AGV locomotive, manufactured by Alstom. Be contrarian. Be European.
In the late 90s the European stock market accounted for 36% of the market capitalisation worldwide.It thus vied for protagonism with the US stock market, which had a 41% share.They left a decade behind them in which European stocks had traded at a premium to their US counterparts.Fifteen years later and the scenario is rather different: while the US stock market now accounts for over half of stock market value worldwide, the European exchanges all taken together do not even amount to one quarter of this figure, their value languishing even below that of the Asian markets.
The beginnings of the uncoupling of the US from the European stock markets can be traced back to the opening weeks of 2010, when the level of Greek debt started to become a cause for concern. Over the following three years the steady stream of financial disasters in Europe has opened up the spread between both markets. From 2010 Long USA – Short Europe has translated into a substantial 50%.
During these three and a half years equity has mostly been funnelled into the US stock market (ETF flows illustrate this well – see chart), driving up stock prices and making it one of the most expensive stock markets in the world. The S&P 500 stands at a current P/E ratio of 18.9 and a Shiller P/E ratio of 22.7, both comfortably above their historical average. If we go by the replacement value (Q ratio), the US stock market is also at historically high levels. And according to Mr. Buffett’s favourite ratio for valuing the market (Market Cap to GDP), it has surpassed the third highest level in history after 2000 and 1929.
Even though this may not mean that the US stock market is set to fall in the coming years, it is reasonable to assume that its future performance will be fairly modest. Assuming long term growth on fundamentals of 6%, with a current Shiller P/E ratio of 22.7 and a dividend yield of 2.2%, the S&P performance over the next 10 years should be a moderate 3.9% a year.
On the other side of the seesaw, we have the European indices at under their historic highs, condemned to be listed against the backdrop of a possible disappearance of the Euro, with the sole and timid exception of the DAX. If we apply the Market Cap to GDP ratio to Europe we see that it stands at way below the high of the year 2000. Its major markets (Germany, the UK and France) stand at Shiller P/E ratio levels of close to 11 and show dividend yields that double the rates offered by the US market. Such flat prices were last seen in the early 80s at just the time when European shares embarked on a ten-year period in which they showed a premium in the market compared to US stocks (see chart).
The S&P 500 currently stands at 1.4 sales compared to 0.7 for the Eurostoxx 50. Working off the assumption that we live in a world that is increasingly globalised and where multinationals rely on world growth (not local growth), the gap in valuations between both markets is surprising. This point takes on particular relevance if we bear in mind that 44% of the revenues of European companies are produced outside the continent (in the case of the UK this figure rises to 52%). In addition to this, one quarter of the profits of European companies derive from emerging markets, a figure which doubles that obtained by US companies from these markets.
These average figures match our fund EDM Strategy’s exposure to exports (45%) and to emerging markets (25%), based on the sales of the companies we have in our portfolio. Therefore, European companies are priced at a discount simply due to where they are domiciled, often without paying heed to the geographical origin of their business.
But perhaps one of the best signs to measure valuations properly is corporate transactions. In comparison to the frenetic corporate activity we have witnessed in the USA for some time now, this has fallen off sharply in Europe (by -14% in 2012) down to levels unseen since 2003. This shows that sellers are not willing to dispose of their businesses and assets at these prices and are probably holding out for more realistic valuations. It should therefore come as no surprise that the book value of the S&P 500 is 2.2, compared to 1.6 for the FTSE-Eurofirst 300.
There is therefore no doubt that the market values on the “Old Europe” are highly attractive compared to those in the USA, and these actually stand at a low not seen for 40 years now:
Source: BCA Research
In this pricing environment, stock-pickers like us have more options for finding attractive investments. In fact since 2006 some 50% of European equity managers have outperformed their indices, which compares to 16% for US managers.
The “Old Europe” will present us with a key opportunity in the next few years, which no investor should pass up. It might even rejuvenate.
