CC-BY-SA-2.0, FlickrFoto: arvind grover. Los mercados frontera en Asia alcanzan su punto demográfico ideal
The age demographics of Asia’s frontier markets are another indicator that they are poised for growth. Over the long term, GDP growth rates are generally determined by increases in the size of the labor force, capital accumulation and technology. Measured by the increase in the labor force and the favorable age profile of their populations, the frontier markets are in a demographic sweet spot.
In Cambodia, Laos, the Philippines, Bangladesh and Pakistan, one person in five is between 15 and 24 years of age. The median age in these countries is 25 or under, compared to over 34 in Japan, South Korea, Thailand and China. If people hit their productive peak at around 40, the younger countries stand to see steady productivity gains over the next 20 years.
Between 2010 and 2020, the labor force is projected to grow the most in Laos (37%), Pakistan (35%), Cambodia (31%), Bangladesh (29%) and the Philippines (25%). In India and Vietnam, the labor force is expected to expand by 20%. In contrast, the labor force is projected to shrink in Japan and South Korea. Between an increased labor force and the potential for increased productivity, frontier countries may well outstrip their counterparts in GDP growth.
Favorable demographics alone, however, are not sufficient to drive growth. Countries must be able to gainfully employ people entering the workforce, which drives earnings, savings and investment. This is where capital accumulation comes into the equation. Strong institutions, infrastructure and foreign direct investment (FDI) policies must be in place for a country to accumulate capital, either through domestic savings or foreign investment. Large-scale job creation requires active labor market policies and vocational training. Frontier markets would do well to emulate some of the successes of their East Asian and more developed Southeast Asian peers.
Another effect of relative youth combined with labor force growth is the “remittance dividend.” When a frontier economy cannot fully employ its workforce, large numbers of workers migrate to countries with stronger economies. They then send money back home to help support their families, which helps stimulate the economies of their native countries. Indeed, in certain situations, remittance flows to frontier markets can contribute substantially to their economies, varying between 1% of GDP in Indonesia to about 11% of GDP in the Philippines and Bangladesh.
Overall, the “demographic dividend” is expected to add 1.5% to annual GDP growth in Vietnam, 1.1% in Pakistan and 1% in India between 2011 and 2020.
Foto: Robin Müller. Backing the Right Horse: Equities Set to Rise Further in 2014
Equities are set to rise further in 2014 after the world returns to normality, with higher global growth and the end of easy money in the US. These are the key predictions of Robeco’s Chief Economist Léon Cornelissen in his outlook for markets next year.
Favorable climate for higher-risk investments
Stocks are Robeco’s preferred asset class for 2014, although returns may not be as strong as in 2013, when the MSCI World Index rose almost 16% in the first 10 months of the year in euros on the back of stimulus from quantitative easing (QE) programs.
“2014 will be a year in which higher-risk investment categories will provide satisfactory returns,” says Cornelissen. “Expanding global growth combined with continuing loose monetary policy favors higher-risk asset classes.”
High-yield bonds are favored in the fixed income sphere, as the end of QE – beginning with tapering by the US Federal Reserve (Fed) expected from the Spring – signals a new era of rising interest rates. This makes the returns on high-yield debt relatively more attractive than those available on sovereign bonds.
‘Less emphasis on austerity will support recovery in the Eurozone’
Politics will be the unpredictable part
However some political risk remains. The Eurozone has come a long way since the height of the euro crisis in 2011, with growth expected to rise towards 1% in 2014. “Less emphasis on austerity will support recovery in the Eurozone”, says Cornelissen. “This will mean that earlier deficit targets will again not be achieved.”
“It is nonetheless very unlikely that the European Commission will impose fines on miscreant nations; just as unlikely is a fine for Germany because of its continuing excessive current account surplus. Although in theory the Commission’s powers for achieving a more centrally directed budget policy have increased greatly in recent years, these will still turn out to be a paper tiger in practice, due to the lack of political support. The outcome of the European parliamentary elections in May 2014 will be an unsurprising but still unpleasant confirmation of this lack of support”, says Cornelissen.
The US also faces the potential wrath of voters after the world’s largest economy only averted debt default when the government was shut down amid wrangling over raising the debt ceiling. US Congressional elections will take place in November, potentially dislodging those Republicans who had opposed Democrat President Barack Obama during the shutdown.
