The mee. Authorities and Academics Reflect about the Challenges of The Emerging World Order at the II CAF-LSE Conference
With the purpose of promoting the analysis regarding the current dynamics of emerging countries and their impact on the configuration of a new world order, on January 16th, 2015, CAF, Development of Latin America, and the London School of Economics and Political Science (LSE) will hold the II CAF-LSE Conference “Geopolitics and the Global South: Challenges of the emerging world order”.
This year’s program will address in detail the analysis of the current reconfigurations of the world order from the perspective of the emergence of the Global South, and particularly its effects on multilateralism, safety, development, and South-South cooperation. The inaugural session will be in charge of Enrique Garcia, CAF’s Executive President, Stuart Corbridge, LSE’s Deputy Director, and Chris Alden, Director of the LSE’s Global South Unit.
Speakers will include Ricardo Lagos, former President of Chile, and Jose Maria Aznar, former President of the Government of Spain.
The meeting will be held at the headquarters of the London School of Economics and Political Science, and will be transmitted live through livestreaming. It may also by followed in the social networks with the hashtag #CAFLSE.
The II CAF-LSE Conference, organized by CAF, Development Bank of Latin America, and the London School of Economics and Political Science (LSE), is carried out in the framework of the strategic alliance established between the two institutions in 2013 to examine the changing role of emerging countries of the South, especially Latin American countries, in the configuration of the dynamic international scenario.
Photo: Nestor Galina. 7 Prices for 7 Commodities by Loomis, Sayles & Company
The commodity complex has seen a rapid fall since the middle of the 2014 due to global growth concerns, the US dollar rally and continuing overall growth in supply. “I believe prices may be close to bottoming and we could see a cyclical upturn in the first half of 2015”, says Saurabh Lele, Commodities Analyst for the macro strategies group at Loomis, Sayles & Company.
Crude oil
Lele expects crude oil prices to correct in 2015, bringing the Brent Crude Index to $85-95/barrel and the West Texas Intermediate (WTI) to $75-85/barrel by year end. “My opinion is that the current move in crude oil prices is unwarranted. I believe the market is mispricing geopolitical risk, a US supply response and the upcoming global refinery turnaround schedule (periods of refinery closure for maintenance and renewal services)”.
The situation in Libya is still volatile and recent disruptions to oil production are yet to have any impact on prices. Refinery demand in the second half of 2014 was the weakest in five years, not only due to global growth but also due to temporary factors such as closures and maintenance related shutdowns, explains. “The first half of 2015 will see very little maintenance related shutdowns as well as several new refineries initiating operations. Finally, US domestic production will adjust lower as energy and petroleum companies will have less cash to spend in 2015”.
Natural gas
In this case, the analyst expects prices to continue to trade in the $3.75 to $4.25 per mmbtu range (this is the price required for electric consumption to balance the market)
Natural gas seems to have found a comfortable trading range between $3.75 and $4.25 per mmbtu as electric utilities switch between natural gas and coal. Inventories, which were down significantly after the severe winter in early 2014, have built up steadily over the course of a cooler-than-usual summer. “In 2015 we are likely to see higher demand for natural gas due to higher industrial consumption, exports to Mexico and the start of LNG exports from the new Sabine Pass terminal in Texas”, argues.
Copper
Loomis, Sayles & Company expects copper to stay in a slight surplus after which supply growth is expected to slow and fall behind demand.
Inventories at the exchange and bonded warehouses are low and a slight pickup in demand could result in prices moving higher. “Over the next two quarters, we could see demand improve from higher grid spending in China, which has lagged its budgeted number year-to-date”, says Lele.
Iron ore
“Prices could correct and move up to the $80-90 per metric tonne range by the second half of 2015. Longer-term I believe iron ore prices to remain in $80-$90 range”, affirms Lele.
“The fall in prices exceeds what fundamentals would dictate – I believe the decline is being driven by de-stocking/restocking cycles. Demand should improve after the APEC (Asia-Pacific Economic Cooperation) summit in November as steel makers restart mills near Beijing”. Ore inventories at ports have fallen between 7-10% since their June highs, indicating low but stable demand. Iron ore inventories at steel mills are also close to their 2012 lows.
Thermal coal
He expects global thermal coal prices to stay in the $70-75 per metric tonne range over the next year due to weak demand is likely to persist with the only bright spot being medium-term Indian coal. “I see strong supply growth from Indonesia and Australia in the near-term; the impact of the thermal coal import tax is expected to be minimal as Indonesia and Australia are exempt due to their respective free-trade agreements with China”.
