Exploding the debt reduction myth

Since the crisis US$60 trillion of debt has been created globally versus US$15 trillion of GDP. That is a ratio that is clearly concerning for central bankers though they rarely address it head on. Does the net worth of a central bank matter? It is not a question that they want  to answer. But when you look at the leverage ratio of central banks, their assets versus capital, we are in the territory of Lehman Brothers prior to its implosion in 2008.

The Federal Reserve is 78 times levered and the Bank of Japan 79 times. The European Central Bank is at 30 times. If you ask anyone if this matters  you will get a shrug. Of course, central banks cannot go bust in a traditional commercial sense, but that is not the real issue.

The problem is whether a financially weak central bank is able to conduct monetary policy in the way it wants to? A weak central  bank has to deal with that problem and also the issue of credibility and trust.

Abdallah Nauphal – Insight, a BNY Mellon company

Since the crisis US$60 trillion of debt has been created globally versus US$15 trillion of GDP. That is a ratio that is clearly concerning for central bankers though they rarely address it head on. Does the net worth of a central bank matter? It is not a question that they want  to answer. But when you look at the leverage … read more

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Taking a stand against executive excess

Shareholders of US-listed companies were given the right to vote on the compensation arrangements for a company’s named executive officers in 2011. But these voting resolutions are advisory and not binding, unlike in the UK where a binding shareholder vote on pay was introduced in 2014. In the US they act more as a vote of confidence from the shareholders on the remuneration arrangements in place.

During the second quarter, a common theme of concern for us was the lack of linkage between reward and performance, particularly across the pond. In many instances, long-term remuneration awards begin vesting after only 12 months and are not subject to the achievement of performance targets. Irrespective of other concerns, this was the primary reason for Newton voting against the compensation arrangements of the named executive officers and against proposed remuneration plans. Newton also voted against the members of the compensation committee who were seeking re-election to the board.

We will continue to vote actively against executive pay packages that are not aligned with performance and the creation of long-term value for investors no matter where the companies are domiciled.

Ian Burger – Newton, a BNY Mellon company

Shareholders of US-listed companies were given the right to vote on the compensation arrangements for a company’s named executive officers in 2011. But these voting resolutions are advisory and not binding, unlike in the UK where a binding shareholder vote on pay was introduced in 2014. In the US they act more as a vote of confidence from the shareholders … read more

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Asian growth: Ignore at your peril

While recent news flow focuses on the health of the eurozone or the likelihood of a US rate rise, away from the headlines Asia’s economic momentum quietly continues to build. On any number of measures the region now outpaces established western economies.

In terms of international passenger numbers, Asia’s airports take four of the top-ten spots, but the picture around freight traffic is very different. Here, Asian airports take up seven of the top ten spots, underlining the region’s status as the workshop of the world. In the world of shipping, the contrast is even starker, with all of the world’s busiest ports now located in Asia.

With its positive long-term fundamentals – and even as the Chinese economy continues to slow down – we believe Asia remains a cornerstone of future world growth. Increasing bond issuance and a broadening range of exposures across sectors, geographies and risk profiles make for intriguing investment opportunities. It remains something of an overlooked market but one, perhaps, whose time has come.

Sarah Percy-Dove – Standish, a BNY Mellon company

While recent news flow focuses on the health of the eurozone or the likelihood of a US rate rise, away from the headlines Asia’s economic momentum quietly continues to build. On any number of measures the region now outpaces established western economies. In terms of international passenger numbers, Asia’s airports take four of the top-ten spots, but the picture around … read more

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China and Japan no longer hostage to energy suppliers

In Asia, security of energy supply is nowhere near as pressing as it was even a couple of years ago. Until recently, China and Japan were concerned either that some energy-producing nation would create a supply shock or that they would struggle to procure enough oil and gas to meet the needs of their domestic economies. These concerns seem to have faded now that oil is US$50/bbl and given an expected ramp up in Liquefied Natural Gas (LNG) supply over the next decade.

On the demand side too there are positive signs, particularly since China’s economy is set to be less energy intensive per unit of GDP as the country increasingly shifts to consumption and services. China’s oil demand has grown by 6% per annum over the last 5 years and the country has accounted for 40% of the world’s total incremental demand over the period. However, currently crude oil demand is growing at only half the rate of the last 5 year average (June 2015 was +3.4% yoy).

As a result, neither Chinese oil companies nor Japanese trading houses feel the need to go out and buy resources, companies or stakes in oil or gas fields at vastly over-inflated prices as they have tended to in the past.

Richard Bullock – The Boston Company Asset Management, a BNY Mellon company

In Asia, security of energy supply is nowhere near as pressing as it was even a couple of years ago. Until recently, China and Japan were concerned either that some energy-producing nation would create a supply shock or that they would struggle to procure enough oil and gas to meet the needs of their domestic economies. These concerns seem to … read more

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