Three scenarios for quantitative easing
With regard to quantitative easing, there are three different scenarios, with differing likely outcomes. “Quantitative easing will come to an end in the US, will probably not start in Europe, and will be expanded in Japan,” says Cornelissen. He predicts that tapering the Fed’s QE program will cut the value of government bonds purchased from USD 85 billion a month to zero over a period of six to nine months from March or April. “Limited long-term interest rate rises in the Eurozone and the US are likely, but this will probably not happen in Japan because of financial repression,” Cornelissen says.
That is because the extraordinary Japanese economic experiment known as ‘Abenomics’, in which Prime Minister Shinzo Abe has combined QE with an assault on deflation and a pledge for structural reform, faces its biggest test next year. VAT will be raised by three percentage points in April to encourage greater spending in the first quarter, thereby averting deflation. But it runs the risk of triggering a recession similar to the one that followed the last VAT-rise experiment in 1997.
In the long-embattled Eurozone, Cornelissen expects “moderate economic recovery”, eventually rising above 1.0% a year. However, the chief economist warns: “Positive investment growth is also necessary to achieve recovery in the region. And it is necessary to control political tensions for this recovery to work.”
Japan GDP Growth Rate Figure 1: The Japanese VAT hike risks putting the country back into recession. Source: www.tradingeconomics.com | The Cabinet Office.
Mixed bag for emerging markets
Globally, Cornelissen expects “moderately increased growth in the developed economies outside Japan”, but the picture for emerging markets is expected to be mixed.
“China will slow down to some extent, while other emerging markets will speed up to a limited degree”, says Cornelissen. “Accelerated Chinese growth is not sustainable and the authorities are again taking the path of monetary tightening. All in all, we are counting on growth in the order of 6.0% against 7.5% in 2013”.
“Because of the economic recovery in the developed world, we believe there is a plausible case for limited recovery in Brazil (where there are also elections in 2014), India and Russia.”
Earnings will be key to success for stocks
“Overall, the macroeconomic climate will be more favorable for stocks in 2014 than in 2013,” he says. “Gradual interest rate rises in a low-interest rate climate are a positive signal that the US economy is in principle strong enough to support corporate profits by increasing consumption and investments. But earnings will be the key to success in 2014.” Figure 2: Profit margins have steadily risen for US companies since 2009. Source: Bloomberg / Robeco.
Equity price rises in 2013 were mostly driven by stocks achieving higher multiples – a company’s share price divided by its earnings per share – as both profits and business sentiment generally improved due to stimulus from QE. This may not be repeated next year when QE begins to be withdrawn, Cornelissen warns.
“We expect to see a more gradual expansion of price/earnings ratios, modest profit growth and somewhat greater market volatility,” he says. “These factors will make it difficult for stocks to equal or exceed their excellent 2013 performance in 2014.”
Bond yields will gradually rise
In fixed income, high-yield bonds are preferred. “Low interest-rate policies in recent years have given businesses sufficient opportunities to issue longer-term bonds at favorable rates,” says Cornelissen. “Still, we note that this asset class is losing some of its glamour. The reward for credit risk has dropped to 450 basis points and therefore lies below the 10-year average of 610 basis points.”
For emerging market debt, the current return on credit risk is 500 basis points. While this is 50 basis points higher than the equivalent return on high-yield corporate bonds with a similar duration, Cornelissen does not believe it will compensate for the significant currency risk seen in 2014. This is due to emerging markets currencies continuing to devalue against the US dollar as they struggle with economic growth.
“As emerging markets catch up economically, the current undervaluation of currencies (at this time over 40% based on purchasing power parity) will gradually translate into currency profits and offer solid returns on emerging market bonds in the longer term,” Cornelissen says.
For sovereign bonds, the Fed’s tapering plans mean higher yields – and bond values falling in tandem – as interest rates gradually rise.
“Both US and German government bonds are approximately 100 basis points lower than one would expect due to money market interest rates, inflation and growth prospects,” says Cornelissen. “We expect that bond yields will gradually increase during 2014 towards the levels that would be appropriate with further increasing economic growth”.
