Brian Bollen's Blog

China Valuation Is The Lure: Causeway

Causeway Capital Management's investment team has just released its July 2012 newsletter regarding Causeway’s outlook on China.

Despite its deceleration, China (and much of Asia) offers relatively better economic expansion potential than just about any other region. Portfolio managers Arjun Jayaraman, MacDuff Kuhnert, and Kevin Durkin discuss how Causeway implements its view of China in both developed and emerging markets portfolios.

Consult the piece in its entirety on the Causeway website at: http://www.causewaycap.com/Insights.aspx

Have Your Say on Financial Market Infrastructures

The Committee on Payment and Settlement Systems (CPSS) and the International Organization (sic) of Securities Commissions (IOSCO) have today published for public comment a consultative report on the Recovery and resolution of financial market infrastructures.

Financial market infrastructures (FMIs) play an essential role in the global financial system. The disorderly failure of an FMI can lead to severe systemic disruption if it causes markets to cease to operate effectively. Accordingly, all types of FMIs should generally be subject to regimes and strategies for recovery and resolution.

The Pendulum Swings

By John Velis, Head of Capital Markets Research, EMEA, Russell Investments

“As we move into the summer, we note that the same worries we had at the end of Q1 still exist, and in many ways, they reinforce one another. Doubts about one region’s economic and financial health weigh on those of the others. As one region seems to take a step forward, pressure on the others is relieved, and markets rally around the world and across the risk spectrum. The opposite is also true. This keeps us in a world where investors cannot get off the ‘risk-on, risk-off’ seesaw, and policymakers – and sadly, economists – get little rest.

“Investors are advised to be cautious in the short term; constructive market scenarios one week can fade into risk-averse market reactions the following week. We do believe that we will emerge on the other side of this period of triple worries with a strong fundamental outlook on markets, but we cannot say just when. Hence we brace ourselves for some very bumpy ups and downs. A neutral short term portfolio should keep us in good stead until a more directional, unequivocal state of affairs arises.

The Outlook For Europe

How Fast is Slow? China's Recent Slowdown in Perspective

In his latest piece, Francois Sicart, Founder and Chairman of Tocqueville Asset Management, examines China and its perceived economic slow down.

Sicart "suspect(s) that this slowdown has several causes, each of which could be considered more or less normal in isolation, but their concurrent timing certainly has aggravated the feeling of withdrawal from the usual state of affairs. Briefly, they are as follows:

Are You Ready For FATCA?

A message from David Bailey, Managing Partner, Augentius

Although FATCA is US legislation it has the potential to affect every Manager, it is not something that any of us can ignore.

Even though the legislation has not been finalised, agreements, where relevant, must be put in place with the authorities by June 30 2013. The legislation and some of the issues around it are complex – but this is less than 12 months away.

Our latest Technical Newsletter, which can be found here, sets out the timetable, highlights who the legislation will apply to and sets out what managers should be doing now.

We hope you find this update of value and if you feel Augentius can be of assistance in any way we would be delighted to hear from you.

Tel +44 20 7397 5453

Email: [email protected]

www.augentius.com

 

From IOSCO To The Antipodes: EDHEC-Risk

The latest issue of the EDHEC-Risk Newsletter is now available. Highlights include the following.

EDITORIAL

Save the Dates - EDHEC-Risk Days Conferences 2013

In 2004, EDHEC-Risk Institute introduced a new type of conference aiming to bring research insights drawn from its programmes to investment professionals. These events enable participants to have access to the latest conceptual advances and research results in investment and risk management and to discuss their implications and applications with researchers who combine expertise in analytical and research methods with a sound awareness of their relevance for the investment industry. More...

INDUSTRY ANALYSIS

Comments from EDHEC-Risk Institute on the IOSCO Consultation Report CR05/12 concerning the of Exchange Traded Funds

RBC Dexia RIP; Long Live RBC IS

Royal Bank of Canada reports it has completed the acquisition of the 50% stake of RBC Dexia Investor Services Limited (RBC Dexia) that RBC did not already own from Banque Internationale à Luxembourg S.A. (BIL). With this transaction, RBC becomes the sole owner of the top 10 global custodian, which as one would expect is being rebranded RBC Investor Services.

