Bearish on Russia?

Confidence has fallen but investors still see opportunity

Russia has been under stress because of the situation in the Ukraine and because of the falling oil price – and clearly, as shown by the data above, this has affected the short-term outlook for growth.

But, taking a longer term view, we believe it’s possible to look beneath the headlines to uncover hidden value. In Russia, for example, on a corporate level, we’ve recently identified several opportunities where we believe corporate debt has been oversold and a re-pricing is overdue. One area of interest is companies whose assets or revenues are in dollars and who therefore benefit from a decline in the rouble.

For us, the failure of the market to drill down beneath the surface to recognise these opportunities is part of the attraction. By targeting unloved or out-of-favour areas we aim to capture a long-term structural premium. That’s one of the reasons Russia remains an exciting place to invest.

Robert Simpson – Insight, a BNY Mellon company

Russia has been under stress because of the situation in the Ukraine and because of the falling oil price – and clearly, as shown by the data above, this has affected the short-term outlook for growth. But, taking a longer term view, we believe it’s possible to look beneath the headlines to uncover hidden value. In Russia, for example, on … 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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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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Taxing times for Japan

The consumption tax rise and why this time it’s different

In 1997 the Japanese government engaged in fiscal retrenchment and raised the consumption tax from 3% to 5%. Soon after the policy came into force, there was a recession and a sharp increase in Japan’s government debt-to-GDP ratio. Japan was about to enter a 15-year period of deflation – the timing was terrible. If only the underlying economy had been stronger, it might have been different.

But this time around we believe it is different. There is momentum behind the Japanese economy and there is significant political capital invested in the move by Prime Minister Shinzo Abe and his government. We expect it to work and we expect to see the positive effects of the tax rise in the coming quarters.

Miyuki Kashima, BNY Mellon Japan’s head of Japanese equity investments

 

In 1997 the Japanese government engaged in fiscal retrenchment and raised the consumption tax from 3% to 5%. Soon after the policy came into force, there was a recession and a sharp increase in Japan’s government debt-to-GDP ratio. Japan was about to enter a 15-year period of deflation – the timing was terrible. If only the underlying economy had been … read more

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As safe as houses… (again)?

House price growth vs earnings growth

UK housing market data suggests the UK once again finds itself in a cycle of consumer spending supported by credit rather than wage gains. Is history repeating itself?

Peter Hensman, global strategist at Newton.

UK housing market data suggests the UK once again finds itself in a cycle of consumer spending supported by credit rather than wage gains. Is history repeating itself? Peter Hensman, global strategist at Newton.

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