John Calamos. Calamos AM will Allow Senior Portfolio Management and Executives to Participate in Ownership of the Firm
Calamos Asset Management announced lasr Wednesday that Nick Calamos, aged 52, is leaving the Calamos Board of Directors to further pursue his interests in education and philanthropy. The move follows his decision to step away from his day-to-day role with the firm in August 2012 and his agreement to sell to John P. Calamos, Sr., aged 73, his private interest in Calamos Family Partners. The separation agreement includes non-compete and non-solicitation provisions which extend for a period of four years following Nick’s departure.
As a result of this transaction, John P. Calamos, Sr., Chief Executive Officer and Global Co-Chief Investment Officer of Calamos Investments, has announced his intention to form Calamos Partners, in order to allow senior portfolio management and executives of the firm to participate in the private ownership of Calamos Investments. In discussing the formation of Calamos Partners, he stated, “Over the years, I have sought to align senior portfolio management and executives with the long-term objectives of the firm and interests of our shareholders. Calamos Partners will enable the firm to strengthen its alignments with key talent.”
John P. Calamos, Sr. also said, “We wish Nick the best in his future pursuits. Over the last 18 months we have significantly strengthened the Calamos Board of Directors with the appointments of Global Co-CIO Gary Black, Thomas Eggers, Keith (Kim) Schappert and William Shiebler, all of whom have held the role of CEO at asset management firms.”
He continued, “The firm is well positioned for future growth thanks to the strengthening of our investment team and the expansion of our investment strategies, including alternatives, value and high yield.”
Nick Calamos said, “Now is a good time for me to step down so that I can focus more on my academic and charitable activities. Our new Board members are working very well together. John and Gary have added significant resources to the investment team and investment performance has improved on several key strategies. I know the firm’s future is bright.”
CC-BY-SA-2.0, FlickrXi Jinping, presidente de la República Popular China. Susurros desde China: Rumores y hechos del Tercer Pleno
The Third Plenum, a significant legislative function that brings together every member of the Central Committee to discuss major policy issues, has already been called “unprecedented” by Chinese officials. Investors remain skeptical, taking the cautious stance of awaiting more details of the meeting and its impact before making any decisions.
How Will Investors React?
China analysts are currently combing through the various resolutions adopted by the Plenum, looking for hints to any industries that might benefit from the next round of reforms. There will be various “market implications” reports from different brokerages (e.g. Chart 2), but considering the overall lack of any real surprises within the resolutions, many of the implications have already been priced into the markets, having become expensive, with valuations already outpacing earnings projections. We believe that eventually, when investors realize that even announced improvements will not occur overnight, prices will start dropping. Implicated investors will be caught in the old investment trap: “buy on rumor, sell on fact.”
Regardless of the angle the Party winds up taking with future reforms, we strongly believe that the financial sector will be the first to benefit. Without a healthy banking sector, the rest of China’s reform plans would be much more difficult to achieve. The Chinese government is expected to accelerate interest rate deregulation and facilitate the development of the fixed income market. Due to the success of Shanghai and other cities in issuing bonds last year, we expect to see a more sophisticated development of Chinese municipal bonds. In order to increase transparency, we believe the local governments will be required to release their own balance sheets before issuing their own bonds. This will substantially remove the overhang of high credit risk related to local government lending (aka LGFV risk) within the banking system. Additionally, banks will be able to free up their capital and increase lending to a higher margin of the SME segment at the expense of reducing exposure to the corporate/local government segment, which currently accounts for some 72.3% of total bank loans.
Furthermore, another important financial reform-oriented message was the intention to establish a government bond yield curve which will better reflect market supply and demand. This should imply a higher yield for RMB long-dated bonds, benefitting local insurance companies.
At current valuations, Chinese banks have priced in high credit cost for fear of LGFV risk and rising NPL. We believe the new government policy of allowing local governments to issue bonds will serve as a catalyst for a significant re-rating of China’s currently undervalued and under-owned banking sector. Other non-bank financials (e.g. insurance companies and brokers) should also benefit in view of anticipated development in the fixed income market.
Looking forward, we remain very positive on China’s investment outlook. The country offers an attractive GDP growth of over 7%; growth we believe to be sustainable given the positive messages from the Third Plenum. In addition, the lack of inflationary pressure (CPI is forecast to be 3.5% in 20143) and the development of fixed income markets should all benefit overall financial reform. There have been some signs pointing to the return of business confidence as per the PWC Asia Pacific 2013 CEO survey (see Chart 3) which shows that 68% of 478 Multinational Corporations are planning to increase their investment in Asia next year.