Gold
The firm expects gold prices to fall to $1,000/oz over the next two years. “Resilient mine supply and lower demand from China and India should push prices lower. I expect the Indian gold export tax to continue until the end of 2015 as well as Chinese demand for jewelry to remain subdued as anti-corruption sentiment reduces the demand for luxury goods. ETF selling is expected to continue as real rates move higher and inflation/deflation present no major concerns at this time”, enunciates.
Photo: Official White House (Pete Souza). Shades of APEC Blue
Just about the time of the Asia-Pacific Economic Cooperation (APEC) summit late last year, my social media feed began filling up with stunningly beautiful images of autumn in Beijing. This made me feel like all my bad memories of the city’s haze and smog were merely delusions. The chatter that week was all about what was nicknamed “APEC Blue,” the clear blue skies that replaced the normally smog-choked atmosphere ahead of the economic summit—a result of intentional government closings of factories and roads. This was done expressly to clear the air before the world leaders arrived.
The APEC meeting was touted as the second-most important event in Beijing after the Olympics, and it was a great feat to clean the air even though results were just temporary. Beijingers have added “APEC Blue” to their urban slang and joke that it stands for “Air Pollution Eventually Controlled” Blue. While some companies may have taken a hit after shuttering their factories, the temporary blue skies also demonstrates that air pollution is controllable and it is not “pollution with China characteristics,” an overused term to explain differences unique to the country. It is just a matter of how much effort and priority one places upon this.
Producing APEC blue is a complicated and expensive task. In addition to shutting factories and closing roads, the government offered additional paid time off to local state workers, closing many businesses and postponing winter heating supplies to reduce coal burning.
In my view, air pollution is symbolic of growing pains. If you consider the history of London, Los Angeles, Tokyo and Chicago, almost all major metropolitans have gone through similar pains as they developed and industrialized. Beijing is not an outlier, even though environment protection was well-discussed in my 8th grade textbooks.
Thanks to President Barack Obama’s trip to China, Chinese President Xi Jinping proceeded to outline a climate change agreement with the U.S. during the APEC summit. The world’s two biggest greenhouse gas emitters have been at opposite ends of the negotiating table during almost two decades of attempts to strike a meaningful global pact to lower emissions. This is the first time China has agreed to cap its emissions, after arguing for many years that it needed to grow richer before worrying about climate change. Progressively, we hope to see more Chinese initiatives, not only aggressive and temporary ones that have led to such literal breaths of fresh air as APEC blue, but those more akin to such efforts as the Clean Water and Clean Air acts that have had more lasting benefits.
At Matthews Asia, we aim to seek firms well-positioned to ride on this wave and benefit from China’s environmental improvements as well as its shift toward a more service- and consumption-oriented economy.
Column by Raymond Z. Deng, Research Analyst at Matthews Asia.
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
The three main themes of the New Year are monetary policy, monetary policy and monetary policy. Far, far down the list is the question of the cyclical trend and – oh yes, there was one more thing, after the political uncertainties that are popping up everywhere.
First, monetary policy: the Bank of Japan is continuing its policy of monetary flooding. Although this policy has not brought about the desired results over more than 20 years, this is the only possible outcome of the re-election of Prime Minister Abe.
Second, monetary policy: over the Christmas holidays, another “Big Bertha” (“LTRO”)1 from the European Central Bank (ECB) ran out and repayments of the three-year tender of EUR 270 billion are due by February, which will shrink the central bank balance sheet and make the monetary guardian sweat, because the volume of the new conditional long-term tender fell short of expectations. The resulting balance sheet shrinkage is grist to the mill of proponents of extensive purchases of government bonds. This is all the truer as consumer prices are expected to go into reverse in future on the decline in the oil price. Things will not become interesting until 14 January, when the European Court of Justice, on the initiative of the German Federal Constitutional Court, announces its judgment on the OMT(Outright Monetary Transactions) purchases.
Third, monetary policy: the US Federal Reserve (Fed) is expected to introduce its first rate hike over the summer, but it is making every effort to protect the market as much as possible during this implementation.
For investors, this means: none of this does any good. Once the price of money is distorted, the result is misallocation of capital, and even macro- prudential measures only help under certain conditions. Some pay for this with negative real interest rates, others battle with valuations that increase with risk, with a tendency towards asset price bubbles. In addition, the focus is moving to the economy. We still do not expect deflation. The latest data from the US support that view. Furthermore the latest European consumer price indices need to be seen in the light of the oil price.