Ignacio Pedrosa is Head of Marketing & Institutional Investors at EDM Asset Management.
by Asy arch at en.wikipedia. A tool that extracts the market "signal" from the social media "noise" for investors
Market Prophit has announced the official launch of its website with the goal of providing retail and institutional investors with a real-time, sentiment analysis tool for financial market conversations in social media.
Market Prophit extracts the market “signal” from the social media “noise” using sophisticated natural language processing techniques and predictive analytics. The algorithms automatically interpret and quantify large quantities of unstructured conversations to deliver sentiment signals to investors.
“As the volume of on-line conversation about financial markets continues to grow at a massive pace, it is getting much harder for investors to keep up with and interpret all of this information;especially in real-time. We believe that sentiment and market mood can have an effect on financial markets so we provide an easy-to-use tool that quickly delivers the “pulse” on the market to you”, highlights the firm in its press release. The tool is designed for self-directed retail investors, day-traders, hedge fund portfolio managers, research analysts, or anyone interested in getting the current crowd-sourced buzz on the market.
Market Prophit is a financial big data company focused on analyzing market-related conversations in social media and providing real-time sentiment signals to both retail and institutional clients.
Wikimedia CommonsBy Michal Osmenda. Esteban Zorrilla, New Head of Investment Strategy at HSBC in Miami
HSBC has appointed Esteban Zorrilla as new head of the Investment Strategy team for their Miami office, reporting to Ajay Loganadan, the American region’s director, based in New York.
According to information received by Funds Society from sources close to the bank, Zorrilla will take over the team following the departure of Carolina Montiel, who joined EFG to manage the Swiss bank’s new Investment Strategy department.
Zorrilla has over 15 years experience in international private banking and financial investments in Spain, Switzerland, the Dominican Republic, USA and Latin America. Prior to joining HSBC in 2010, he worked in other international institutions such as Banco Santander and Morgan Stanley.
Zorrilla, Bachelor of Business Administration from the University of Deusto (Bilbao), holds an MBA in Banking Management from the Instituto Universitario de Posgrado(Postgraduate University Institute).
Wikimedia CommonsHead of BBVA Compass in Birmingham, AL. By Ralph Daily
. BBVA Compass creates a division for UHNW clients in Latin America headed by Manuel Sánchez Castillo
BBVA Compass has just created a new department within its international private banking division. The new division, aimed at UHNW clients in Latin America will be dependent on the Wealth Management unit. This new group will be headed by Manuel Sánchez Castillo, who will manage the team from Miami as regional manager for Latin America, as told to Funds Society by sources of the organization.
“The new project is committed to the group’s presence in Latin America and is aimed at enhancing the service in this sector,” those sources explained.
With over 20 years of industry experience, Sánchez Castillo has spent most of his career at Banco Santander, first in Spain and over the last 12 years in Miami as head of Management and Investment and later as manager of Investment and Advisory services. While in Madrid he worked at Santander Asset Management and Banesto Funds as head of International Equities.
In 2009, the executive became responsible for Santander’s Private Wealth division. In 2011 he moved to BNP Paribas Wealth Management in Miami as director of Latam Key Clients, until joining BBVA Compass in late April. Sánchez Castillo is a graduate in Economics from the UCM (Complutense University in Madrid).
MSCI has introduced the MSCI China A High Dividend Yield (HDY) Index. This new index includes stocks with a track record of sustainable and consistent dividend payouts and dividend growth. It can serve as a benchmark for investors targeting the high dividend yielding opportunity set within the flagship MSCI China A Index or as the basis for financial products such as exchange traded funds.
“Furthermore, we have seen close to a 110% increase in the number of dividend-paying companies in the MSCI China A Index since 2009. The MSCI China A High Dividend Yield Index offers a timely new index choice for clients interested in this subset of the China A-Share market.”