Five years after being roiled by the onset of a financial crisis, the global investment environment appears to be approaching an inflection point. This view was discussed by T. Rowe Price investment professionals who shared their thoughts at the company’s annual Investment and Economic Outlook press briefing in New York City on December 3rd
The briefing’s overriding theme for 2014: Be careful. Many financial markets around the world have been in bull market territory since the nadir of the crisis in March 2009. U.S. stocks are up more than 160% off of their lows in 2009, while non-U.S. stocks are up more than 107%. For most of this time, markets have climbed a “wall of worry” and many investors stayed on the sidelines. Recently, however, money has begun to move into riskier asset classes. While attractive investing opportunities continue to exist in many global financial markets, T. Rowe Price believes that investors should temper their expectations as the strong performance in many of these markets over the last five years is unlikely to be matched during the next five years.
Investment and Economic Observations
The U.S. economy and many other economies around the world are poised to gain traction in 2014, albeit in a slower-growth mode than they enjoyed before the crisis began. Tapering from the U.S. Federal Reserve is coming in the next three to six months, and could lead to volatile conditions in global equity and fixed income markets. With unemployment still high in the U.S. and inflation pressures muted, the pace of monetary policy adjustment is likely to be gradual.
Alan Levenson, Chief Economist stated:“The economy should gain momentum next year, with housing construction likely to pick up. The impact of political uncertainty in Washington should be less than it was this year, once we get past the January sequestration talks and the focus turns to elections.”
Despite the bull market, equity valuations appear to be reasonable overall. On the international equity front, many developed markets are seeing improving fundamentals. Europe’s economic recovery is still in its early stages, which could give European stocks more room to run than their U.S. counterparts. In Japan, government reform efforts have the potential to pull the moribund economy from its chronic slump, but structural challenges remain, including ineffective corporate governance and dated labor and regulatory rules. In emerging markets, equity valuations appear to be inexpensive relative to historical norms.
Bill Stromberg, Head of Equityexpressed: “Confidence has been restored, but it is important to be vigilant as the U.S. bull market is aging. International investments, especially in emerging markets, represent the best long-term value from here in fixed income and equity.”
John Linehan, Head of U.S. Equity, shared a similar message, highlighting his doubts over the US market rally: “Moving forward, U.S. stocks are unlikely to match their recent strength. This bull market has lasted for 57 months so far, which is the average length of bull markets since 1930. On the plus side, corporate health remains strong and valuations are neutral. There are still attractive areas, such as companies that are benefiting from the reindustrialization of America. Market tailwinds and headwinds are now more balanced, so we believe it’s time to be cautious.” On the other hand Dean Tenerelli, portfolio manager of the T. Rowe Price European Stock Fund was more positive on his asset class”European equities are undervalued and the economies are recovering. Luxury goods companies, banks in consolidated markets, broadcasters, and Spanish utilities are a few examples of where we see opportunity.
Global fixed income markets are vulnerable to interest rate increases, but value can still be found in certain pockets, including emerging market debt. Credit fundamentals are trending up for many states and municipalities, leading to generally good conditions for U.S. municipal bonds. Moreover, revenues are increasing, due to economic improvement and tax rate hikes, while budget gaps are shrinking. T. Rowe Price favors revenue-backed municipal bonds, especially in areas such as public utilities, transportation authorities, and hospital systems, all of which have limited regional competition and essentially operate as monopolies.
Mike Gitlin, Head of Fixed Income thinks that “Opportunities still exist. The market for emerging market local bonds is relatively liquid and offers attractive risk/reward characteristics. Bank loans and high yield bonds have low expected default rates, strong credit fundamentals, and reasonable yields.”
Allstate announced the launch of its first emerging manager program to invest with smaller private equity and private real estate equity asset managers, with a focus on minority and women-owned firms.
“We believe Allstate is leading the insurance industry in establishing this emerging manager investment program,” said Edgar Alvarado, Allstate’s group head of real estate equity. “We see this program as our farm team – a way to identify the next generation of investment stars, break down the high barriers to entry for these talented managers, and have Allstate be a catalyst in the success of emerging managers. Just as important, Allstate expects its socially responsible investments to achieve strong returns – we truly can say we do well by being a force for good.”
