Wikimedia CommonsBy Dong L. Zou . Román Blanco to Head Santander in the United States
Román Blanco has been appointed as Santander’s new Country Head in the United States, replacing Jorge Morán, who has decided to leave the group to pursue other professional interests.
Román Blanco was born in Sendelle, Pontevedra (Spain) in 1964 and joined Santander in 2004. He was an executive in Brazil before being appointed Country Head for Colombia in 2007. In 2012 he took charge of Santander’s operations in Puerto Rico, which, in June this year, became part of the group’s organizational structure in the U.S.
“He will now take over from Jorge Morán, who has completed the reorganization of the group’s business units in the United States and Sovereign Bank’s implementation of the Santander group technical and operating platform”, said the bank in a press release.
By Nangua . Investors Still Confident In Global Growth Despite China Doubts
Global investors remain confident in the outlook for economic growth despite their sharply decreased growth expectations for China, according to the BofA Merrill Lynch Fund Manager Survey for July. A net 52 percent of respondents now expect the global economy to strengthen over the next year, close to last month’s reading and up four percentage points from May’s.
Sentiment towards China has continued to worsen, however. A net 65 percent of regional panelists now see the country’s economy weakening in the next year, compared to a similar majority anticipating stronger GDP as recently as December 2012. A “hard landing” in China stands out as a major tail risk that fund managers identify, with over half (56 percent) ranking it first on this measure – compared to one-third of respondents a month ago.
Investors’ conviction that developed economies – the U.S. and Japan in particular – will still achieve growth is reflected in their growing appetite for equities. A majority of asset allocators are now overweight equities, up nine points in two months to a net 52 percent. Confidence in the U.S. is also apparent in a net 83 percent favoring the dollar over other currencies, the highest reading yet recorded by the survey.
Stances towards bonds are increasingly negative. A net 55 percent of fund managers are now underweight fixed-income instruments. They have also lifted their cash holdings to 4.6 percent. This is the highest level in a year and represents a contrarian buy signal for equities.
“With the support of a host of buy signals in recent weeks, the ‘Great Rotation’ is in full force. Our positive view of equities would be further reinforced if the loss of faith in China’s growth story turns out to be overdone,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research. “Global investors are trailing the eurozone’s economic momentum. They should prefer cheap domestic exposures to its rich EM exposures,” added John Bilton, European investment strategist.
GEM sentiment souring
The shift in sentiment towards China shows through in investors’ broader stance on global emerging markets (GEM). A net 44 percent now view GEM countries as offering the worst outlook for corporate earnings of any region – the most negative level yet recorded in the survey, following an 18 percentage point decline from last month. They are similarly unimpressed by the region’s quality of earnings.
GEM valuations do not appear to have yet declined sufficiently to reflect these views. Indeed, investors see eurozone equities as cheaper. A net 18 percent of fund managers are now underweight GEM equities, down from a net overweight just two months ago and the lowest level recorded in the survey since 2001. An unprecedented net 26 percent expects to underweight GEM equities on a 12-month basis.
However, Russia is attracting increased interest. A net 50 percent of specialist GEM fund managers are now overweight the country’s equities, up 12 points from last month.
Positive on Japan
Japan stands out as one of the survey’s most positive themes. Investors’ assessment of the risk of the reflationary “Abenomics” policy failing has receded sharply this month. Their view that the country offers the best outlook for corporate profits of any region has strengthened further. All regional fund managers surveyed expect companies to achieve double-digit earnings growth over the next year.
Against this background, appetite for Japanese equities has risen sharply. July’s net 27 percent overweight is up 10 points from last month, the biggest rise of any major market. Investors’ stance on the market is now almost as positive as that towards U.S. equities (up four points this month to a net 29 percent overweight).
Inflation in focus
With growth in prospect, inflation is increasingly on investors’ minds. A net 38 percent of panelists now expect global core inflation to be higher in a year’s time, a rise of seven percentage points from last month.
This is reflected in some “short-covering” in commodities, an asset class especially sensitive to inflation (though also very exposed to demand from China). A net 26 percent of panelists are now underweight commodities, up six percentage points since June to the most positive level in three months – though this is an improvement from notable weakness since June marked a record low for positioning in commodities.
