Brian Bollen's Blog

Schroders 2013: A Year In The Global Economy

Schroders 2013: A year in the global economy - Keith Wade and Azad Zangana

Schroders’ Chief Economist Keith Wade and European Economist, Azad Zangana, discuss why the global economy hit another soft patch in 2012 and share their views on other economic factors that had an impact over the last 12 months.

"There are two reasons why the world economy slowed down this year. The first is the slowdown in the eurozone: global trade with the eurozone has fallen off very sharply as the region has cut back on activity.

"The second reason is that capital spending has been very weak. This came as a bit more of a surprise because companies have a lot of cash on balance sheets and are very profitable – so normally we would expect them to be spending more. They are being held back by uncertainty about the eurozone and the recent US election and the looming ‘fiscal cliff’."

Europe

"The eurozone was a major drag on the global economy through 2012. We had an escalation of the eurozone debt crisis which caused bond yields to rise substantially throughout the peripheral economies. This meant that companies really struggled to borrow through financial markets which of course hurt their profitability and activity.

What looks best for 2013? Research Affiliates Looks Ahead

Jason Hsu, Chief Investment Officer at Research Affiliates, looks at the big picture for next year

Given financial repression in developed markets—policies that prolong negative real interest rates - Hsu believes emerging market local currency sovereign bonds are likely to outperform their developed market counterparts.

For equities, both developed (ex-US) and emerging markets offer more attractive valuations and better dividend yields than US stocks.

 Online at:
 "Year-End Capital Markets Forecast" 
http://www.rallc.com/Our%20Ideas/Insights/Fundamentals/Pages/F_2012_Dec_Year_End_Capital_Markets_.aspx



Other research and commentary from Research Affiliates is available at: http://www.rallc.com/ideas/ideas.htm

Last-Minute Christmas Present Problems Solved

Excellent news for anyone still looking for the perfect Christmas present for a loved one. The International Organisation of Securities Commissions (IOSCO) published today two reports on Credit Rating Agencies: the final report on Credit Rating Agencies: Internal Controls Designed to Ensure the Integrity of the Credit Rating Process and Procedures to Manage Conflicts of Interest and a consultation report on Supervisory Colleges for Credit Rating Agencies.

Both reports form part of IOSCO´s effort to improve the integrity of credit rating agencies (CRAs), as part of the global effort to enhance investor protection and the fairness, efficiency and transparency of securities markets. In a communiqué last month, the G20 Finance Ministers and Central Bank Governors encouraged further work by IOSCO “to enhance transparency of and competition among credit rating agencies”.

Moral Victory? Glorious Failure?

Celtic versus Juventus in the second round of the European Cup. Glorious failure? Moral victory? Or certain defeat? Discuss.

Wars, Peaces And Fracking Megatrends: Celente

Gerald Celente of The Trends Journal looks ahead to 2013

What a year 2012 was! The economic and geopolitical problems plaguing much of the planet at the beginning of last year have, without exception, intensified as we move into 2013.

Never in our 33 years of trend forecasting have we experienced a year that rang out on such a downbeat note and a New Year that is ringing in with so muted an upbeat.

Though we had forecast most of the troubling trends – and are well aware of the intransigent problems at their roots – we see positive solutions and opportunities even as the world lurches further into crisis; solutions and opportunities that you will read about only in The Trends Journal:

1.  War: Call them what you will – civil wars, uprisings, protests, Arab Spring, terrorism, rebellions – when we add them up they equal the “The First Great War of the 21st Century.” Yet, even now, as the conflicts proliferate, only The Trends Journal recognises that they are not only connected, but also cumulative.

Top Five Predictions For 2013: Liquidnet

Liquidnet, the global institutional trading network, provides top five predictions for the markets globally in 2013

1.        Inflationary pressures coupled with a prolonged low interest rate environment and falling bond yields will bring equities back into vogue.  As a result, trading volumes will continue to recover. What remains to be seen, however, is whether primary markets recover some of their market share; in our view, the trend towards disintermediation will continue throughout 2013.