The Allstate program will be administered by the Customized Fund Investment Group (CFIG). Allstate and CFIG are seeking managers with strong investment track records and who are raising their first, second or third institutional funds and with less than $500 million in assets under management. In addition, at least 33 percent of a participating firm will be owned or controlled by women and/or minorities, or at least 50 percent of fund carried interest will be paid to women or minority staff.
The program’s fund managers will identify investments in the United States that meet Allstate‘s desired risk-return profile.
Imagine one idea that strikes twice, simultaneously inspiring two entrepreneurs physically separated by 3,000 miles and the equator. The tenets of capitalism suggest that of these two, only one will succeed by providing the market with a better product at a more competitive price.
Now, assume that the first entrepreneur is based in Silicon Valley and the other in Costa Rica. The playing field is now uneven, and the significance of a solid business acumen and competence gives way to geographic fortune.
When compared to their Silicon Valley counterparts, Latin American entrepreneurs are faced with significant funding gaps. For investors, this represents a wide swath of untapped investment options. For business owners, it is a competitive disadvantage. Latin America lacks a single platform that bridges these funding gaps, and investors have traditionally struggled to build the critical mass needed to launch successful ventures. Often, the money dries up after initial sources of funding such as family, friends and local banks are exhausted.
The entrepreneurs of the region can look to a mainstay of the American economy for a bridge: the stock exchange. The various New York-based and international stock exchanges that have developed in the past 150 years have helped companies and investors alike by providing an equal playing field that facilitates growth through investment. Startups in Latin America can benefit from such an exchange, which would also allow for the funding of all properly-vetted projects, by evening out the playing field.
An exchange exclusively focused on startups and interested investors presents a solution to such problems. For Latin American firms trying to gain momentum, the biggest time suck is playing the dual roles of fundraiser and product-maker. Without a built-in Rolodex of venture capitalists (VC), founders can find themselves working a full-time job just to secure funding. An “exchange for them all” is an elegant, egalitarian solution that will disrupt this insular model of VC investment.
Other obstacles exist that conspire to keep Latin American startups from succeeding. Some are cultural, deeply embedded within nationalistic attitudes. Failing is a requisite in business, but failure can be a source of great shame in some Latin American circles. Also, for many people on the lower end of the socioeconomic scale, class barriers can prevent even the best of ideas from being realized.
This is why a startup stock exchange should incentivize investor participation by setting a low barrier for entry. A minimum of $100 is a reasonable amount to expect from investors, which allows for incremental investment.
From the investor’s perspective, the world of international startups can be a murky one. To navigate these opportunities, investors need a single platform in which to apply judgment, and a tool that undertakes the task of due diligence, which is indispensable to making wise investments. To this point, the marketplace has been void of a trading platform that solely focuses on startups and interested investors.
Investors want a clearer path. They want a vehicle that allows them to invest and divest as they see fit, following the traditional exchange marketplace model; a place where their shares appreciate in value as the companies they invest in show returns.
Investors also crave transparency. Too often, seemingly lucrative investments in foreign companies can come with unexpected roadblocks, regulatory and otherwise. There is no way to anticipate wild cards, such as local politics and rogue regulators, without a marketplace that accounts for them, conducting due diligence on behalf of the investor community and shining light on these potential potholes. There is a need for a place that enables trading startup shares with ease and confidence.
The best ideas and entrepreneurs in Latin America deserve a fair chance to either sink or swim. All that is missing is a clean pool.
Kate Upton, Eli Manning, Daniel Craig y Halle Berry, en la sede de ICAP en Jersey City, NJ. ICAP dona el 100% de sus ingresos en el Día de la Caridad a más de 200 organizaciones benéficas
ICAP held its 21st annual global Charity Day on Tuesday, December 3, 2013. On this day, 100% of company revenues and commissions will be donated to a selection of over 200 charities around the world. ICAP is a leading markets operator and provider of post trade risk mitigation and information services.
Since the inception of Charity Day in 1993, ICAP has raised over $161 million for more than 1,400 well-deserving causes worldwide. In 2012, the company raised $18 million globally on Charity Day.