Wikimedia CommonsYerlan Syzdykiv, Head of Emerging Markets - Bond & High Yield, Pioneer Investments. Pioneer Investments Strengthens Fixed Income Capability in Its London Investment Hub
Pioneer Investments has announced several developments to its Emerging Market and High Yield Fixed Income capability in its London investment hub. Yerlan Syzdykov, Senior Portfolio Manager Emerging Markets and High Yield Fixed Income, and Lead manager of Emerging Markets Bond strategy has been appointed Head of Emerging Markets – Bond & High Yield.
Yerlan, who will remain lead portfolio manager for Pioneer Investments’ Emerging Market Debt strategies, will take on overall performance responsibility for all Emerging Markets & Euro High Yield investment strategies managed by a team of 6 portfolio managers. He takes over from Greg Saichin, who has resigned his position as Head of Emerging Markets and High Yield to pursue another opportunity outside the firm.
Yerlan has been involved in the managing of Pioneer Investments’ Emerging Market Debt strategies since 2000 and “has had a key role in evolving our investment capability in this area over the last 13 years”, highlights Pioneer Investments through a release. He will report into Mauro Ratto, Head of Emerging Markets.
Over the last few months, Pioneer Investments has been expanding its investment footprint in its Emerging Markets & High Yield team in London.
In order to help exploit attractive opportunities available in local currency emerging market debt and credits, notably loans, 2 new portfolio managers with local currency and loan expertise, will join the firm in August. Desmond English joins from Commerzbank as Portfolio Manager with a specific focus on loans. He has 16 years of experience in this area. Esther Law joins as co-manager on EM Debt Local Currency strategy with focus on local currency debt and relative value strategies. Esther has 15 years of experience in emerging markets, joining Pioneer Investments from Societe Generale.
Further, as part of the continued efforts to enhance Pioneer Investments’ research capacity, 3 dedicated research analysts have recently joined, bringing total headcount of the EM & High Yield team to 10 analysts, averaging 12 years of experience. Marina Vlasenko brings 13 years of experience to the firm and has taken responsibility for Emerging Market financials. Paul Cheung, an analyst of 6 years’ experience, and Ray Jian, 6 years, deepen our capacity to form views on real estate and industrials respectively.
“These additional hires will allow for a greater degree of specialisation among the investment team”, follows the firm adding that the specialist portfolio managers and analysts concentrating on specific segments of the fixed income market are dedicated to delivering the best in-house ideas. “Each specialist alpha strategy is deployed across a wide range of different Emerging Markets and High Yield Debt portfolios, with the aim of ensuring consistency and scalability in delivering performance”.
To strengthen the investment process, Pioneer Investments has been enhancing the use of Risk Budgeting across the Emerging Market & High Yield Fixed Income portfolios. By embedding propriety risk management systems fully into the heart of the investment process, “the objective is to increase the ability to deliver the goal of stable alpha generation to clients”.
Pioneer Investments conlcludes by saying that these enhancements and appointments “underline a high degree of continuity in the investment process. Further, we believe it will ensure the strengthening of a team based investment approach to portfolio construction across the Emerging Market & High Yield asset class and support the goal of investment excellence.”
Investors seem to need some time to get used to the new reality that monetary policy in the US and China has shifted to a less easy stance. Central banks try to support investors in this process by sending clear messages on their future policy intentions.
In our psychological market diagnosis it remains important to understand that more pessimistic moods often lead to underestimation of the possible good news to come. Therefore, it might be wise to start with the little discussed good news in the analysis of the balance of risks ahead of us.
European equities trade at a high discount vs. US stocks
Favourable economic indicators in developed economies In sharp contrast to recent market dynamics economic data in the developed markets have surprised on the upside. To put it more strongly, economic indicators have been on a solid upward trend since the middle of May. This was driven by broad based strength in Europe (including the UK), the US and Japan. Unless the reappearance of market shocks (for example, full-blow crisis in emerging markets, renewed intensification of Eurozone crisis), it is likely that cyclical strength in developed markets will lead the global economy to higher growth grounds and thereby support risky assets across the board.
