Sentiment v reality?

US HY a crowded trade, according to Fund Manager survey

For a little while now our view has been that high yield as an asset class is expensive. To the extent we own high yield we have been very selectively buying credits where we like the fundamentals and short-dated issuance where there is high certainty over cash flows. As a sign of weakness, new issues have been coming to market priced to perfection and aftermarket performance has been poor in many instances despite high levels of oversubscription. Now investor flows have turned negative too, especially in the US.

– Adam Mossakowski, fund manager, Insight Strategic Bond Fund

For a little while now our view has been that high yield as an asset class is expensive. To the extent we own high yield we have been very selectively buying credits where we like the fundamentals and short-dated issuance where there is high certainty over cash flows. As a sign of weakness, new issues have been coming to market … read more

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The week that was…

In the week ending 14th August, what stole the financial headlines?

Away from the front pages for the past couple of months, the situation in Iraq – where Islamic State militants have made rapid progress in their attempt to take control of the fractured country – has recaptured the attention of the world leaders. Having previously been preoccupied with events in Eastern Europe and Gaza, the attention of Western powers has swiftly shifted to Iraq. Indeed, with Islamic Militants reportedly controlling around a third of Iraq, the US military intervened with its first airstrikes since the withdrawal of US troops in 2011. Elsewhere, events in Ukraine continue to have far-reaching consequences for Russia’s European neighbours. Following a further raft economic sanctions from the West, Russia responded with a series of food import bans, many of which hit European economies the hardest. Meanwhile, Germany’s economy shrank by 0.2% in the second quarter of 2014 – a worse-than-expected outcome attributed in part to the unsettling effect of the Russia/Ukraine crisis on German business confidence.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 15/08/14. ISSG is part of The Bank of New York Mellon.

Away from the front pages for the past couple of months, the situation in Iraq – where Islamic State militants have made rapid progress in their attempt to take control of the fractured country – has recaptured the attention of the world leaders. Having previously been preoccupied with events in Eastern Europe and Gaza, the attention of Western powers has … read more

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Russian import ban offers food for thought

The effects on countries exporting to Russia following the ban imposed by Moscow on Western imports

Geopolitics has once again taken centre stage. Certain regions are feeling the effects of the Russian imposed ban on Western imports more than others. In Eastern Europe, the Baltic States ship roughly 15% of their exports to Russia. This does not look likely to affect global GDP growth, yet the key risk we face is an escalation in tensions between Russia and the West that results in sanctions against the oil and gas industry.  Baltic nations (as well as Slovakia and Bulgaria) are highly reliant upon Russia for their imported energy needs. Reductions in exports and/or potentially higher energy costs could have led us to downgrade growth forecasts for Poland, Latvia and Lithuania in 2014 and 2015.

Tom Higgins, chief economist, Standish

Geopolitics has once again taken centre stage. Certain regions are feeling the effects of the Russian imposed ban on Western imports more than others. In Eastern Europe, the Baltic States ship roughly 15% of their exports to Russia. This does not look likely to affect global GDP growth, yet the key risk we face is an escalation in tensions between … read more

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From Russia without love

German economic expectations turn negative for the first time since November 2012.

The latest release of the German Manufacturing PMI shows a continued economic expansion in Germany and similar data from the IFO confirm this. Nevertheless, momentum has slowed in the last couple of months; the August Sentix reading support this view.

There has been rising uncertainty with regards to the Russian-Ukrainian crisis, especially in light of the downing of MH17. Economic sanctions have been stepped up and are expected to hurt the already sluggish Russian economy. Russia is an important trading partner for Germany. Indeed, in 2013 German exports to Russia totalled €36bn*, with engineering products and the chemical industry important sectors.

More recently, some earnings releases pointed to the potential negative effects of the Ukrainian crisis. The unrest in Eastern Europe certainly hurts business sentiment but the degree to which it may hurt German GDP numbers going forward will depend on how the crisis plays out. The overall momentum of the German economy is sound while consumer sentiment looks set to remain robust. What’s more, positive US data and an improving economic situation in China should help ease the negative effects of the Russian crisis.

Henning Lenz, head of corporate credit, Meriten Investment Management.

*Source: Council on Foreign Relations

The latest release of the German Manufacturing PMI shows a continued economic expansion in Germany and similar data from the IFO confirm this. Nevertheless, momentum has slowed in the last couple of months; the August Sentix reading support this view. There has been rising uncertainty with regards to the Russian-Ukrainian crisis, especially in light of the downing of MH17. Economic … read more

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The week that was…

In the week ending 31st July, what stole the financial headlines?

Following the EU’s announcement of further economic sanctions on Russia following its interference in neighbouring Ukraine, company leaders across Europe warned of the impact on their businesses. The sanctions, deemed the toughest taken against Russia since the end of the Cold War, target the country’s energy, financial and defence sectors. Meanwhile, having shrunk by 2.1% in the first three months of the year – owing much to abnormally poor weather conditions – the US economy grew by an annual rate of 4% in the second quarter of the year. The US Federal Reserve continues to ‘taper’ its asset-purchasing programme and is on track to have completed the process by the end of the year. Elsewhere, as Israel’s bombardment of Gaza continued last week, US Secretary of State John Kerry was heavily criticised by officials in Israel as he failed to broker a ceasefire between the Israelis and Palestinians. The nature of Israel’s offensive in Gaza, a reaction to attacks by Hamas, a Palestinian militant Islamist group, has drawn widespread condemnation from international observers.

Headline Hotlist & World/ Asset Returns Source: The BNY Mellon Investment Strategy and Solutions Group (“ISSG”) as at 01/08/14. ISSG is part of The Bank of New York Mellon.

Following the EU’s announcement of further economic sanctions on Russia following its interference in neighbouring Ukraine, company leaders across Europe warned of the impact on their businesses. The sanctions, deemed the toughest taken against Russia since the end of the Cold War, target the country’s energy, financial and defence sectors. Meanwhile, having shrunk by 2.1% in the first three months … read more

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Dividend and conquer

High dividend growth since financial crisis.

The last five years has seen unattainably high dividend growth and numerous special dividends which followed dividend cuts during the crisis.  We now expect dividend growth to be more in line with earnings growth.  However growth may be lower in the short term due to the adverse effect of sterling strength on dividends paid in foreign currencies by UK companies. Due to this, companies with the ability to sustainably grow their cash flows and hence dividends, even in a weak economic environment should be the focus when investing.

Emma Mogford, Newton UK Higher Income

The last five years has seen unattainably high dividend growth and numerous special dividends which followed dividend cuts during the crisis.  We now expect dividend growth to be more in line with earnings growth.  However growth may be lower in the short term due to the adverse effect of sterling strength on dividends paid in foreign currencies by UK companies. Due … read more

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