The cost of living in luxury for Asia’s High Net Worth Individuals (HNWIs) continues to outpace standard measures of inflation, albeit at a slightly slower pace than was seen in 2012, according to the Julius Baer Lifestyle Index which is compiled as part of the annual Julius Baer Wealth Report.
Stefan Hofer, Emerging Market Economist and lead author of the report said, “Evidence continues to mount that Asia’s growth and wealth creation engine has decoupled from mature economies, and there are clear indications that China in particular is moving up the value chain. We anticipate that the number of HNWIs in Asia will grow from the estimated level of 2.17 million in 2013 to at least 2.82 million HNWIs in Asia (excluding Japan) by 2015.”
Key findings of this year’s Julius Baer Wealth Report focusing on Asia include:
The overall Julius Baer Lifestyle Index rose 8% in 2013.
In both US dollar (11%) and local currency (16.7%) terms, Mumbai saw the highest increase in cost of luxury goods and services over the past year.
While most of the twenty index constituents for Shanghai rose year-on-year, the moderation in luxury property prices constrained the overall increase. Excluding property and equally weighting the other items, Shanghai luxury living costs rose by 10% in renminbi terms (11% in USD terms).
In keeping with the 2012 outcome, the cost of university education has shown the highest increase for this year, up more than 30% for all markets. This raises important issues for parents and applicants, beyond simply rising costs.
The second highest average increase was seen in high-end wine, which increased more than 16% on average across all markets. Commentary by leading wine experts indicates that Asia’s wine tastes are rapidly evolving, suggesting that prestigious wine labels may rise at a slower rate in the future.
Now in its third year, the Julius Baer Wealth Report continues to focus on Asia. Historically the Index covered Hong Kong, Singapore, Shanghai and Mumbai. This year new cities have been added including a comparison of luxury goods and services costs across Manila, Jakarta, Seoul, Taipei, Kuala Lumpur, Bangkok and Tokyo for the first time.
As Stefan Hofer noted, “Japan’s economy is at a crossroads. In recognition of the profound changes that have taken place since September 2012, Tokyo has been included in this year’s report for the first time. We estimate that Japan is currently home to 2.1 million HNWIs, measured in US dollar terms. In contrast to other economies in Asia, where the report’s forecasts have included currency appreciation assumptions, Japan’s economic renaissance is, over the shorter term, created by yen weakness. Nevertheless, we are increasingly confident that Japan can cast off the yoke of deflation and drive further wealth creation into the medium term.”
He continued, “Interestingly, Tokyo does not stand out for being especially expensive, in particular on the goods front. Only ‘men’s tailoring’ and ‘women’s shoes’ are more expensive than the regional average.”
The Julius Baer Wealth Report 2013 makes note of the rapid change taking place in the luxury consumption area. Purchases of lower ticket items in the index, such as wine, cigars and watches are becoming more frequent and not seen as ‘one-off’ luxuries. Branding and prestige purchases are making way for buying value and quality, which suggests that, particularly in China, the luxury landscape is going to move away from some established market leaders.
William H. Gross, fundador, director general y co-CIO de PIMCO. El “corazón herido” de Bill Gross
Joseph Schumpeter, the originator of the phrase “creative destruction,” authored a less well-known corollary at some point in the 1930s. “Profit,” he wrote, “is temporary by nature: It will vanish in the subsequent process of competition and adaptation.” This quote opens William H. Gross’ monthly investment comment referring to the micro level of capitalism: a given firm, such as Kodak, may see its business cycle go wrong and its profit may be temporary, and “vanish”, as Shumpeter notes. Nevertheless, if “capitalism as we know it is to survive”, this is something that must not happen to profits as a whole, in their contribution to GDP. The founder, MD and co-CIO of PIMCO remarks that “capitalism without profits is like a beating heart without blood”.
Bill Gross also talks about another sacred pillar of capitalism: return or “carry”, defined as a credit or an equity risk “premium” involving some potential amount of gain or loss to an investor’s principal. This “carry” is present in corporate and high yield bonds, stocks, private equity and emerging market investments, or by extending duration and holding longer maturities on a bonds portfolio. Gross names this “carry” the “beating heart of our financial markets and ultimately of our real economy”.