“The industry fundamentals are very attractive and this business is positioned for solid long-term growth,” said Jim Westlake, group head, international banking and insurance, RBC. “We look forward to building on our strong relationships with clients in our goal to become the premier provider of investor services worldwide.”

“We are excited about full ownership by RBC and have been encouraged by the response from our clients around the world since the announcement of this transaction in April,” said José Placido, chief executive officer, RBC Investor Services. “Our clients will benefit from RBC’s financial strength, complementary capabilities through wealth management and capital markets, and commitment to growth.”

RBC Investor Services says its particular strength is in client service excellence and outstanding execution. It adds that results for RBC Investor Services will continue to be included within RBC’s International Banking segment, which also includes results from RBC’s Caribbean banking and US cross- border banking businesses. 

 

Are You Ready For Derivatives?

State Street Corporation is drawing attention to the findings of a new Vision report entitled Charting New Territory: Buy-Side Readiness for Swaps Reforms and exploring the readiness of institutional investors for derivatives reform.

Based on TABB Group research commissioned by State Street, the report explores the readiness of buy-side swap market participants who collectively represent more than $10 trillion in assets under management. The findings illustrate the state of the industry’s readiness to implement the key provisions of swaps reform, and describe the heavy focus firms are placing on the clearing aspect of regulatory requirements while struggling to adjust to new margin demands.

Key highlights from the Vision report include:

Translating DB skills into DC: Five Lessons Learnt

Schroders, which modestly describes itself as one of the UK’s leading defined benefit (DB) pension asset managers, with over £30bn UK DB assets under management, is today announcing five key lessons learnt from DB and how they can be relatively seamlessly translated into defined contribution (DC).   

The following five key lessons from the Schroders DC Team look to address the future of pension design and to build the next generation of solutions for the DC market.   A combination of all of these components can lead to an improved solution for pension scheme members.  Some of these key lessons can be implemented simply and immediately, where others look more to the future and require a level of innovation.

Five Key Lessons

Carlyle, BC Buy Hamilton Sundstrand

BC Partners, an international private equity firm, and global alternative asset manager Carlyle Group, are joining forces to acquire Hamilton Sundstrand Industrial. The target is described as a manufacturer of highly engineered, mission-critical pumps and compressors for the global industrial, infrastructure and energy markets. The seller is United Technologies Corporation. The $3.46bn transaction is expected to close in the fourth quarter of 2012.

UK Q2 GDP Simply Awful: Schroders

by Azad Zangana, European Economist at Schroders

“The Office for National Statistics (ONS) estimates that the UK economy has contracted by 0.7% in the three months to June 2012. The estimate confirms that the UK is now in its third quarter of its double-dip recession, making it the longest double-dip recession since records began. Compared to a year earlier, the national income is down 0.8%, but the cumulative decline in real GDP during this recession is just shy of 1.4%.

“The results for Q2 GDP are poor to say the least. While the vast majority of economists had forecast another negative quarter, the final print was worse than even the most pessimistic forecast surveyed by Bloomberg. The ONS has explained that special factors have had a negative impact on the data. The extra bank holiday to celebrate Queen’s Diamond Jubilee means that the economy had lost a day of production/activity. In addition, the ONS points to the wet weather during the quarter, which appears to have impacted construction activity and retail sales. In addition, it is worth bearing in mind that these are still preliminary numbers that are subject to revisions. The ONS has little hard data on activity in June, when most of these special factors would have hit.

“Looking ahead, we expect the UK economy to return to growth in the third quarter as most of the special factors that dampened activity in the Q2 reverse, but also thanks to an additional boost from London hosting the Olympic Games. The Olympics have helped lift employment through temporary jobs created for the games, but also additional working hours being made available in the retail sector thanks to the relaxation of Sunday trading laws. The extra demand from tourists visiting for the games should slightly offset the cost of the disruption to the local economy, but one of the big factors boosting GDP in Q3 will be the inclusion of money spent on tickets for the first time.