The MSCI China A HDY Index includes only securities that offer a higher-than-average dividend yield (i.e., at least 30% higher) relative to that of the parent index, the MSCI China A Index, and that pass dividend sustainability and persistence screens. In addition, MSCI screens out stocks that do not meet certain “quality” characteristics to exclude stocks with potentially deteriorating fundamentals that could force them to cut or reduce dividends. The MSCI China A HDY Index is calculated using free float-adjusted market capitalization weights.
“Dividends produced from the stocks in the MSCI China A Index have grown significantly—from RMB 12.95 billion in 2005 to RMB 94.7 billion in 2012,” said Theodore Niggli, MSCI Managing Director and Head of the Asia Pacific Index business. “Furthermore, we have seen close to a 110 percent increase in the number of dividend-paying companies in the MSCI China A Index since 2009. The MSCI China A High Dividend Yield Index offers a timely new index choice for clients interested in this subset of the China A-Share market.”
By Julioalcaine. TCW Group Establishes a UCITS Platform and Opens Offices in Paris & Hong Kong
TCW Group has announced the expansion of its distribution efforts in Europe and Asia, with the opening of new TCW offices in Paris and Hong Kong staffed by industry veterans familiar with those regions. The announcement follows the Feb. 6 completion of the acquisition of TCW from Société Générale by TCW management and The Carlyle Group.
“Expanding our international distribution platform is a significant priority for TCW, and we have a long-term commitment to serve investors across Asia and Europe,” said David Lippman, TCW President and CEO. “We look forward to working closely with investors across those key regions to build new partnerships and develop new products that meet the needs of international investors.”
The Paris office is overseen by Heinrich Riehl, a TCW Managing Director and Head of TCW Europe. In Hong Kong, the office is overseen by Stacy Hsu, a TCW Managing Director and Head of TCW Asia.
TCW has established a UCITS platform in Luxembourg to build a fund franchise that will replicate the most successful funds in the TCW and MetWest U.S. fund complexes, which have $53.8 billion in assets and have grown very rapidly in recent years. TCW has also forged several key international distribution partnerships, including sub-advisory relationships with Amundi and Pictet in Europe; and a partnership in the Middle East with NCB to offer Shariah-compliant funds.
Founded in 1971, The TCW Group, develops and manages approximately $130.7 billion in assets under management as of March 31, 2013. TCW clients include many of the largest corporate and public pension plans, financial institutions, endowments and foundations in the U.S., as well as a substantial number of foreign investors and high net worth individuals.
Wikimedia Commonsby Colette. "European Markets Have Climbed the Wall of Worry"
Kathleen Dickson, Director in BlackRock in charge of explaining to clients how the team portfolios are positioned talks with Funds Society about her views for the eurozone, claiming that since 2007, European markets have climbed the wall of worry.
During her second visit to Mexico with BlackRock, she mentions that since the bottom in 2009 of European valuations, in euro terms, the eurostoxx 600 has almost risen by 100%, and although current valuations are not as attractive as 12 months ago, the hunt for yield makes them an interesting asset. The Executive mentions that the fact that Draghi put a line under the financial crisis stating that the ECB would do whatever it takes to insure financial security for the eurozone -like buying short duration bonds in the market, an equivalent to Quantitative Easing – as well as the fact that Europe offers 4% yield –the highest yield in developed markets-, and positive earnings growth potential are giving security to investors and have the potential to allow the market to develop positively.
Dickson also commented that when looking at yields as the barometer of risk appetite, the fact that the yields that blew out last summer have gone back to normal is proof that the financial crisis is been dealt with. She mentions that there might be a “turning point in September with the German election but once got through that, with a positive outcome, we could see the market continue to do well”.
Amongst the initiatives she would like to see implemented to further growth are a transmission of lending in order to get money in the real economy, via an increase of lending to small business, and the banking sector repairing their balance sheet, to better solvency.