And once the similes have been set, Gross exposes the dilemma: “there comes a point when no matter how much blood is being pumped through the system as it is now, with zero-based policy rates and global quantitative easing programs, that the blood itself may become anemic, oxygen-starved, or even leukemic, with white blood cells destroying more productive red cell counterparts.” As a consequence “Never have investors reached so high in price for so low a return. Never have investors stooped so low for so much risk,” notes Gross.
The Central Banks theory that “higher and higher asset prices produced necessarily by more and more QE check writing will inevitably stimulate real economic growth via the spillover wealth effect into consumption and real investment” should be challenged “if only because it doesn’t seem to be working very well.”
Bill Gross’ thesis summed by himself up would be this: “Low yields, low carry, future low expected returns have increasingly negative effects on the real economy.”
Andmoreover, he addresses to the Chairman of the Federal Reserve on these terms:“Well it’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%. Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution. Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system. Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution. Perhaps when yields, carry and expected returns on financial and real assets become so low, then risk-taking investors turn inward and more conservative as opposed to outward and more risk seeking. Perhaps financial markets and real economic growth are more at risk than your calm demeanor would convey.”
The conclusion: “Wounded heart you cannot save … you from yourself. More and more debt cannot cure a debt crisis unless it generates real growth. Your beating heart is now arrhythmic and pumping deoxygenated blood. Investors should look for a pacemaker to follow a less risky, lower returning, but more life sustaining path.”
The Wounded Heart Speed Read
Financial markets require “carry” to pump oxygen to the real economy.
Carry is compressed – yields, spreads and volatility are near or at historical lows.
The Fed’s QE plan assumes higher asset prices will revigorate growth.
Foto: Jakub Hałun. Julius Baer y la gestora Kairos IM unen fuerzas en Italia
Julius Baer and Milan-based Kairos Investment Management, an independent Italian wealth manager with approximately Euro 4.5 billion of assets under management, have reached a major milestone with the completion of its strategic partnership. The combined business in Italy operates under the name ‘Kairos Julius Baer SIM SpA’ as of 1 June 2013.
After receipt of the approval from the Bank of Italy and the finalization of all necessary technical steps, the completion of the transaction took place on 31 May 2013. On that day Julius Baer acquired a stake of 19.9% in Kairos to which it contributed its Italian asset management company Julius Baer SIM in line with the announcement on November 12, 2012. During the integration phase the combined business operating under the joint brand ‘Kairos Julius Baer SIM’ will apply for a banking license to the Bank of Italy in order to set up a new private bank in Italy.
Boris F.J. Collardi, CEO of Julius Baer, commented: “Since November both partners have closely and successfully collaborated to reach this important milestone. Now we look forward to jointly developing a truly dedicated wealth management business which will significantly strengthen our long-term position in Italy.”
Management structure unchanged as announced on 12 November 2012
Paolo Basilico, President and CEO of Kairos, and his partners are running the business of ‘Kairos Julius Baer SIM’ with the established Kairos team and the Julius Baer SIM staff, pursuing the same client-centric strategy as in the past. Julius Baer is represented on the Board of Directors of Kairos Julius Baer SIM with two members, Fabrizio Rindi, Chairman of the new entity, and Loris Vallone, Head Business Development Region Switzerland. Giovanni M.S. Flury, Head Region Switzerland, and Marco Mazzucchelli, Head of Private Client Services, are representing Julius Baer on the Board of Kairos Investment Management SpA, the holding company.
Both parties together will decide on a future increase of Julius Baer’s strategic participation after a few years. The terms of the transaction have not been disclosed.
Foto: Brocken Inaglory. La gestión de patrimonios en América Latina, un mercado cada vez más competitivo
Offshore wealth management as an industry remains under intense and increasing pressure, particularly from tax authorities in the U.S. and Western Europe. In its latest Global Wealth Report BCG notes how many European countries have agreed to share citizens’ bank-account and tax data, and U.S. tax authorities, through the Foreign Account Tax Compliance Act (FATCA), have become much more aggressive in tracking the foreign accounts of U.S. citizens.