“Nevertheless, the data is clearly showing more underlying weakness than we expected, especially in the service sector of the economy. We continue to forecast the economy to return to positive growth in the second half of the year, though we also forecast a return to recession in 2013, partly caused by the Eurozone debt crisis, but also partly caused by a lack of effective policy left available to the Bank of England. We expect the Bank of England to continue its quantitative easing programme beyond November, but we do not expect the programme to have a meaningful impact. As a result of the latest GDP figures, we have therefore cut our annual 2012 GDP forecast from -0.1%, to a very weak -0.5%. We have also cut our 2013 forecast from 0.7% to 0.5% growth, which is significantly lower than the latest consensus of 1.6%.”

 

 

AMP Capital Exits Wales West (Pursued By Bear?)

AMP Capital reports that it has sold its stake in Wales & West Utilities Limited (WWU), a gas distribution business with approximately 35,000 km of gas distribution pipelines covering Wales and the South West of England.

A consortium led by Cheung Kong Infrastructure Holdings Limited, has entered into an agreement to acquire WWU. The transaction is subject to European Commission approval.

AMP Capital adds that its stake is held by its European flagship fund, the Strategic Infrastructure Trust of Europe (SITE), and other AMP Capital-managed funds.

Introducing BBB: Schroders

The latest Economic & Strategy Viewpoint from Schroders’ chief economist & strategist, Keith Wade, European economist, Azad Zangana, and economist, James Bilson introduces a new acronym: BBB. Nothing to do with debt ratings, or Britain's chances of winning the triple jump for men in the jumped-up school sports day about to start in the east end of London.

No, Schroders is describing the economic recovery as BBB – bumpy, brittle and below par – but no one should be surprised as this is typical following a financial crisis, not least one on the current scale. Recent data suggests we have just hit another bump with business surveys indicating that the world economy has stalled.

Why has the UK lagged?:

Rutland Recruits Reynolds

Rutland Partners, a specialist turnaround and restructuring investor, reports the appointment of Michael Reynolds as investment executive.

Reynolds, we learn, is a business and legal studies graduate from University College Dublin and a postgraduate (accounting) of the Michael Smurfit Business School, Dublin. He qualified as a chartered accountant with KPMG Corporate Finance in 2010 where he spent three and a half years. 

He then moved to Hawkpoint Partners later in 2010 to join the corporate advisory group where he worked on a number of debt restructuring deals as well as sell-side and buy-side transactions. He has experience of a range of sectors including Leisure, Industrials, FIG and Healthcare.

Rutland says his addition brings its team of investment professionals to 12 whose primary focus remains investing in underperforming UK companies to create stability, strategic change and improved performance.  Recent transactions include the sale of Attends Healthcare to Domtar Corporation and the bolt-on of Phoenix Surveying Equipment to tool and equipment hire specialist, Brandon Hire.

 

Allianz Global Investors Appoints Corinne Crawford

Allianz Global Investors reports that it has appointed Corinne Crawford as a Director, assisting with the coverage of consultants in the UK.  Corinne joins the company's newly created European consultant relations group, reporting to Philip Dawes, head of consultant relations for Europe.  

Crawford joins from M&G Investments where she was a director of consultant relations focusing on M&G’s equity business. Prior to joining M&G in 2002, she spent six years at Fidelity Investments working across institutional marketing and account management.

 

FTSE Deficits Double: JLT

Research from JLT Pension Capital Strategies Limited (JLT PCS), which bills itself as a specialises in corporate consulting and pension scheme de-risking, shows that the total deficit of FTSE 100 defined benefit (DB) pension schemes has more than doubled over the last 12 months.

The total deficit in FTSE 100 pension schemes at March 31 2012 is estimated to be £73bn - a deterioration of £38bn from the position 12 months ago. Over the first quarter of 2012 alone, the deficit jumped by £17bn.

However, the funding of pension deficits has remained significant, with companies paying a total of £11.6bn into schemes over the last year, up from £10.8bn the previous year. Barclays and BT led the way with a massive deficit contribution of £1.8bn and £1.0bn respectively, but 61 other FTSE 100 companies also reported large deficit funding contributions of £10m or over.