What remains is a set of geo-political uncertainties. The Russia-Ukraine conflict continues to smolder and shows that the laws of economics cannot be overridden, as indicated by the Ruble. Increased risk demands higher risk premiums. In Greece, new elections at end-January could put the entire reform process up for debate. One item that few have on the agenda: in May there will be elections in the United Kingdom and critics of Europe see an opportunity.
There remains just one thing: use volatility for active investment or make use of multi asset solutions.
Opinion Column by Hans-Jörg Naumer, Global Head of Capital Markets & Thematic Research, Allianz GI
CC-BY-SA-2.0, FlickrFoto: Eduardo Mar. A corto plazo las valoraciones en Brasil ya no resultan tan atractivas
Italy’s independent asset manager Azimut has signed a deal to acquire 50% of Brazil’s LFI Investimentos through AZ FuturaInvest, one of its Brazilian joint ventures, said italian media.
LFI is an independent wealth management company based in Sao Paulo, founded in 2009 with a proven track record on developing customized investment solutions for Brazilian HNWI.
The Brazilian company counts seven experienced professionals, with an average tenure of more than 25 years in the industry and approximately R$500m (US$190m) AUM.
AZ FuturaInvest is Azimut financial advisory arm for the Brazilian market providing professional advisory services on asset allocation, funds selection and financial education.
“With LFI, AZ FuturaInvest will be able to offer new and efficient wealth management solutions to families and HNWI clients leveraging on LFI experience to structure customized portfolios. The team of LFI will add up to the FuturaInvest advisory team which currently counts more than 40 professionals,” the company said.
The transaction, which is not subject to the approval by the competent authorities, involves a purchase price of around R$ 8.5m (around US$ 3.2m) to be paid to LFI founders in four tranches during the next five years depending on the attainment of specific targets.
Marcelo Vieira Elaiuy and Fabio Frugis Cruz, founders of LFI commented: “Joining Azimut project is a fundamental step to improve our business. We will be able to leverage on the entire Azimut structure maintaining our independent governance and focus on clients’ interests. We are confident that the quality of the new structure will result in huge benefits for our customers.”
Pietro Giuliani, Chairman and CEO of Azimut Holding, added: “Despite a tough 2014 for the Brazilian investment fund industry, our local operations registered an encouraging growth, confirming the value of our business model and the quality of our partners. The complementary nature of LFI and AZ FuturaInvest gives new strength to our project, which rests on providing asset allocation and financial advisory services to our clients. We continue to scout all the international markets in which Azimut operates in order to attract more talents, and the JV with LFI reinforces our focus on Brazil as one of the key markets for Azimut international expansion.”
Capital Strategies Partners, a third party mutual fund distribution firm, holds the distribution of AZ Fund Management products in Latin America
Photo: Dennis Jarvis. “Make in India”: A Push for Manufacturing
India’s challenges in the manufacturing sector illustrate the complexities of implementation in real (versus theoretical) political and economic systems. Ownership barriers, rigid labor laws, complex land acquisition rules and weak infrastructure have conspired to stunt manufacturing growth. But whenever these barriers have been lifted, explains Sharat Shroff, portfolio manager at Matthews Asia, the response from the entrepreneurial community has been encouraging. The automobile industry, liberalized in 1991, was among the first segments of manufacturing to open up to private sector participation. Since then, output has grown 15-fold and, India is increasingly considered a destination for manufacturing and an export base for auto parts and automotive vehicles.
India’s newly elected Prime Minister Narendra Modi has made manufacturing a key agenda point, thinks Shroff. Specifically, his administration plans on building a globally competitive industrial sector that can steadily increase market share in exports. To support this, authorities have progressively lowered ownership barriers to foreign firms within manufacturing. Most recently, in the defense and railways sectors, it has increased the level of ownership permitted by foreigners to 49% and 100%, respectively.
Labor laws in India are more vexing because they are legislated concurrently by both the central and state governments. The Northwestern state of Rajasthan has taken the lead in labor deregulation by reducing government-approval restrictions on hiring/firing workers. Other proposed measures aim to provide greater flexibility in running factories, and in complying with existing labor laws. If the efforts in Rajasthan lead to greater job creation, it will be difficult for other states not to follow suit.