2.        As the impact of HFT (high-frequency trading) continues to affect the cost of institutional trading, institutional investors will take a more active role in their choice of execution venues and turn to venues which meet their specific needs – those that provide deep liquidity in an HFT-free zone. Regulators and exchanges around the world, responding to investor pressures will begin the discussions around whether to – and how to – implement high frequency free trading zones within their markets.  

3.        Amid increasing competition from low-cost index products, asset managers will broaden their scope of investment opportunities globally looking at both public and private company investments in a search for greater alpha generating opportunities. As a result, 2013 is likely to see private shares emerge as a growing institutional asset class. The potential is huge given the sheer size of institutional assets compared to private equity or venture capital assets.

4.        As for the execution landscape, money will begin flowing back into equities in 2013, while increased scrutiny and regulation around broker-sponsored dark pools will lead to a decline in volume in those venues. The number of execution brokers that asset managers use will continue to decline and the use of CSA and sponsored brokers will continue to increase. Asset managers will begin to classify brokers into order routing and execution destination brokers. Choosing which execution brokers remain will be based on those that offer the best technology and support and those that would be designated as destination brokers.

5.        Regulators around the world are already communicating and collaborating more as we move into the new year. 2013 will see that collaboration continue and gain speed as many regulators have already centred their focus on the same two issues, what to do about HFT and broker-sponsored dark pools.

 

29% Hate Their City Jobs

Some seasonal thoughts from eFinancialCareers

As 2012 draws to a close, and City workers are focusing laser like on their year-end bonus, now is a time to reflect on the year that has gone by. For job opportunities in UK financial services, 2012 has been a challenging year, with the number of job opportunities posted on eFinancialCareers decreasing 28% year-on-year at December 1, 2012. Throughout 2012, the UK continued to feel the pinch of the conservative financial services hiring environment across a world, overshadowed by the Eurozone crisis.

So, how has it been affecting finance professionals’ job satisfaction and motivation? 

Since September, eFinancialCareers have surveyed over 500 financial services professionals on their motivations and concerns about their career in financial services. One of the survey key findings is that disillusionment among financial services professionals hasn’t become deep set, but the sort of passion and enthusiasm associated with a career in the industry appears to have faded.

Santa is such a jolly chap because...

Mint – Blain’s Morning Porridge  December 20 2012

Santa is such a jolly chap because he knows where all the naughty girls live…

Just when we thought we were cruising home for Christmas, market judders on the Fiscal Cliff flashing “Danger, Danger, Will Robinson” signals. Relax. It really would not do for a solution to be reached too early. One minute to midnight on Christmas Eve will do so Obama can say something festive and cheering like “God Bless us all”.

Grand Old Republican Boehner will spend a restless night haunted by the three spirits of Recession Past, Recession Present and Recession Future, but wakes on Christmas morn full of the love of his fellow man, votes Democrat, and sends an urchin off to buy the biggest Turkey he can find – if only.

That said markets are distinctly wobbly on the prospect a deal is still far off. Good news for bonds? Bill Gross is on the wires reducing his MBS positions and buying linkers (TIPS) as an inflation hedge. He’s also on record “liking” Spain and Italy with limits. Ahem..

 

Falling Down On AIFMD

With the compliance deadline for one of the most complex regulatory reform agendas ever introduced into the asset management industry only seven months away, a KPMG International survey of more than 70 alternative investment fund managers reveals that nearly half have not taken any concrete steps to analyse the impact the Alternative Investment Fund Managers Directive (AIFMD) will have on their businesses, or to make changes to their operations.



Today, the European Commission adopted the implementing rules for the Directive, which will now be subject to a three- or six-month scrutiny period by the European Parliament and the Council, and will enter into force, provided that neither co-legislator objects, at the end of this period.



The Directive may have long-term implications for investment managers in the U.S. and globally, who are looking to raise capital in Europe.

“Every asset manager worldwide who raises capital in the EU has to comply with AIFMD, including alternative investment managers based in the U.S.," said Mikael Johnson, lead partner of Alternative Investments for KPMG LLP U.S.