As part of the day’s activities, ICAP hosted several of the charities’ celebrity spokespeople at its offices around the world to rally employee enthusiasm and interact with clients to boost trading volumes. At ICAP’s North American headquarters in Jersey City, NJ, over a dozen celebrities were on hand, including actress Halle Berry (Affiliated Charity: Jenesse Center, Inc.), model Kate Upton (Affiliated Charity: Girls, Inc.), New York Giants Quarterback Eli Manning (Affiliated Charity: PeyBack Foundation), and actor Daniel Craig (Affiliated Charity: S.A.F.E. Kenya)
Classroom at Wharton School.. Wharton will Hold a Private Wealth Management Program for Professionals and UHNWI in Miami
Wharton, in collaboration with Family Business School, designed the syllabus for Private Wealth Management, a bespoke program for executives and professionals in the wealth management industry, which will be held in Miami over a period of three days on January, 2014.
The program will be held at the Hotel JW Marriott Marquis in Miami (Florida) from the 8 th to the 10 th of January. For further information on the course or to registerplease contact info@fundssociety.comor call +1-305-692 0169
The program aims to provide industry professionals with all the expertise and knowledge of experienced Wharton professors so that students may further their skills and achieve continued asset growth for their clients, and to meet the challenges which are unique to the ultra high net worth client sector, also known as UHNWI.
According to a study conducted by Family Business School, a pioneer in providing training and education in private wealth management to the Latin American high net worth sector, nine out of ten Latin American companies are family-owned businesses, but only 30% of these businesses survive the second generation. The program taught by Wharton in Miami is also for members of these great family fortunes, with the aim of creating a smoother and more fruitful relationship between UHNWI and their financial advisers, bankers, or family offices.
According to Family Business School, the main reasons why family businesses do not thrive in the long term are, lack of planning when it comes to family succession and inefficient management, in addition to little or no training for owners, shareholders and the next generation of business leaders. Inefficient asset management and ineffective asset allocation are some of the other reasons which are considered to be a direct cause of the inability of these companies to continue beyond the second generation.
Family Business School also highlights the fact that even though Latin America is a world leader in productivity, when compared with other areas globally, the region does not save or invest enough.
During the three days of the program the teaching sessions will cover the following topics:
The family balance sheet: this session aims to show how wealth is not only an issue of financial assets, since it covers many other areas ranging from operating a business and liquid investments such as real estate, to the management of human and family resources. This block shares ideas and coordinates all elements of family wealth beyond family investment opportunities.
Other sessions provided in the program include: the modern theory of portfolio management, performance measurement and management evaluation, the art and implications of asset allocation, client centric influence, understanding you an your client communication style, alternative investments and real assets and, impact investing.
The program will be held at the Hotel JW Marriott Marquis in Miami (Florida) from the 8 th to the 10 th of January, 2014. For further information on the program or to registerplease contact info@fundssociety.comor call +1-305-692 0169
Photo: Raul Heinrich. Henderson refuerza su equipo en Singapur al contratar a un director de renta variable asiática
Henderson Global Investors has hired Andrew Gillan to head up its Asia (ex-Japan) equities team. He will be based in Henderson’s Singapore office. He joins from Aberdeen Asset Management where he was senior investment manager on its Asia Pacific (ex-Japan) equity team and manager of the Edinburgh Dragon Investment Trust, which has gross assets of over £600 million, making it the UK’s largest Asian (ex-Japan) Investment Trust.
Andrew joined Aberdeen as a graduate trainee on the UK equity desk, via Aberdeen’s acquisition of Glasgow-based Murray Johnstone in 2000, before moving to Singapore in 2001.
Andrew will take over as lead manager of the £200 million Henderson Asia Pacific Capital Growth Fund and the US$33 million Henderson Horizon Asian Growth Fund.
Commenting on his appointment Graham Kitchen head of equities, says, “We have been very clear of our intention to continue growing our business internationally, particularly in Asia and the US. Andrew has built up an enviable track record. Having spent over 10 years in Singapore, he is the ideal person to lead our build out there. In addition, and in keeping with our desire to increase our ‘on the ground’ investment talent, we will also be moving a number of our Asian equity analysts to Singapore in the New Year.”
In total Henderson manages US$2.3 billion assets in Asia (ex-Japan) equities on behalf of European, Asian and US clients. Products range across Growth, Income, China and long/short equity.
There are currently 16 investment professionals in Henderson’s equities business in Singapore which includes nine portfolio managers, three analysts and four dealers.
