquatch. FATCA crece con dos nuevos acuerdos firmados por Costa Rica y las Islas Caimán
The U.S. Department of the Treasury announced that the United States has signed intergovernmental agreements (IGAs) with the Cayman Islands and Costa Rica this week to implement the Foreign Account Tax Compliance Act (FATCA).
“Today’s announcement marks a milestone in the effort to promote global tax transparency,” said Deputy Assistant Secretary for International Tax Affairs Robert B. Stack. “These agreements underscore growing international cooperation in the effort to end tax evasion everywhere.”
FATCA, enacted in 2010, seeks to obtain information on accounts held by U.S. taxpayers in other countries. It requires U.S. financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) that do not agree to identify and report information on U.S. account holders. FFIs have the option of entering into agreements directly with the IRS, or through one of two alternative Model IGAs signed by their home country.
Signed on November 29th, the Cayman Islands IGA is a Model 1B agreement, meaning that FFIs in the Cayman Islands will be required to report tax information about U.S. account holders directly to the Cayman Islands Tax Information Authority, which is the sole channel in the Cayman Islands for the provision of tax-related information to other governments. The Cayman Islands Tax Information Authority will in turn relay that information to the IRS. Additionally, the United States and the Cayman Islands also signed a new Tax Information Exchange Agreement (TIEA), to take the place of the original TIEA signed in 2001.
“By working together to detect, deter, and discourage offshore tax abuses through increased transparency and enhanced reporting, we can help build a stronger, more stable, and accountable global financial system. We look forward to collaborating with the Government of the Cayman Islands to further these objectives,” said Julie Nutter, Minister-Counselor for Economic Affairs at the U.S. Embassy in London, who signed on behalf of the United States.
The Costa Rica IGA was signed on Tuesday, November 26, and is a Model 1A agreement, meaning that the United States will also provide tax information to the Costa Rican government regarding Costa Rican individuals with accounts in the United States.
“Today’s signing marks a significant step forward in our efforts to work collaboratively to combat offshore tax evasion – an objective that mutually benefits both our countries,” said Gonzalo R. Gallegos, Chargé d’Affaires of the U.S. Embassy in Costa Rica, who signed on behalf of the United States.
In addition to the 12 FATCA IGAs that have been signed to date, Treasury has also reached 16 agreements in substance and is engaged in related conversations with many more jurisdictions.
For the signed Costa Rica IGA, click here. For the signed Cayman Islands IGA, click here.
Marcos Martinez, presidente ejecutivo y CEO de Banco Santander Mexico. Santander México completa la compra de ING Hipotecaria por 41,4 millones de dólares
Grupo Financiero Santander Mexico announced on Novembr 29th that its subsidiary, Banco Santander Mexico, has completed the acquisition of the equity stock of ING Hipotecaria, a subsidiary of ING Group, as announced on June 14, 2013.
Upon receipt of all required regulatory approvals and authorizations for the acquisition, Banco Santander Mexico purchased ING Hipotecaria for Ps.541.4 million (approximately US$41.4 million) in cash. As of September 30, 2013, ING Hipotecaria’s loan portfolio totaled Ps.11.9 billion, its customer base exceeded 28,000 clients, and its distribution network consisted of 20 branches throughout Mexico.
Marcos Martinez, Executive Chairman and CEO, commented, “We are very pleased to have completed the acquisition of ING Hipotecaria, which strengthens our core portfolio and solidifies Santander Mexico’s position as the second largest banking mortgage provider in Mexico with an estimated market share that increases from 15.8% to 17.8% with this acquisition. We have successfully grown our mortgage business over the years through a prudent combination of organic and external growth initiatives, and we believe the acquisition of ING Hipotecaria fits perfectly into our ongoing strategy. Going forward we intend to continue to expand our mortgage business, providing our clients with innovative products and services while leveraging opportunities for cross-selling our other banking products and maximizing the cost synergies we have identified for this acquisition.”
Foto: Xenan. Interior of ING House, headquarters of the ING Group in Amsterda. ING IM Appoints Two Senior Portfolio Managers to EMD Team
ING IM has announced two senior appointments to its Emerging Market Debt team. The company is also in the process of hiring a credit analyst to join the team in The Hague with the view to them assuming fund management resonsibilities at a later date.