To fight against this backdrop BCG highlights that offshore centers must position themselves not only as possessing skills and expertise that cannot easily be found onshore but also as embracing full transparency and integrity. Larger centers such as Singapore are already touting their reputations as trusted financial centers—for example, by revising tax treaties with other countries—and smaller offshore centers may need to make similar moves.
According to the report, UHNW and HNW client segments hold the bulk of today’s offshore money. And although these segments will invest part of their new money onshore, they will continue to seek diversified solutions, ensuring that some new wealth will continue to flow offshore. There is limited offshore growth potential from other wealth segments, which for the most part will seek improved onshore-banking offerings.
BCG highlights that one overarching trend in Latin America is that the wealth management market is becoming far more competitive than in previous years. There are several reasons for this. First, offshore offerings in the region are becoming more sophisticated as international offshore players enter the market and develop an onshore presence. Other new players are breaking into the market as well, such as asset managers that are moving into the wealth management space and universal banks that are developing new wealth-management products. Family offices are deepening their own offerings. Overall, concludes this report, the global relevance of regional Latin American players is increasing.
Photo: Thomas Wolf, www.foto-tw.de. Robeco’s Low Volatility Range of Funds Approved by the CCR of Chile
The CCR of Chile, in its June meeting has approved 7 mutual funds by Robeco, including its family of conservative minimum volatility quantitative funds.
It has also approved two ETFs by iShares, one of them also following a minimum volatility philosophy. The CCR has also approved 10 mutual funds by UBAM.
List of Approved International Mutual Funds:
BNY Mellon Investment Funds – Newton Emerging Income Fund – United Kingdom
Robeco Capital Growth Funds – Robeco Active Quant Emerging Markets Equities -Luxembourg
Wikimedia CommonsFoto: Hernando de Soto. What happens if the rule of law is not obeyed?
Hernando de Soto, Peruvian economist, talks with Robeco about the importance of the rule of law in building a successful economy. What happens if the rule of law is not obeyed?
Photo: Jerry Brewin and Marcelo Assalin . ING IM announces senior appointments to EMD team
ING Investment Management International (ING IM) announced two senior appointments to its Emerging Market Debt (EMD) team. Jerry Brewin joins as Head of EMD while Marcelo Assalin has been appointed Lead Portfolio Manager Local Currency.
Brewin joins from Aviva Investors in London, where since 2001 he was Head of Emerging Market Debt. He will be based in The Hague and report to ING IM Chief Investment Officer Hans Stoter. He will be responsible for the overall management, the investment process and the investment results of all EMD portfolios/strategies globally, as well as providing leadership to his team.
Assalin joins ING IM International in Atlanta from its sister company, ING US Investment Management, where he was Senior Vice President/Head of EMD Sovereign Debt. He will assume the position of Lead Portfolio Manager for Local Currency strategies and report to Brewin.
Upon Brewin’s arrival, Sylvain de Ruijter, acting Head of EMD since January 2013, will resume his position as Head of Core Fixed Income.
Brewin and Assalin bring more than 50 years of investment experience to ING IM and both have highly successful track records as investors. Their appointment builds further upon the proven expertise and performance of ING IM’s EMD team, which is a pioneer in this asset class having invested in EMD strategies since 1993.
Brewin, who has extensive experience in the Middle East and Asia, has held positions within BNP Paribas, Citibank, Gulf Investment Corporation and ABN AMRO. Brewin played a leading role in the building of Aviva Investors’ EMD capabilities and launched the organisation’s first EMD fund in 2000. Assalin has more than 13 years’ experience managing EMD portfolios, most recently overseeing USD 2 billion in EMD assets at ING US Investment Management.
Hans Stoter, CIO ING Investment Management International:“I’m very pleased to welcome two highly experienced and talented investors to ING Investment Management. Jerry and Marcelo are valuable additions to ING IM and will help ensure that our EMD team – which aims to offer excellent returns for clients – remains at the forefront of this asset class.”