Investors Support Fiduciary Management: Russell Investments

European investors see faster decision making and execution as the leading benefit of hiring a fiduciary manager, according to a survey by global asset manager Russell Investments.

In a recent European poll* of pension fund trustees and other institutional investors, 97% saw speed of decision making and execution as an advantage of using a fiduciary manager (with 58% strongly agreeing). This was closely followed by focusing trustee time on strategic issues (90%) and reducing the governance burden on trustees (80%).

Russell adds that improved risk management and increased investment diversification and sophistication were also among the main benefits respondents see a fiduciary manager able to provide (with 87% and 83% agreeing respectively).

European Equity Set For Revival: S&P

European equity markets are set for a revival in the fourth quarter of 2012, S&P Capital IQ Equity Research said as a prelude to sharing its mid-year top 10 core European investment selections of equity stocks. The companies are chosen over a range of sectors including industrial, telecoms, automotive and luxury consumer goods.

S&P Capital IQ says its European equity research team has conducted its analysis of the key themes set to influence the performance of European single stocks, compiling a list of equities it expects to outperform the broader market over the next 12 months. The ‘Power Picks’ list has outperformed its benchmark, the S&P Europe 350, by 8.5% year-to-date.

Staff Attitudes At Geneva Airport Suck

Staff attitudes at Geneva Airport suck. They really do.

Whether it's staff at security larking around ignoring passengers waiting to go airside, or cashiers taking forever and a day to put a handful of items in a duty-free carrier bag, it is clear that they don't want to work, and if forced into a place of employment will do as little as possible while there.

I had just about convinced myself that things had improved until late on Wednesday evening, when an hour and a half's delay to the 21.30h flight to Luton Airport, on top of the above-mentioned shortcomings, soured the journey home irrevocably and tipped me in favour of not bothering to spend two lots of £15 so that Mrs B and I can use one of the lounges there on the way through.

It bothered me slightly, on my first late evening flight from that benighted airport, that the closing time of the Priority Pass-accessible lounges was anything from 20.30h till 22.00h. “What if our flight is delayed?”, I thought. “Surely they'll stay open.”

Anything but. The receptionist at the one we were in, the Swiss 'Business Class' Lounge, asked me around 20.40h what flight I was catching. I thought that odd. Fair enough when you arrive, but when you're only halfway through your scheduled stay? She followed up by saying that they were closing and we would have to leave.

I was taken aback, and momentarily lost for words. When I started to protest, she moved the putative early closure back to 21.00. I pointed out (after checking to make sure I was right) that the opening hours stated on the board outside showed 21.30h. “That is a work of pure fiction which we ignore upon a whim,” she said. 

To be honest, she didn't put it quite like that. She muttered some references to closing once boarding of Star Alliance flights is under way, so I'm translating and interpreting, but I would argue it's a pretty close translation and accurate interpretation.

And argue I did. But to no avail. Not least because if you raise your voice even the slightest in a modern airport, it invites handcuffs and orange jumpsuits for the complainant. I settled for loudly advising my wife that we were being evicted, and reminding the staff that 'other airports are available'. But do they/did they/would they/will they ever care? I think not.

Unless, of course, you know, or think, differently...

 

Time To Prepare For Financial Repression: AllianzGI’s Neil Dwane

Faced by an unprecedented debt crisis and the deepening rifts appearing within societies protesting against austerity, Neil Dwane, CIO Europe at Allianz Global Investors, believes that European leaders are under immense pressure to deliver a quick solution, which must be both a constitutional and preferably painless way out of the ever-deepening recession. While far less obvious to the average citizen in the short-term, financial repression has a huge long-term impact and brings many challenges with it.

The solutions

“There are two more ‘painless’ solutions than austerity. The first, quantitative easing (QE), is now firmly established and popular with markets as an attempt to alleviate slowing growth and high levels of unemployment in too many OECD1 countries. We have seen further easing with China, Denmark, Brazil and Korea all lowering interest rates, the UK undertaking additional QE and the European Central Bank (ECB) lowering rates to a historic level. Sadly the positive effect of these actions lasted only a very short time and the recent US Federal Reserve minutes disappointed those hoping for yet more stimulus in the immediate future.