Marcin Adamczyk joined ING IM as Senior Portfolio Manager EMD Local Currency, based in The Hague.
Marcin has more than 15 years of experience in EMD Fixed Income markets and joins from MN, a Dutch pension fund fiduciary manager, where he was Senior Fund Manager Emerging Market Debt. Previously, Marcin worked at Lombard Odier Investment Managers in Amsterdam and Geneva, and was a senior portfolio manager for EMD. Before that, he worked as EM local markets trader at various banks, based in London and Warsaw.
Marcin holds a Master’s degree in Economics from the Krakow University of Economics.
Alia Yousuf joins ING IM as Senior Portfolio Manager EMD Local Currency, based in Singapore.
Alia has 13 years of experience managing EMD portfolios and joins the company from ACPI Investment in London where she was Head of Emerging Market Debt. Alia also had various fund management roles at Standard Asset Management and First State Investments. She started her career at the World Bank as a research analyst.
Alia holds a Master’s degree in Economics from the London School of Economics (LSE). She is also a CFA charter holder.
Both report to Marcelo Assalin, Lead Portfolio Manager EMD Local Currencies based in Atlanta, USA.
The team currently manages $7.9 billion in assets. It has more than 25 investment professionals that are based in The Hague, Atlanta and Singapore.
AXA Investment Managers has appointed John Porter as Global Head of its Fixed Income division. John Porter will replace Theodora Zemek who has decided to leave the company. Based in London, Porter will become a member of AXA IM’s Management Board and report to CEO Andrea Rossi.
John Porter joins AXA IM from Barclays where he was Managing Director and Global Head of Portfolio and Liquidity Management. He was also on their Management Committee. John joined Barclays in 1998 from Summit Capital Advisers where he was Chief Economist and Principal performing macro-economic analysis and developing investment strategies in North America, Europe and Japan for this fixed income and currency- based hedge fund.
John has an MA in International Economics and Certificate in European Studies from Columbia University, a Doctorate in Psychology from the Sorbonne, attended the Ecole Normale Superieure and has a BA in Psychology and Social Relations from Harvard.
“We are thrilled that John will be joining us to oversee the next stage in the growth of our Fixed Income division. He has had a very diverse and hugely successful career and brings with him extensive experience from across the fixed income spectrum, as well as a strong understanding of the challenges facing our clients”, said Andrea Rossi, CEO of AXA IM.
Commenting on his appointment John Porter said: “I am pleased and excited to be joining AXA IM. I am inheriting a very strong and diversified Fixed Income business and my goal will be to work with this hugely talented and experienced team to continue to grow our third party assets under management through the same investment approach and philosophy, compounding current income and avoiding principal loss through fundamental credit analysis and macroeconomic research.”
Photo: silvernet2. Calypso Technology Expands Offices in Santiago, Chile
Calypso Technology has expanded their offices in Santiago, Chile. This expansion is in response to a rapidly growing client base and increasing opportunities in the Latin American markets.
The office serves as a professional services hub as well as a sales and marketing base for the region. The territory had previously been managed from Calypso’s New York office, but with recent sales momentum and growth of Calypso’s local and regional client portfolio, including COMDER, Banco Penta, Banco de Crédito del Perú, Banco Crédito e Inversiones en Chile, a local presence was required.
Working with exchanges and banks in the Latin American markets, Calypso provides a cross-asset front-to-back office platform that meets the trading and operational needs of a region that is modernizing and consolidating its capital markets infrastructure. Calypso provides OTC derivatives clearing and processing infrastructure to the world’s top clearing houses, including COMDER, CME, Eurex, BM&FBovespa, TSE, SGX, HKEX and ASX.
Calypsocustomers in Latin America are among the leading users and dealers of a broad range of asset classes including interest rate derivatives, settlement and non-settlement currencies, money market indexed loans, fixed income instruments, FX products and derivatives hedging.