Markets have misunderstood the Fed Various members in the Federal Open Market Committee (FMOC) made speeches last week in which they made it clear that markets had misunderstood the Fed. In particular, the pricing of the first rate hike in 2014 and a somewhat steeper profile of tightening after that was certainly not the message the Fed had wanted to send. On the contrary, quantitative easing and forward guidance should be seen as two completely separate policy instruments where the latter is the most clear and important expression of the Fed’s strategic game plan. As far as the latter is concerned, absolutely nothing has changed and the Fed itself still does not expect the first rate hike to occur before somewhere in 2015.
Guidance of level official interest rates by ECB In the Eurozone the biggest concern for the central bank is to safeguard the fragile recovery in the region. On 4 July Mario Draghi tried to reassure investors by dropping a longstanding policy of never ‘pre-committing’ to future interest rate decisions. Actually, he now rules out any increase for an extended period.
To view the complete story, click the document attached.
Wikimedia CommonsFoto: Pavel/ Sean Vivek Crasto. Brasil y México: comparativa de los gigantes de Latinoamérica
One year ahead of the Football World Cup, the focus is on Latin America. While Brazil might be the hottest bet on the football field, how does it compare with Mexico in economic terms? In this video, Credit Suisse Research Institute members take a closer look at Latin America’s heavy-weights.
Click the following link to read the article/transcript.
While we believe that the euro area is off ‘the critical list’, its health remains fragile. This has been evidenced in anaemic first quarter growth data (-0.2% qoq). Europe’s ‘core’ countries have also been showing signs of economic strain, France contracting 0.2%, and German growth very weak at 0.1%. Underlying structural issues and political discord within the region are also reasons for caution. The agonising negotiations over the Cypriot bailout mean that investors should not become complacent about the risks within Europe’s banking system. The voice of protest in the periphery continues to make itself heard; in Greece, the Democratic Left party has pulled out of the country’s fragile coalition following a row about the future of the state broadcaster. Although real money growth points to perhaps a slightly better outlook than consensus forecasts would have us believe, and valuation measures appear favourable, we are not entirely convinced that fundamentals will change enough in order for the region’s potential to be released. So, weighing the risks, we are underweight Europe.
We worry more that the EM have become popular investment areas over the past decade and may be a crowded trade
China and the EM are a complex area, one that we are not confident about buying into just yet. While we are not particularly concerned about their growth prospects – even with a moderation in China’s output they should continue to expand at a faster pace than the rest of the world – we worry more that these have become popular investment areas over the past decade and may be a crowded trade (chart 2). Investors who perhaps had 1-2% exposure to the EM in the early nineties, may have as much as 15-20% allocated to the area today. Notably, some of the advantages that made EM a compelling story back then – weak currencies and cheaper labour costs – have lost their sparkle. China has been losing economic competitiveness globally due to substantial wage growth and skills shortages. The Politburo’s measures to restrict property price appreciation and a clamp-down on the shadow banking sector have made for a bumpy ride. Investors will be looking for clearer announcements about fiscal policy and urbanisation plans in order to become more comfortable about the direction of Beijing’s reform agenda.
Chart 2: Post-crisis fund flows
Slowly but surely?
In the UK, there are, perhaps, more reasons to be cheerfulthan the press would have us believe. While growth has been lukewarm at best (first quarter GDP +0.3% qoq), investors could be underestimating the impact of some of the coalition government’s initiatives to kickstart the economy. Extra assistance for home buyers through the Funding for Lending and Help to Buy schemesappears to be feeding through to the housing market. According to the latest figures from the Council of Mortgage Lenders banks lent more to would-be homeowners in May than at any time since the autumn of 2008. At the same time, sterling weakness has been quite beneficial to Britain’s manufacturers, who have been enjoying a stronger-than-expected rebound in business. Lastly, the change of governorship at the Bank of England (BoE) as Mark Carney takes to the helm as governor is potentially very significant. Mr Carney is likely to be more tolerant of inflation given his comments regarding nominal GDP targeting.
Although the UK has experienced a long period of above-target inflation this has not destabilised medium-term inflation expectations, meaning that Mr Carney may have a little more scope than perhaps people think to adjust the bank’s mandate towards growth and reaching ‘escape velocity’.