About her expectations going forward Dickson mentions that she sees positive flows in the future. “Investors are more willing to look at Europe. Europe is cheap, European valuations are trading on a significant discount to the US market”, stating that if investors currently underweight in their European positions come back or move from high yield bonds into euro equity, ownership level will move to a natural balance.
Speaking of their preferences in the market, she highlights consumer discretionary, mentioning their position is neutral on financials and low in utilities and telecom given their low growth and highly regulated environments.
When it comes to choosing a company to acquire positions in, income plays a huge part, and so their portfolios are highly geared toward earnings growth and international earners (50% of MSCI European companies revenues are generated outside Europe). “We are no buying countries, we allocate to companies with earnings elsewhere, like the Industrial sector”. In general looking for opportunities to tap into foreign growth through individual companies.
Kathleen Dickson, with over 22 years of experience in the markets, is in charge of managing the business side of a variety of alpha generating portfolios with over 26 billion usd in assets from a variety of institutional clients like pension funds or insurance companies. Amongst her team’s most popular funds are the BGF European Fund, BGF Euromarkets and the Absolute Return Long Short.
Wikimedia CommonsYves Bonzon, Pictet CIO. "El dólar americano está listo para un aumento constante"
Three different regimes rule the US dollar: depreciation, crisis and secular uptrend. Few investors realise that we have shifted into a secular uptrend regime and this will have consequences on asset clases one should hold in a portfolio of investments. In this video, Yves Bonzon, Pictet CIO, describes the regimes and asset classes to favour at the moment.
Wikimedia CommonsPhoto: William Cho. Henderson awarded Real Estate Fund Manager of the Year
Henderson Global Investors is pleased to announce that Tim Gibson, who manages the Henderson Horizon Asia Pacific Property Equities Fund (“Fund”),has picked up the“Real Estate Fund Manager Award of the Year” from The Asset Triple Investor and Fund Management Awards 2013 this week. The Fund has a top quartile1ranking since inception and over a 3-year period as well asa “3 star” Morningstar rating2.
Speaking about the recent award, Tim Gibson, Head of Property Equities, Asia, says, “This award is a testament to the strong performance delivered by the team to investors. Henderson has built a strong track record of managing Asian property equities since 2001.The Fund offers investors an excellent opportunity to gain exposure to thelong-term prospects of investing in Asian real estate equities.”
The Henderson Asian Pacific property equities team has over 15 years’ investment experience and currently manages US$1.4 billion of assets in Asia-Pacific property equities. The Henderson Horizon Asia Pacific Property Equities Fund that the team manages has a fund size of approximately US$520 million and has received several accolades over the years including:
Winner of Real-estate investment trusts, Asia-Pacific category in Asian Investor Investment Performance Awards 2011
Best over 3 years for Equity Real Estate Asia Pacific Sector in The Edge-Lipper Singapore Fund Awards 2011.
Foto: Miguel Contreras (US Navy). ¿Qué esperar de un proceso de coaching?
Deutsche Bank Depositary Receipts today announced that on June 19 it will be hosting the first virtual investor conference in the depositary receipts industry aimed exclusively at introducing Asian companies to investors primarily in the US. The line-up of its virtual investor conference will include live presentations from several Asia-based companies. Investor Relations Officers from companies based in China, Hong Kong and other parts of Asia will respond to questions in real-time during formal presentations and will also interact with investors in virtual trade booths. The conference is primarily targeted to the individual retail investor but is also open to institutional investors and analysts.
There is no fee for participants to log-in to attend the presentations and ask questions. Pre-registration is suggested to save time.
Edwin Reyes, Global Head of Depositary Receipts, Deutsche Bank, said, “Deutsche Bank is pleased to be the first bank to hold a depositary receipts virtual investor event of this type with Asia-based companies. Individual investors in the United States are offered unique access to these companies that are based in a different time zone. Deutsche Bank continues to focus on offering innovative ways for our clients to reach new investors.”
