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Something To Keep In Mind During Earnings Season...
by Team of GaveKal Capital,
As we enter the heart of the S&P 500 1Q earnings season, and the CNBCs of the world focus on the number of companies that (surprise) beat earnings expectations once again, remember this fact: earnings expectations have been beaten down over the past six months. Let's take a quick tour of the developed world to illustrate this point.
Irrational Expectations
by Andy Rothman of Matthews Asia,
Do we have irrational expectations for the Chinese economy? On the one hand, we asked China to restructure and rebalance its economy, and it has delivered. It shrunk its state sector, and privately owned firms now account for more than 80% of employment and almost all new job creation. Almost all prices are set by the market. Investment growth is slowing and consumption is now the engine of economic expansion. China’s service sector is now larger than its manufacturing and construction sectors.
Global Business Cycle Deceleration and US Conundrum
The Global Business Cycle is decelerating while the regional Asian and European Subcycles are recovering. This poses the US between a hammer and a hard place as it gets hurt by each single one of them. Will it get crushed or stand strong in this global interplay?
Finding Value in Declining Commodity Prices
I’m going to begin with a bit of good news. Below is our China Region Fund (USCOX). As you can see, not only has it broken above its 50- and 200-day moving averages, but it’s also trading at four-year highs. And since this chart was created early last week, the fund has climbed even higher, to $9.53 as of this writing.
Implications of a Fed Funds Rate Hike on Asian Securities
by Gerald Hwang of Matthews Asia,
The prospect of a higher U.S. federal funds rate can make U.S. cash and short duration Treasurys look more attractive vs. risky assets. The effect of higher U.S. short rates is felt across all asset classes, regardless of the pattern of cash flows or currency of denomination. We can expect some market reallocation out of risky assets and into risk-free assets. But why does the market seem to fear a wholesale shift out of risky assets and why might that view be unjustified? In the second installment of a two-part series, Matthews Asia Portfolio Manager Gerald Hwang, CFA, examines the ways in wh
Expect Further Divergence in Emerging Market Economies
by Michael Gomez, Lupin Rahman of PIMCO,
Each quarter, PIMCO investment professionals from around the world gather in Newport Beach to discuss the firm’s outlook for the global economy and financial markets. In the following interview, portfolio managers Michael Gomez and Lupin Rahman discuss PIMCO’s cyclical outlook for the emerging markets (EM).
China: New Year, New Opportunity?
by Burt White of LPL Financial,
China will release its first quarter 2015 gross domestic product (GDP) report this week on April 14, 2015, with the market expecting a 7% year-over-year increase. Regardless of whether China hits that target, its stock market has already been positive so far this year. In this year of the goat in 2015, global investors have not been sheepish about buying Chinese stocks, powering the Shanghai Composite 25% higher so far in 2015 amid prospects for more monetary stimulus and policy reforms.
The Iran Framework
On April 2, the P5+1 and Iran announced a framework to deal with Iran’s nuclear program. The framework is a roadmap to establishing a final agreement in June and could be a major step toward delaying Iran’s entry into the “nuclear club.” This report begins with a short history of Iran’s nuclear program. Next, we review the details of the framework and address the broader policy issues surrounding Iran’s nuclear program. An analysis of the real issue, regional hegemony, follows along with a review of the political factors of the deal. We conclude with the potential market effects.
Asia’s Multilateralism
by Joseph Stiglitz of Project Syndicate,
In March, the United Kingdom, Germany, France, and Italy joined more than 30 other countries as founding members of the new Asian Infrastructure Investment Bank, which will do what existing institutional arrangements cannot: help Asia meet its massive infrastructure needs. So why has the US sought to undermine the effort?
Finding Value in Declining Commodity Prices
So what’s the deal with Chinese equities right now? After all, China’s economic growth for the first quarter of the year cooled to a six-year low of 7 percent. The market surge is mostly attributable to monetary easing and government policy changes such as housing stimulus and modernization of the country’s financial structure. But there’s more at work.
China for Sale?
by Robert Horrocks of Matthews Asia,
In recent years, some China watchers have been wondering where the “smart money” is going? How telling are the real estate transactions of the region’s tycoons? And do concerns still exist over the growth in loans to the corporate sector? Matthews Asia’s CIO Robert Horrocks, PhD, explores.
Where Positive Economic Surprises Are (And Aren't) Happening
by Team of GaveKal Capital,
There is a geographic disparity amongst the Citi Economic Surprise Index. Economies, both developed and emerging, are surprising to the upside in Asia and Europe while economies in the western hemisphere are not doing as well (at least in terms of meeting and exceeding expectations). Below we show some of the more interesting charts.
Will a Weak Jobs Report and Poor Productivity Give the Fed Pause?
by Jeremy Schwartz, of WisdomTree, Inc.,
Last Friday, Professor Jeremy Siegel and Jeremy Schwartz sat down with Sam Chandan, founder and chief economist at Chandan Economics, to discuss the unexpectedly weak jobs report, productivity, low interest rates and implications for the housing market.
Policy Paranoia
by Robert Stimpson of Oak Associates,
The present version of policy paranoia encompasses concerns over impending interest rate hikes, the rapid appreciation of the US dollar, a bloated US government balance sheet, weak international economies and increased probability of a crisis in certain Latin American countries. While legitimate, we do not believe the current ghosts are any more imminently destructive today than over the past six years.