Opinion column by Bill McQuaker, Deputy Head of Equities for Henderson Global Investors.
Wikimedia CommonsFoto: Tightrope walking, Wiros. Keeping Your Balance During Shaky Markets
While capital markets have had their ups and downs, it’s been at least 15 years since we’ve seen such a broad swathe of the global markets take a hit at the same time—risky and “risk-free” assets alike.
What’s most disconcerting for investors is that the part of their portfolio that likely has provided some stability historically—US Treasuries—appears to have been part of the volatility this time. Not many of today’s investors have had the experience of getting through a period of such instability, let alone using it to their advantage.
The catalysts for this volatility include recent US Federal Reserve comments regarding tapering its bond-purchasing program, indications of slower growth ahead for China’s economy, euro-area indecisiveness, political turmoil from Brazil to Turkey and slowing growth in many emerging markets. A lot of these catalysts boil down to fears about the future rather than a focus on present positives. After all, Fed Chairman Ben Bernanke’s vision for gradually weaning us off easy monetary policy was based on the growing consistency of upbeat economic data.
But no matter the underlying cause, the markets have reacted with alarm, which makes it difficult for investors to decide what to do.
In more typical markets, diversification has kept investors on a steady course, with US Treasury bonds serving as ballast for portfolio stability. Even within the bond market, diversification has typically been a wise approach. That’s because there are two major risks in the bond market: interest-rate risk and credit risk. When the economy is shaky, the highest-quality securities, such as US Treasuries, generally tend to perform well. In times of economic growth and rising interest rates, high-yielding credits often shine. If an investor combines high-quality and high-income bonds in a balanced, barbell approach, their bond portfolio has the potential to weather most markets.
The operative word, though, is “most.” That barbell approach hasn’t fared well in the past two months. Is it dead? Some investors may think so, but we don’t.
Yield spreads and interest rates have historically moved in opposite directions, so when rates have risen, spreads have tightened and credit has outperformed. Right now, they’re moving together—meaning that government and credit prices are falling at the same time. This is a relatively rare occurrence.
In any case, a credit barbell approach has fared rather well for the past 20 years, despite three other highly stressed macro-driven environments. The only time the barbell approach didn’t work was in 1994. The other major crisis periods were bad for this approach, as they were for almost every bond strategy, but that was primarily due to massive credit sell-offs.
Still, the barbell approach has additional strengths to call upon—even in the midst of a crisis.
Diversification of sectors, industries and securities is a must. Equally important is having the flexibility to alter sector allocations when warranted. Simply put, a barbell strategy should avoid sectors, industries and securities that are at higher risk of trouble, but remain alert and opportunistic to allocate into those sectors when prices are very depressed.
We’ve seen numerous interest-rate and credit cycles over the past 20 years—and even several global and systemic credit crises. But strong credit selection going into a crisis and opportunistic allocation into more distressed sectors during a crisis gives the barbell approach the capability to potentially rebound strongly.
Every new market gyration or crisis is different, but every one of them is also an echo of the past. We believe that the best response to any situation is having a strategy that lets you keep your balance.
Paul DeNoon is Director of Emerging-Market Debt at AllianceBernstein.
Foto cedidaJuan Narváez. Acheron Partners Strengthens its Presence in Mexico
Acheron Partners, an executive recruitment firm, is still committed to the Mexican market, and proof of this is the incorporation of Juan Narvaez to the Aztec nation’s office. Narvaez has been transferred from the office in Spain, where he was a consultant for legal and financial processes and banking.
In his role, he will be responsible for managing and providing customer service to new and existing clients, as well as finding new projects, counseling, and the study of client’s needs and further branches of the business within the recruitment industry.
Before joining Acheron Partners, Juan was Corporate Banking Manager with Banesto, being in permanent contact with the general management of the companies assigned to his portfolio.