Stoter continues: “These appointments are a recognition of the fact that EMD is and will remain a large and important asset class for ING Investment Management. We are committed to offering a full range of highly attractive EMD strategies and, under Jerry’s leadership, will continue to develop our already broad range of products in order to meet the evolving needs of our clients.”
In addition to the appointments of Brewin and Assalin, ING IM has also recruited three credit analysts for the EMD corporate debt team, demonstrating the company’s commitment to continuing to allocate ample resources to its EMD strategies.
Following the most recent appointments, the EMD team consists of 24 specialists. ING IM intends to make additional hires, bringing the total size of the team to 28.
Mark Livingston, . Improving Infrastructure Is Creating New Investment Opportunities in Africa
Africa’s abundant agricultural, mineral, and energy resources have certainly helped drive the continent’s economic growth. But a new wave of infrastructure development is changing the way people think about the continent. The current model of African trade ‐raw materials in return for manufactured commodities ‐is shifting. As rapid industrialisation increases the prosperity of its youthful population, domestic consumption looks set to play a much bigger part in growth. One of the best performing regions in emerging markets in recent years, the continent is becoming an increasingly credible destination for foreign investment capital, and could massively exceed investors’ expectations in the next decade.
Make no mistake, Africa is still a tough place to do business. Corruption, bureaucracy, and unreliable electricity remain obstacles. But investments in projects like oil refineries demonstrate that investors are there for the long haul. Foreign direct investment in the continent has tripled in the last ten years, and as a group‐Brazil, Russia, India, China and South Africa ‐are expected to invest a staggering $530 billion in Africa’s industrial sector in 2015, up from $150 billion in 2010. Manufacturing’s share of total Chinese investment in Africa (22%) is fast gaining on the mining sector’s (29%). And the logistics companies that are now expanding in the region could have a huge snowball effect on economic activity, if they can bring down delivery times.
We think consumer staples have the greatest potential return on investment. Countries are starting from such a low base, and with incomes and population rising together, the sales of daily necessities like food and beverages are going to skyrocket. Consumer spending is forecast to double in the next ten years, as Africans become wealthier and increasingly urbanised – which should benefit companies like the brewers such as SABMiller, Heineken, and Diageo given how far below world average beer consumption is in Africa. The number of countries with average incomes above $1,000 per person a year is expected to grow from less than half of Africa’s 54 states to three‐quarters. As a case in point ‐Nigeria, whose per capita GDP quadrupled to $1600 in 2012 from $400 in 2000, looks like it is going to grow pretty strongly over the next few years as investment into the non‐oil economy picks up. An emerging middle class is providing momentum to private consumption, and boosting the share prices of companies like Nestlé, as Nigerians fill up their shopping baskets with more expensive goods.
Shoprite, a South African based supermarket group which is Africa’s largest retailer by market capitalisation has done fantastically well across the continent, where there was previously little access to large scale food shopping, and has delivered a return on equity of about 40% per annum in recent years. Another big change is the heavy investment in West Africa’s food and drink processing industry. Depending on how it develops over the next few years, a much greater proportion of retail shelf space may be devoted to lower‐cost locally produced products rather than South African imports. Interestingly, Shoprite has recently raised additional capital to spur property development in the region because the current establishments are moving too slowly to build shopping centres into which they can put their stores. The winners in this story are not just the food retailers, but also the suppliers such as snack manufacturer AVI and Nestle Nigeria, which sell Maggi’s chicken and beef stock, that are able to piggyback off the wider distribution network of companies like Shoprite.
Telecommunications is another interesting area. Africans have embraced modern technology as soon as they could afford to, and mobile phones are becoming as ubiquitous in Africa as they are in India; with the two dominant South African based mobile operators MTN and Vodacom amongst the leader operators. To illustrate the speed of this growth, we can have a look at Nigeria, where in 2000 there were only 500,000 fixed lines and hardly any wireless handsets in the whole of Nigeria. Today, there are 90 million mobile phones. This high usage is creating a significant opportunity for financial services and in many cases bypassing the need for physical banking infrastructure. Vodafone, which pioneered mobile phone banking in Kenya through its subsidiary Safaricom, now sees a third of Kenyan GDP flowing through its mobile money‐transfer system, M‐Pesa. It is now attempting to replicate the same model across the continent.
