The week that was…

In the week ending 24th July, what stole the financial headlines?

A week on from the downing of a Malaysian airliner over Eastern Ukraine, the blame-game was in full flow with the West quick to point the finger at Russia for its continued interference in Ukraine. Meanwhile, the West announced plans for a further raft of economic sanctions on Russia. Elsewhere, there was no let-up in Israel’s bombardment of Gaza and, as the death toll rose, John Kerry, US secretary of state, travelled to the region in an effort to broker a ceasefire between the two factions. In other news, there was a focus on hedge funds which, while currently the victims of low market volatility, are being tipped to shine as and when the US Federal Reserve chooses to increase interest rates.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 25/07/14. ISSG is part of The Bank of New York Mellon.

A week on from the downing of a Malaysian airliner over Eastern Ukraine, the blame-game was in full flow with the West quick to point the finger at Russia for its continued interference in Ukraine. Meanwhile, the West announced plans for a further raft of economic sanctions on Russia. Elsewhere, there was no let-up in Israel’s bombardment of Gaza and, … read more

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QE – It’s a kind of magic

Markets are no longer following fundamentals

The post-crisis environment seems to be showing positive signs that QE has worked and we can look forward to strong, rising asset prices with minimal volatility. However, beneath the surface of this are the underlying problems existing that suggest investors should be expecting to see low returns and higher volatility for the foreseeable future. Primary indicators such as unemployment figures are generating ‘false’ signals, giving investors the wrong impression regarding the health of particular economies and consequently there is a misallocation of capital.

 

Nick Clay, Portfolio Manager, Newton.

The post-crisis environment seems to be showing positive signs that QE has worked and we can look forward to strong, rising asset prices with minimal volatility. However, beneath the surface of this are the underlying problems existing that suggest investors should be expecting to see low returns and higher volatility for the foreseeable future. Primary indicators such as unemployment figures … read more

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The week that was…

In the week ending 17th July, what stole the financial headlines?

The downing of the Malaysian airliner in Ukraine on Thursday was swiftly followed by renewed bouts of finger-pointing by the Ukrainian and Russian governments, each adamant the other was responsible for the tragedy. Russia’s influence on the separatist rebels occupying the area of Eastern Ukraine in which the plane came down was the subject of much rhetoric from Western leaders, with the prospect of further economic sanctions on Russia looking increasingly likely. Meanwhile, after US Federal Reserve (Fed) Chair Janet Yellen suggested the Fed was in no hurry to raise interest rates, Larry Fink, chief executive at Blackrock, urged the central bank to end its crisis-era policies. On the economic front, despite weakness in the US housing market (most notably in home building), employment numbers and manufacturing activity are painting an increasingly positive picture for the economy.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 17/07/14. ISSG is part of The Bank of New York Mellon.

The downing of the Malaysian airliner in Ukraine on Thursday was swiftly followed by renewed bouts of finger-pointing by the Ukrainian and Russian governments, each adamant the other was responsible for the tragedy. Russia’s influence on the separatist rebels occupying the area of Eastern Ukraine in which the plane came down was the subject of much rhetoric from Western leaders, … read more

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Low volatility breeds currency contempt

Volatility levels in major asset classes

Low volatility in the foreign exchange market has created a very challenging environment for anyone trying to generate returns. Consensus trades have been shaken out and many managers are now reluctant to take aggressive positions. We remain convinced that diverging central bank policy will eventually be reflected in exchange rates so maintain our short euro, long US dollar (USD) and short Japanese yen (JPY) positions. USDJPY has been highly correlated with US Treasury yields and the rally in bond prices is beginning to unwind with more positive data. The one area of FX where there is some momentum is emerging markets and we have been selectively buying high carry currencies such as the Brazilian real, but balancing it with short positions in other beta currencies such as the South African rand.

Paul Lambert, Head of Currency, Fixed Income, Insight

Low volatility in the foreign exchange market has created a very challenging environment for anyone trying to generate returns. Consensus trades have been shaken out and many managers are now reluctant to take aggressive positions. We remain convinced that diverging central bank policy will eventually be reflected in exchange rates so maintain our short euro, long US dollar (USD) and … read more

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The week that was…

In the week ending 10th July, what stole the financial headlines?

Minutes from the Federal Open Market Committee’s June meeting showed the US Federal Reserve hasn’t altered its expectation of an interest rate hike in the second half of 2015, while tapering is in line to be completed this October. Meanwhile, questions continue to be asked over the veracity of the US economy recovery. US employment numbers continue to impress while lending to businesses is reaching record highs but doubters remain plentiful in number. In Europe, all has gone quiet on the Eastern front as President Vladimir Putin mulls his next move with regards to Ukraine. This follows a speech two weeks ago in which he accused the US of Cold War tactics.

 

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 10/07/14. ISSG is part of The Bank of New York Mellon.

Minutes from the Federal Open Market Committee’s June meeting showed the US Federal Reserve hasn’t altered its expectation of an interest rate hike in the second half of 2015, while tapering is in line to be completed this October. Meanwhile, questions continue to be asked over the veracity of the US economy recovery. US employment numbers continue to impress while … read more

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Why are retail company IPOs peaking?