India – 2013 Opportunities to receive political boost? – Ashburton

Ashburton’s Jonathan Schiessl on the outlook for India in 2013

What a year it has been for India! Whilst we won’t dwell on England’s historic first Test series victory (for the benefit of some readers I should probably explain that a Test series is a reference to the traditional long form of the arcane game known as cricket: BB) on Indian soil in 27 years, this has been an incredibly topsy-turvy year for the economy and markets. GDP growth has continued to moderate downwards over 2012 and the stock markets have oscillated widely as sentiment has turned from fear to greed. But what can we expect for 2013 and will one of the best performing stock markets in 2012 repeat the feat next year?

Italian Pension Funds See Key Role for Custodians

Over three-quarters of Italian pension funds polled by RBC Investor Services (reports RBC Investor Services) agree that new regulations soon to impact the €94bn Italian pension fund market will mean depositary banks will play a more important role for them.

New regulations from state pension regulator “Commissione Di Vigilanza Sui Fondi Pensione” (COVIP) will give custodians even greater responsibility as schemes will require their support to produce more transparent financial reporting and control systems and to alleviate the additional administrative burden on their own internal processes.

BNP Paribas Hails FATCA Service

BNP Paribas Securities Services today announced that it has launched a service that helps asset managers meet the requirements set out by the US Foreign Accounts Tax Compliance Act (FATCA), the US-driven initiative set to improve tax compliance involving financial assets and accounts for US citizens.

Under FATCA (, translated by some wags as Find Another Tax-Cheating American), non-US financial institutions will be required to report information about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest. Funds are considered financial institutions and therefore subject to FATCA’s reporting requirements. They need to prepare well in advance in order to meet FATCA obligations from January 2014 onwards.

Does he ride a red-nosed reindeer?

Mint – Blain’s Morning Porridge  December 19 2012

Does he ride a red-nosed reindeer? Do a “ton-up” on his sleigh? Do the fairies keep him sober for the day?

The answer to these and other questions of global import will be answered shortly, but first, thanks for a marvellous day out in Munich yesterday with clients. One of my chums sagely observed €1,000 invested in the second-largest German bank in 2009 would be worth around €200 today (€1,000 of stock bought in 2007 would be worth €40 today!). However, if you’d invested the same money in “domestic” German beers – you’d have got €250 just taking the empty bottles back to the beer shop!

Back in the real world this morning is all about next year’s coming BOOM times. Yep, that’s official. 2013 is going to be a fantastic year – and it’s already happening. The Fiscal Cliff will likely prove more a molehill – compromise is in the air. The Japan reflation game has pushed the Nikkei through 10k. Dow now into the sunny uplands! We’ve got great prospects for the US and global economy next year – which means the outlook for bonds isn’t so hot and already yields are rising and curves steepening.

Tis The Season To Be Voting

Sang Chul Kim, Head of Local Investment, Schroders Korea, on Korea’s presidential election and the possible impact on equities

 “Korea’s presidential election has become a two-horse race between the traditional parties after independent candidate Ahn Cheol-soo dropped out. The remaining candidates, Park Geun-hye of the conservative Saenuri Party (and daughter of former President Park Chung-hee) and Moon Jae-in of the opposition Democratic United Party, will now go head-to-head.

“A large part of the rhetoric from both candidates during the campaign has been focused on the monopolistic power of the large industrial conglomerates (known as chaebols), which has been integrated into a broader policy dubbed ‘economic democratisation’. The phrase has been used by both candidates in the hope of returning some semblance of power over the economy to the public. Both candidates propose to reform the chaebols convoluted circular/cross-shareholdings systems, which dominate many of these family-owned giants. In addition, Moon is seeking an equity investment ceiling for the 10 largest chaebols in an attempt to encourage greater domestic competition.

SIX purchases Oslo Clearing ASA

The reshaping of Europe's financial services industry's back offices continues. SIX, Switzerland’s financial market infrastructure group, has agrees to purchase Oslo Clearing ASA from Oslo Børs ASA.