Carlos Patino, Director of Business Development, Latin America & the Caribbean, comments, “Key to our strategy as a global leader has been to identify, understand and implement solutions to meet the challenges faced by local financial institutions particular to their markets. We see great demand for our cross-asset capabilities from banks in the region who are looking to increase market share – both locally and globally, as foreign investors continue to focus on the region. These currents are also being driven by a need to comply with multiple regulatory regimes, while moving quickly to capitalize on current opportunities. We look forward to playing a critical role in evolution of the regional markets and supporting institutions as they grow.”
CC-BY-SA-2.0, FlickrFoto: Chinnian. A vueltas con el libre mercado
Just the other week I was in Hong Kong, which is an easy place to be in many regards. It’s efficient, lively and not at all bureaucratic. It is where I married my wife years ago, even though she is not from there and we were both living in South Korea at the time. Hong Kong is just a marvelously easy place to pursue happiness!
But this time, as I was waiting in the airport, I heard a chilling announcement over the loudspeaker system. Anyone caught trying to leave Hong Kong with more than a few kilograms of baby milk powder would be subject to a HK$500,000 fine (approximately US$65,000) or face imprisonment. What was this all about? Well, following a recent series of scandals over milk and milk formula quality in China, people have been desperate to buy quality brands. They have been willing to pay large premiums to secure high quality formula, and since much of this is available in Hong Kong, the baby formula market there has started to suffer shortages.
As consumers in Asia move into middle class lifestyles, they have begun to care more about the environment, social and safety issues.
Essentially, this is an issue of product quality. And there are several ways to deal with it. This may include tightening regulations surrounding product quality in China, which the country has been doing but with slow progress. Bureaucrats have lost their liberty and one even lost his life over such scandals. You could also seek to limit exports of the product from Hong Kong by deeming it “smuggling” and arresting people who break the new law—and this has been the choice of Hong Kong regulators. You could even try to clamp down on “profiteering” by those “high quality” producers who are enjoying premium pricing in China—and this has been the reaction of the mainland authorities. Or you could allow the free market to do its work. I suspect that this final approach to dealing with the issue would, over the long term, be the most powerful.
If there is money to be made by obsessive attention to quality, then firms will either improve the quality of their products or (in areas where they already lead the market) increase their production. Demand for better products generally increases brand value and customer loyalty. The pricing signals of the market are then reinforced by increased brand awareness. This all saves consumers the trouble of a panicked search for better product. And in the case of adulterated food products, that could mean saving lives.
It also seems to me that the actions of the authorities in Hong Kong and the mainland, whilst they may help with some short-term issues, are at odds with the long-term process of the market. After all, Hong Kong is preventing mainland consumers from getting the quality product they want in the quantities they desire. Meanwhile, mainland authorities are interfering with the price mechanism by which people can identify the best products and by which the manufacturers would be incentivized to supply more.
Ultimately though, it seems likely we’ll continue to see issues like this crop up. As consumers in Asia move into middle class lifestyles, they have begun to care more about the environment, social and safety issues. Those companies that can attain a reputation for quality, health and safety—be it in baby formula, fast food, preventative health care and the like should be able to add huge amounts of value to their firms and shareholders. After all, people are willing to risk hefty fines and going to jail to smuggle baby milk formula because the demand is so high. Just imagine the incentives if the market were allowed to work with fewer impediments.
Opinion column by Robert Horrocks, PhD, Chief Investment Officer – Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
Better than expected US macroeconomic data and a somewhat more hawkish perception of the Fed have increased the probability of Fed tapering on December 18. Although ING Investment Managament still believes that tapering will not start before March 2014, it is wise to assess the broader market consequences of such a move.
Markets seem to have adapted to the concept of Fed tapering. Evidence is emerging that they have ‘learned’ to understand the Fed better as they have started to appreciate the difference between tapering and tightening.
EM currencies remain vulnerable to tapering (expectations)
Probability of tapering in December has increased
A number of better than expected US macroeconomic data, combined with a somewhat more hawkish than expected Fed statement after its last meeting on 30 October has brought back speculations in the market that Fed tapering could start rather sooner than later. Although we must not be fixated too much on one month’s data, the assumption of many market pundits that corporate confidence and hiring intentions would take a hit from the government shutdown and the budget discussion does not seem to materialize.
