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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A race to the bottom?

Central banks have engaged in unconventional policies since the onset of the financial crisis in the form of QE, long-term repo operations, funding for lending and, in the US, the Troubled Asset Relief Program. Central banks’ commitment to safeguard their respective economies should not be underestimated. However, it is unsettling to see monetary authorities continue to ease policy at a time when lower oil prices are expected to boost disposable incomes and fuel global growth. Policy error is an important risk to consider when investing and given the unprecedented action taken since the financial crisis, it is difficult to gauge its impact in the longer term. Should central banks misjudge the policy responses, inflation could run higher than expected.

David Hooker – Insight, a BNY Mellon company

Central banks have engaged in unconventional policies since the onset of the financial crisis in the form of QE, long-term repo operations, funding for lending and, in the US, the Troubled Asset Relief Program. Central banks’ commitment to safeguard their respective economies should not be underestimated. However, it is unsettling to see monetary authorities continue to ease policy at a … read more

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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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How falling oil prices have muddied monetary policy waters

5 November 2014

Expectations of the timing, and extent, of future Bank of England rate rises have changed significantly since the summer. This has coincided with lower inflation readings and a sharp decline in the oil price.  At Newton, our focus on our debt burden theme has led us to doubt whether a policy of low interest rates and forced asset inflation, which aims to drag spending from the future into the present, could create a sustained upswing in nominal demand. Could further evidence of deflationary pressures see investors begin to consider if the next policy move will, in fact, be greater stimulus?

Peter Hensman, Newton

Expectations of the timing, and extent, of future Bank of England rate rises have changed significantly since the summer. This has coincided with lower inflation readings and a sharp decline in the oil price.  At Newton, our focus on our debt burden theme has led us to doubt whether a policy of low interest rates and forced asset inflation, which … read more

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