Oslo Clearing is 100% owned by Oslo Børs VPS Holding ASA, and is authorised to act as a central counterparty in accordance with the Norwegian Securities Trading Act. Oslo Clearing currently carries out CCP clearing of financial directives and security lending products.

Once this baby hits 88 mph...

Mint – Blain’s Morning Porridge  December 17 2012

Once this baby hits 88 mph, you’re going to see some serious s*&t..

A few weeks ago we said easier monetary and fiscal Bank of Japan policies would be a game changer! And, so it has played out as we predicted: a weaker yen and a host of follow-up consequences around the globe. So great hopes for the Japanese economy this morning as the scale of last night's LDP victory triggers higher stocks. The new government is committing to 3% growth target, a mighty programme of infrastructure spending and unlimited QE. Can it reverse the two lost decades in Japan? Not entirely sure it can, and it might simply raise other concerns such as inflation and rising government liabilities to be addressed.

Wanna Enter The ERC Prediction Competition?

The Economic Research Council reminds us that it is running its annual economic predictions competition again this year, and wouldd like to invite you to enter!

 “At our Clash of the Titans event this month, three professors from Cambridge, LSE and Oxford gave their personal forecasts for the UK economy in 2013 across a number of categories (GDP growth, interest rates, inflation rates, and unemployment),” the ERC says.  “In our online competition, we are asking members of the ERC, economists, academics and the general public to share their predictions in the same categories.

“We will then track how all the predictions compare to reality on our website as the year unfolds, and whoever is closest next December wins a case of Royal Tokaji wine (worth over £200). This year, there are also prizes for second and third place (a £50 and a £20 Amazon voucher respectively), so there plenty of chances to win something.

“It is completely free, only takes a few minutes, and anyone can enter (although all entrants must be aged 18 or over on the 1st December 2013). To submit an entry, and to get some more information, visit the ERC website. Entries close at midday on December 20.

“Please do forward this on to any friends or colleagues who you think might be interested (it is great to have someone to show off to when you beat them!).”

 

Death Of The Dollar: Rob Arnott's Insights

Rob Arnott, chairman and CEO of Research Affiliates, has released an "Insights" paper in which he discusses the possible "Death of the Dollar" in the decade ahead.



He points out that:
"If we’re spending $1 trillion a year more than we produce as a nation (the national deficit) and are financing it by printing $1 trillion a year of crisp newly printed bills (actually, bits in a computer), we’re on a dangerous path. Printing our own money to buy our own debt works fine… until it doesn’t."



Find the piece online at: http://www.rallc.com/Our%20Ideas/Insights/Fundamentals/Pages/The-Death-of-the-Dollar.aspx



What Fiscal Cliff Theatrics Hide From View

Jerry Webman, OppenheimerFunds’ Chief Economist, on the theatrics of the fiscal cliff and what he thinks is really going on behind the scenes.

Major government policy processes, including the ongoing debate over the nation’s finances, resemble icebergs. The things we see on the surface—the congenial handshakes, hard-edged rhetoric and leaks to favored journalists—mask two other levels of activity. 

The lowest, and most hidden, level is the one inhabited by the analysts who work out of windowless government offices; or slightly plusher digs if they work for a lobbyist, trade organisation, university or think tank. These people are working the green spreadsheets, trying to model various combinations of taxes, spending and economic growth, in order to estimate how all the proposals bouncing around publically and privately will actually affect the federal budget over the next several years.

Virginie Maisonneuve's Global Insight

Virginie Maisonneuve's Global Insight - December 2012 

In the third edition of this monthly series, Virginie Maisonneuve of Schroders provides an update on two key developments: progress on the Eurozone banking union and QE4 in the US

Banking Union and Political Risk

"Europe today made progress by agreeing on the terms of a common bank supervisor - the first step towards a banking union and the most radical financial integration since the single currency. But political risk in Europe should still not be ignored. Inaction due to forthcoming elections is possible and could unnerve markets in the short term, against an otherwise positive background for 2013. The steps made on the banking union are encouraging but we must remember that the measures will not be effective until March 2014, or after the German election of September 2013.