Agriculture is bound to see massive growth too. Africa’s population is expected to double to 2 billion people by 2050, so there is an urgent need to improve agricultural productivity and increase cultivation. Africa accounts for 60% of the world’s arable land that is not in cultivation. Only 10% of the 400 million hectares of land between Senegal and South Africa suitable for farming is actually exploited.
While we are strong advocates for investing in both South Africa and Nigeria, the whole of Sub‐Saharan Africa offers a wide variety of opportunities. However, not all of these ideas are scalable into a liquid vehicle for international fund investors. Sometimes though, we have to go via the back‐door to access the ground floor opportunity. Corporate governance and market liquidity remain issues in ‘frontier markets’. This is why we often access these stories by investing in South African and UK companies. Within our EMEA strategy (which currently has around 60% exposure to Africa), we believe we have the ability to cherry pick some of the very best ideas in a wide range of countries.
Wikimedia CommonsPhoto: Sbork. The CONSAR May Enforce Higher Fines on Afores Not Complying With Best Practices
Oscar Franco, President of the Mexican Association of Afores (Amafore), has announced that as financial reforms move ahead, the fines and sanctions applied by Mexico’s National Commission for Retirement Savings (Consar) to the Mexican Pension Funds Managers (Afores) not compliant with its protocols, as well as in other areas of the financial sector, will increase. He qualified this statement by saying that the reforms will not have a negative impact on the Afores.
In an interview with the newspaper El Economista, the official mentioned that the Retirement Savings System Law (SAR) would be modified by paragraph 11 of the financial reform, allowing the regulatory body overseeing the Afores to apply heavier fines and sanctions to the pension funds managers.
Under the new regulation – subject to the approval from the Chamber of Deputies – in the cases where the Specialized Retirement Fund Investment Companies (Siefores) do not comply with the investment procedures, the maximum fine amount goes from 5,000 to 20,000 days of salary, whilst fines for non-compliance on employee record procedures increase from 500 to 5,000 days of salary. The sanction for the Afores that do not update their information adequately or publish disclosure documents for employees, is doubled from 5,000 to 10,000 days of minimum salary and in the case of Afores that do not register their operations in time at the Mexican Stock Exchange (BMV), instead of 1,000 days of minimum salary, they must pay up to 10,000 days.
These adjustments, according to Franco, “will not cause a negative impact on the fund managers.” He added, “the revision of norms and sanctions frameworks is a very current theme in all the segments of the financial sector, and not exclusive to the SAR.”
The fines owed by Afores from 2012 until the current date reach 46 million pesos, or 3,64 million US dollars. The 11th paragraph of the financial reform, that refers to foreign sanctions and investments, is available at this link.
By NASA. David Buenfil, New CEO for Old Mutual in Latin America and Asia
David Buenfil, until now the CEO of the Skandia Group in Colombia, has been appointed as the CEO of the Old Mutual Group for Latin America and Asia, as revealed in an internal memo the Funds Society has been privy to.
Buenfil is substituted in his role by Daniel Cortés-McCallister, a professional with an impressive career trajectory in the financial sector, in the segments where Skandia has participation: pensions, trusts, stockbroker companies and insurance.
Buenfil, after four years at the frontlines of Skandia in Colombia, now moves on to take care of Latin American and Asian business for Old Mutual Group, Skandia’s parent company. During his time at Skandia he has had the opportunity to drive the company into a strengthened market position. Cortés-McCallister will report directly to Buenfil and the latter will stay connected to Columbia from his new post, as well as remaining on the Board of Directors.
Daniel Cortés McCallisteris a business administrator and accountant who graduated from Wharton School of Finance at the University of Pennsylvania. During his career Cortés has been linked to important companies in the financial sector, both inside Colombia and outside it; like Citibank, Bank of America, Banco Santander, BBVA, Porvenir and Davivienda, in which he fulfilled the role of Executive Vice-president of Capital and Investment Markets, until joining the Old Mutual company in Colombia.