Formal job creation is surely a goal of Mr. Modi’s and the kinds of changes sought by the state of Rajasthan are certain to challenge some vested interests. But the recent elections have given a broad mandate of growth and governance over welfare entitlements to the incoming government, concludes the Matthews Asia expert.
Ethenea Independent Investors S.A. expands its Portfolio Management Team by a new colleague. Peter Steffen strengthens the team around Luca Pesarini, Arnoldo Valsangiacomo, Guido Barthels and Daniel Stefanetti as of January 2015. “We are happy to have experienced Portfolio Manager Peter Steffen aboard. The equities expert completes our team and will support us in the investment decisions of our funds”, says Chairman of the Board of Directors and Portfolio Manager Luca Pesarini.
Peter Steffen holds a Master’s Degree in Finance and Asset Management and is CFA Charterholder. He worked for different banks and gained relevant experience in the areas of Credit Research, Equity Research, Corporate Banking and Alternative Asset Management. In 2007 he joined Deutsche Asset & Wealth Management Investment GmbH in Frankfurt and New York. For three years he worked as analyst for US bank and insurance stocks. Since 2010, he occupied the position of Portfolio Manager and successfully managed the funds DWS Global Value and DWS Top Dividende.
Capital Strategies is Ethenea distributor in Spain and Portugal.
Photo: Eneas de Troya. Assessing the U.S. Economy in the New Era of Innovation
There are driving changes in the U.S. economy, affecting employment, productivity and profitability dynamics: the automation of knowledge work, advanced robotics and the energy revolution. These trends are just the tip of the iceberg, says Pioneer Investments. “Over the coming decade, radical changes in healthcare, education, communication, transportation and alternative energy – to name just a few – will transform the economy and the investment landscape. We believe that new modes of research and analysis will be necessary in order to interpret the impact of these changes on both the macro and micro levels of the economy”.
Selection in the Era of Innovation
In this era of accelerating innovation, Pioneer´s analysts believe that a fundamentally different analytical perspective on long-term factors shaping the economic landscape is required. “This framework, together with the more traditional sector/business financial analysis, will potentially enable us to identify unique return opportunities and uncover hidden risks in each market”. Key factors for the firm are:
New technologies’ impacts on sector trends
New business emergence
Rapidly evolving disruptive competitors
Business model flexibility; the ability to leverage a platform, respond to competitive threats, reshape product and service offerings
Demonstrable innovation track record (ability to enter new markets/launch new products)
The ability to attract/retain innovation talent, shed costs, rapidly increase productivity
Accelerating Innovation: Far-reaching, Positive Consequences on the Economy
The U.S. economy is in transition, moving rapidly towards a knowledge-based economy that will rely increasingly less on human labor to manufacture goods and provide many services. “We believe the trends we have discussed will rapidly reshape the economic landscape. With any dramatic change comes uncertainty and some fear. Many pundits have highlighted the possible downside of these changes. While we are sympathetic to these concerns, we believe that accelerating innovation will ultimately create more jobs than it destroys, produce dramatic wealth and have far-reaching positive consequences to areas of the economy that have historically been less productive (education and healthcare are good examples)”, explains Michael Temple, director of Credit Research at Pioneer Investments and portfolio manager for Pioneer Dynamic Credit Fund.
Every economic transition generates dislocations. Society ultimately adapts but the transition will be difficult to navigate for those unable to keep up. This has significant ramifications for the investment landscape, opines Temple. “Investors that use traditional frameworks to analyze the market, picking winners and losers based on outdated valuation relationships or assessing macro-economic policy based on irrelevant historical paradigms, run the risk of focusing on the wrong things”.
Photo: Florian K. Alain Ucari Succeeds Bruno Dumitrescu in The Leadership of Julius Baer’s Entities in Monaco
Effective from 6 January 2015, the leadership of Julius Baer’s entities in Monaco changes: Bruno Dumitrescu, who has led both Bank Julius Baer (Monaco) S.A.M. and Julius Baer Wealth Management (Monaco) S.A.M. since 2010, has decided to step down from his present management responsibilities to fully focus on acquiring and servicing key clients in the future. He is succeeded by Alain Ucari who joins Julius Baer from Credit Suisse Monaco where he has been CEO.