Retail IPO volume

The strength of Europe’s stock markets over the past two years has encouraged a surge of retail IPO’s. With high valuations and many business models facing long term challenges from the internet, there is an incentive for owners to reduce exposure (by selling out) and to raise funds to adapt to the challenge from online retailing.

The surge in IPOs can be viewed as being both positive and negative. One of the most fundamental roles of capital markets in society is to raise capital for businesses in the realworld. However, the fact that it has surged implies that “insiders” potentially see the current market levels as being high and are therefore willing (and trying) to sell a lot of paper in their companies to the market.
Rajesh Shant, investment manager, Newton’s global equity team

The strength of Europe’s stock markets over the past two years has encouraged a surge of retail IPO’s. With high valuations and many business models facing long term challenges from the internet, there is an incentive for owners to reduce exposure (by selling out) and to raise funds to adapt to the challenge from online retailing. The surge in IPOs … read more

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The week that was…

In the week ending 3rd July, what stole the financial headlines?

US security dominated the headlines after US homeland security announced it was increasing aviation security amid new concerns about the capacity of al-Qaeda-linked groups to evade existing controls. The UK followed the US’ example. Meanwhile, the battle for Iraq rumbles on and following rumours that the Iraqi army had withdrawn from the Iraq-Saudi Arabia border, the Saudi government sent 30,000 troops to its frontier. In other news, President Barack Obama received an Independence Day message from the Kremlin as the Russian president, Vladimir Putin, called for closer ties between the two countries. Given the strained relations between the two powers since Russia’s annexation of Crimea earlier in the year, Putin’s message carried a remarkably conciliatory tone.

 

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 04/07/14. ISSG is part of The Bank of New York Mellon.

US security dominated the headlines after US homeland security announced it was increasing aviation security amid new concerns about the capacity of al-Qaeda-linked groups to evade existing controls. The UK followed the US’ example. Meanwhile, the battle for Iraq rumbles on and following rumours that the Iraqi army had withdrawn from the Iraq-Saudi Arabia border, the Saudi government sent 30,000 … read more

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Stars align for the Philippines

Consumer loans to GDP and working age population growth.

Historically overlooked and sometimes just plain ignored, the Philippines has long since shaken off its tag as the ‘Sick man of Asia’. A far cry from its days as a heavily indebted country, the Philippines is now a net lender of US dollars in the global debt markets. What’s more, it has been running a current-account surplus for years. Consumer debt to GDP is very low in comparison to the rest of Asia, while the country’s savings rate is at an all-time high. And then there’s the country’s highly supportive population dynamics. They too add up. With a median age of just 23.5 years in 2012, the Philippines boasts a rapidly expanding working age population. Indeed, this is expected to grow by around 50% between 2011 and 2036. It also means a very low elderly dependency ratio.[1]

The country has the potential to stand toe-to-toe with the best performing markets in the world, let alone Asia, over the next 20 years.

Jason Pidcock, Newton

 

[1] https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html

 

Historically overlooked and sometimes just plain ignored, the Philippines has long since shaken off its tag as the ‘Sick man of Asia’. A far cry from its days as a heavily indebted country, the Philippines is now a net lender of US dollars in the global debt markets. What’s more, it has been running a current-account surplus for years. Consumer … read more

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The week that was…

In the week ending 26th June, what stole the financial headlines

News headlines were dominated by continued unrest in the Middle East and stalemate in the Russia/Ukraine crisis. US Secretary of State John Kerry visited Saudi Arabia to discuss the ongoing crises in Iraq and Syria – the Obama administration has asked Congress for US$500m to train and equip members of Syria’s opposition. On the topic of Iraq, the likely effect of the country’s turmoil on the oil price is being questioned by many. Although the violence in Iraq has thus far had a limited impact on global oil markets, many commentators believe emerging markets will bear the brunt of any negative consequences. Elsewhere, the Russian government is working on measures to replace imported industrial goods with domestically manufactured ones in an effort to dampen the effect on its economy from its stand-off with Ukraine.

 

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 27/06/14. ISSG is part of The Bank of New York Mellon.

News headlines were dominated by continued unrest in the Middle East and stalemate in the Russia/Ukraine crisis. US Secretary of State John Kerry visited Saudi Arabia to discuss the ongoing crises in Iraq and Syria – the Obama administration has asked Congress for US$500m to train and equip members of Syria’s opposition. On the topic of Iraq, the likely effect … read more

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China cements its place in construction history

China has overcapacity problems in many industries, including cement. The country has undergone an infrastructure binge since its post-financial crisis stimulus package in 2008, where capital investment occurred without due concern for the returns it would or would not generate. This explains the elevated cement consumption per capita in China compared to the peak levels seen elsewhere, as building for future demand was brought forward. As a result, from both the supply side and the demand side, we do not currently find this sector a compelling investment proposition in China and have no exposure to it.

Caroline Keen, Newton

China has overcapacity problems in many industries, including cement. The country has undergone an infrastructure binge since its post-financial crisis stimulus package in 2008, where capital investment occurred without due concern for the returns it would or would not generate. This explains the elevated cement consumption per capita in China compared to the peak levels seen elsewhere, as building for … read more

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