Wikimedia CommonsFoto: McKay Savage from London. La mano amiga de las microfinanzas
Microfinance, or the practice of lending to micro-entrepreneurs and small businesses that lack access to traditional banking and related financial services, takes place in different forms globally. The main goal of this type of lending is to offer loans to often low income or “unbanked” individuals in developing countries. With access to funding, borrowers stand a better chance of being able to start-up or further develop a business they believe meets a local need. In many cases, borrowers would otherwise not be able to help pull their families out of poverty, build personal assets and ultimately ascend the socioeconomic ladder. Global institutions, such as the World Bank, run programs that facilitate lending to farmers, women in village communities and small business owners. There are also for-profit organizations and commercial banks that operate various microfinance models. Loans can range from a few hundred U.S. dollars to several thousand U.S. dollars with annual interest rates north of 20%.
Given these high interests rates, the microfinance industry inevitably creates controversies as some claim it takes advantage of poor workers. In the Asia context, the degree of development and success of microfinance lending varies quite a bit given various political and social sensitivities.
Bangladesh’s model of lending to small groups of women whose group members act as co-guarantors for repayment has been an inspiration to many other countries. Approximately 40% of Indonesia’s 240 million people lack access to financial services. The model of lending to the “productive poor” to expand their businesses has been effective. Micro-loans are made to farmers or self-employed small business owners who might not otherwise be able to provide proof of income required in a traditional banking scenario. In general, borrowers are receptive to the merits of microfinance lending and, thus far, such models have thrived. In India, however, microfinance lending carries a rather negative connotation. This is due in part to overly aggressive lending and payment collections practices. In India, the practice of microfinance lending has met with scrutiny and criticism by regulators and politicians.
Whether microfinance is praised or not, the benefits or pitfalls are subject to the interpretation of the stakeholder. It is, however, important to keep in mind that while urbanization may be taking place across Asia, large populations still live in rural areas in the region’s less developed countries. Because of structural or social hurdles, gaining access to financial services is still amongst the many challenges faced by rural residents. There is obviously no “one-size-fits-all” solution to the problems in such a diverse region as Asia. It is nonetheless encouraging to see the ongoing developments and issues being addressed by both government-owned organizations and the private sector.
Lydia So, CFA,Portfolio Manager
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.
Photo: MarcusObal . Commodity Market Decreased in June Amid Continued Slowing Growth Signals from China
Commodities were lower in June as uncertainty surrounding the future of the global economic recovery remained high.
Nelson Louie, Global Head of Commodities inCredit Suisse’s Asset Management business, said, “Macroeconomic news out of China weighed on commodities in June. With China now shifting to a more moderate rate of growth and modestly improving conditions elsewhere, it is likely that supply divergences are playing an increasing role at a time when the higher correlation observed between other asset classes and commodities since 2008 has begun to normalize. This may signal a return to a more fundamentally-driven market. Within the current trend, the pace of supply growth is likely to remain the key factor in driving commodity returns.”
Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, “Markets continue to be caught between good economic news being positive, indicating that the recovery is gaining traction, or good economic news being negative as it may mean monetary policy will tighten. While the pace of these programs may eventually soften, we believe that most major central banks will continue to err on the side of providing more stimulus until the economy improves rather than risk tightening too much. In the meantime, while inflation continues to be muted, the risk of unexpected inflation remains elevated.”
The Dow Jones-UBS Commodity Index Total Return decreased 4.71% in June. Overall, 15 out of 22 index constituents posted negative returns. Precious Metals was the worst performing sector, down 12.27%, on persistent worries over the US Federal Reserve’s plan to wind down its monetary stimulus program and the rally of the US dollar in the second half of the month. Industrial Metals declined 7.11% as a preliminary survey showed that China’s factory activity weakened to a nine-month low in June as demand faltered. This may heighten risks that a second quarter slowdown could be sharper than expected and increase pressure on the Chinese central bank to loosen policy.
Agriculture ended the month lower, down 4.16%, pressured by higher-than-expected ending corn stocks and further data showing larger-than-expected US acreages planted despite the earlier weather related planting delays. News that Australia’s new-crop wheat production increased 15% from a year ago added to concerns over larger global supplies. Australia is one of the world’s largest wheat exporters. Energy decreased 2.55%, led by Natural Gas, following the higher-than-consensus storage injections in June as reported by the US Energy Information Administration. Livestock was the best performing sector, up 3.10%, with both Live Cattle and Lean Hogs ending the month higher. The USDA lowered its forecast for 2013 pork production and reported lower feeder cattle placements for May than a year ago.