Bruno Dumitrescu joined Julius Baer during the acquisition of ING Bank (Switzerland) Ltd and its subsidiaries in 2010, after leading their wealth management in Monaco as CEO for eight years. Previously, he was Commercial Director at ABN-AMRO Bank N.V. in Monaco for seven years. His leadership in the past years enabled the Bank and Wealth Management companies of Julius Baer in Monaco to successfully and strongly grow. Going forward, Bruno Dumitrescu will fully focus on acquiring and servicing key clients in his new roles as Senior Relationship Manager within the Bank and Vice-Chairman of the Wealth Management Unit in Monaco. He will continue to report directly to Rémy Bersier, Region Head Southern Europe, Middle East and Africa and member of the Executive Board.
Alain Ucari takes over from Bruno Dumitrescu as CEO of Julius Baer’s two entities in Monaco, reporting to Rémy Bersier. Prior to joining Julius Baer, he was CEO of Credit Suisse Monaco during more than twelve years. In this position, he continuously expanded the bank’s share of the local market, broadening the client base and increasing the profitability. Previously, Alain Ucari worked in senior management functions for Credit Suisse in Lebanon, the United Arab Emirates and in Switzerland. He maintains an extensive professional network, both in Monaco and on an international level.
“I would like to thank Bruno for his outstanding commitment, his personal contribution as well as for his achievement in successfully positioning Julius Baer in Monaco and developing our local business in the past years. I am pleased that we can continue to build on his broad expertise in his new roles. At the same time, I am also very happy that Alain agreed to take over such an important management responsibility. With his solid experience, excellent reputation and vast network he is the best possible choice to further build on Julius Baer’s positioning in Monaco. Bruno and Alain will closely collaborate to ensure a smooth transition and to set the path for further growth in this key market,” said Rémy Bersier.
Photo: Alastair Mundy, Head of Value at Investec. Investec: “Finally Things Are Changing With Large Companies in UK”
Alastair Mundy, Head of Value at Investec Asset Management, discusses in this interview where he sees the best investment potential in 2015.
What has surprised you most in 2014?
What has really surprised me this year was quite how poor the performance of Tesco’s share price was. We knew trading was tough in the food retail sector and we knew their accounting was pretty aggressive, but even we were surprised when the accounting irregularities hit the screens.
However, we are keeping faith with Tesco, we still think they can turn the business around, and we think they can compete against discount retailers. There is now new management at Tesco, Dave Lewis has come in from Unilever, and we expect him to shake things up very quickly; perhaps sell the Asian or European divisions and/or some non-corporate businesses, and perhaps be more competitive against the discount retailers.
Where do you see good value in the UK equity market in 2015?
The best value we see in the UK equity market going into 2015 is in the larger stocks in the market. Companies like HSBC, Glaxo, BP and Shell have performed poorly against the mid-cap companies over the last decade and we think finally things are changing with these very large companies. Rather than looking for acquisitions they are making disposals, reducing their non-core assets, cutting costs and we believe focusing on what is right for the shareholder.
Why do you believe there is value in mega caps?
We think if mega-cap companies can shrink back to where they really have the strong competitive advantage, shareholders will be surprised at the amount of earnings growth these companies can deliver. They are on quite low valuations already compared to some other smaller companies in the market, so we think that is what is going to drive performance.
How are you positioning your portfolios in terms of strategy and style?
Our UK Special Situations portfolio is positioned increasingly towards the FTSE 100 companies, where we have a very large weighting. We have been reducing our weighting towards FTSE 250 companies over the last couple of years and this has continued in 2014. We also hold quite a lot of cash; not so that we can spend it if there is a small market fall, but to wait for some really fantastic opportunities or for individual stocks if they have profit warnings or fall significantly out of favour.
How are you positioned in your complementary assets on your Cautious Managed portfolio?
We think it is very important to focus our Cautious Managed portfolio on capital preservation at the moment, as we see a number of concerns around the world. These concerns range from geopolitical worries to fairly disappointing earnings growth for companies worldwide, and, of course, the end of quantitative easing in the US. All of these factors suggest that equity valuations should not be as high as they are. So, what do we need if we think equity valuations are going to fall? We need some complementary assets such as gold, gold equities, Norwegian krone, cash and index-linked bonds, both US and UK. We cannot be absolutely positive that these complementary assets will rise if equity markets fall significantly, but we are hoping that they will dampen volatility if equity markets become more volatile. The strategy of investing in out-of-favour companies and combining this with a focus on complementary assets that work well with equities in different times in the cycle has been a strategy that has been successful for us over the past 21 years on our Cautious Managed portfolio.