The asset manager still believe that the tapering of the Fed’s asset purchases is more likely to commence somewhere in the first quarter of next year, also because the December meeting will coincide with the conclusion of US budget discussions, which given past precedence have a high probability of failure. Still, the odds of December tapering have increased. It is therefore crucially important to take the balance of risk surrounding our view into account. Moreover, we need to assess what the broader market consequences of such a policy move will be.
Emerging market assets remain vulnerable
Most vulnerable to tapering still are emerging market (EM) assets. As we can see in the graph on the front page, EM currencies (represented by the JP Morgan ELMI+ index) have moved largely in line with the US Treasury yield since the start of the taper talk in May. After the last Fed meeting on October 30, the Treasury yield resumed its rise while EM currencies started to weaken again after an impressive rally since early September. As EM assets have attracted so much foreign capital since the Fed and other central banks introduced their unprecedented monetary policies, they remain vulnerable to capital outflows. As with the US Treasury yield, we do not expect a sharp move comparable to the May/June period, but the risk of further weakening is likely.
You can view the complete story on the attached document.
Value-add real estate, which are properties exhibiting marginal operational or physical challenges, offer better total return prospects than core real estate, according to a white paper from CenterSquare Investment Management
The paper, Era of Execution, written by P.J. Yeatman, head of private real estate for CenterSquare, and Jeffrey Reder, senior vice president, private real estate, for CenterSquare, focuses on the potential of value-add strategies to generate attractive risk-adjusted returns in private real estate. Value-add strategies involve acquiring real estate at an attractive cost basis and then resolving the property’s deficiency, stabilizing the income stream, and increasing the overall value of the property for disposition.
Core real estate, generally defined as high-quality assets in prime locations with stable cash flows, is traditionally viewed to have the least risk. These properties were the first to attract significant institutional capital from risk-averse investors following the Global Financial Crisis. As a result, this segment of the private real estate market was the first to recover, according to the report.
But now these core properties appear to be over-valued, and better investment opportunities can be found within value-add real estate, CenterSquare said.
“Our view is that we have entered an era in which value creation through strategic execution offers the most compelling risk-adjusted returns,” said Yeatman.”The raw materials for a value-add real estate strategy can still be acquired at an attractive cost, particularly when compared to core properties, which appear to be overbought.”
Reder added, “We see assets that are not functioning optimally, but can be improved so that their value and ability to deliver returns to investors are both significantly increased.”
CenterSquare also noted that in past market cycles, recovery of private market values have lagged that of public real estate market values. “Based on the public market value recovery we’ve seen since 2009, we can infer that we are in the midst of an optimal private market investment period,” said Yeatman.
Another advantage of value-add real estate strategies singled out by the report is that because of the low cost basis at which they can be acquired, they are better positioned to withstand potential shocks to the market. In the white paper, CenterSquare said the most attractive value-add properties are primary assets in secondary growth markets and secondary assets in primary growth markets.
Photo: Dori. Nexxus Capital Raises $550 Million for its Sixth Private Equity Fund
Nexxus Capital announced the final closing of its sixth institutional private equity fund, Nexxus Capital VI, with capital commitments of $550 million. The Fund was oversubscribed, significantly exceeding its original target of $400 million.
In addition to strong support from existing and new local institutional investors, Nexxus Capital VI has attracted commitments from new investors from North America, Europe and the Middle East. Pension plans, sovereign wealth funds, and endowments account for the majority of the investor base.
Nexxus VI is comprised of two vehicles: a Mexican public vehicle listed on the Mexican Stock Exchange and an Ontario limited partnership. Both vehicles will co‐invest on a pro‐rata basis according to total available resources of each vehicle.
MVision Private Equity Advisers acted as lead global fundraising adviser. Santander and Citigroup acted as joint‐bookrunners for the Mexican vehicle.
Nexxus Capital VI expects to make equity and equity‐related investments in midsize companies primarily in Mexico, where there is an opportunity to institutionalize family or entrepreneurially owned businesses. Nexxus Capital’s approach focuses on the implementation of operational efficiencies and maximizing liquidity value after taking portfolio companies public or selling to strategic or industry buyers, which is a continuation of the successful investment strategy applied to its prior funds.
White & Case LLP served as US legal counsel to the Fund, General Partner and Manager, and Stikemann Elliott served as Canadian legal counsel to the General Partner.