The New World Order: Part IV
The final installment of our series examines how, in light of winning the Cold War, policymakers have been unable to settle on a set of key priorities and offers glimpses of a new policy emerging. The US never wanted to be a superpower; its founding story is one of wresting independence away from a colonial power. Now that the existential threat of communism is over, the political class has struggled to create a foreign policy that can simultaneously provide the required hegemonic global public goods and create a working economic policy and political coalition that will build domestic harmony.
Brobdingnagian Top?
by Jeffrey Saut of Raymond James,
According to Wikipedia, “Brobdingnag is a fictional land in Jonathan Swift's satirical novel about Gulliver's Travels whose land is occupied by giants. Lemuel Gulliver visits the land after the ship he is travelling on is blown off course and he is separated from a party exploring the unknown land.” I thought of Brobdingnag as I stared at a chart of the D-J Transportation Average ($TRAN/8605.31) last week, which looks like it is making what a technical analyst would term a giant broadening top, or in my terms a “Brobdingnagian Top?”
The Coming Chinese Crackup?
by Andy Rothman of Matthews Asia,
Prominent China scholar David Shambaugh has turned bearish on the Middle Kingdom, which offers us the chance to review our own thinking about China’s prospects. As head of the China Policy Program at The George Washington University, Shambaugh is a respected analyst of Chinese Communist Party affairs, so his WSJ op-ed, “The Coming Chinese Crackup,” has received much attention. This issue of Sinology explores how Shambaugh’s view now is an about face from his prior analyses, and why his current arguments may be flawed.
China to Take the Reins in Funding Regional Infrastructure Projects
This Tuesday marked the last day that countries could submit their applications to become founding members of the new China-led Asian Infrastructure Investment Bank (AIIB). As of this writing, a little over 40 nations have either already been approved or have applied for membership, including strong U.S. allies such as Britain, Germany and Australia.
Small Korean Companies Punch Above Their Weight
South Korea’s cultural exports are spreading around the globe. While the country’s corporate landscape is dominated by huge conglomerates, we think small-cap companies stand to benefit most from the world’s growing fascination with all things Korean. It might be time for investors to take a closer look.
For Canadian Pension Funds, It’s Time to Go Global
by Erin Bigley of AllianceBernstein,
Pension funds in Canada have long relied on a simple fixed-income strategy: buy Canadian. And for a long time, this worked wonders. But times are changing, and our research suggests that swapping a Canada-only approach for a more globalized portfolio will provide better risk-adjusted returns in the future.
Exploring Four Myths
by Byron Wien of Blackstone,
In talking with investors, I find four concepts prevail among the consensus that I believe may be wrong. In the interest of full disclosure, it is fair to say that at various points in time I have subscribed to each of these ideas. They are: 1. American Exceptionalism is a thing of the past. 2. The price of oil is likely to stay low for a long time. 3. Europe’s economy is in a slow growth deflationary trap. 4. Abenomics is not working, and Japan is in danger of falling back into a recession. I decided to explore each of these
Fit & Focused
by Mark R. Kiesel of PIMCO,
Many powerful forces are driving markets and asset prices; chief among them are global monetary policy, technicals and fundamentals.
We use rigorous top-down and bottom-up analysis to identify the best sectors and companies around the world.
We see opportunities in the U.S. (cyclical consumer and housing sectors), Europe (equities, bank capital securities, high yield bonds and corporate hybrids), China (property, technology and Macau) and Japan (cyclical industries, exporters and financials).
U.S. Isolated in Opposition to Chinese Bank
by John Browne of Euro Pacific Capital,
Over the past few decades while the economic power of the Chinese has grown exponentially, many observers have been surprised by the relative willingness of China to operate within the financial and economic framework established by the dominant Western order. But it should now be blatantly clear that Beijing prefers to act slowly, deliberately and quietly to advance its agenda.
Dividend Value Investing: No Time for Suspension of Disbelief, Part 2
by Meggan Walsh of Invesco Blog,
While investors may be riveted by Hollywood’s surprise endings and cliffhangers, they generally aren’t fond of unexpected plot twists in the market. So here’s a spoiler alert. The operating results of companies in the current cycle have been quite strong, and many investors expect this to continue. But we’ve seen enough plot twists over time to know this can be a risky assumption.
International Equity Commentary: February 2015
by Team of Thomas White International,
International equity prices gained during February on expectations that the central banks in Europe and Japan would continue their quantitative easing programs, while the U.S. Federal Reserve could possibly delay its interest rate hikes. At the same time, economic trends from most major economies remained relatively stable. After two quarters of robust gains, the U.S. economy expanded at a slower pace during the fourth quarter of 2014, as expected.
In a Challenging Environment, Policy Easing Sweeps Through Asia
The key change to our cyclical outlook for Asia: We have further downgraded our growth forecast for China to the low-6% range as real borrowing rates remain elevated. In Japan, we expect growth to recover from last year's technical recession, following the delay in the next value-added tax (VAT) hike and the increase in the Bank of Japan's easing program.
Deglobalization Redraws the Investment Map
Divergence between economies and financial markets has been a key macroeconomic trend over the last few years, and reflects in part the deglobalization of the worldwide supply chain. We expect the big winners to be countries and regions with large internal markets; the losers will be smaller countries which have yet to move up the export value chain.
REITs in a Rising Interest-Rate Environment
Wilson Magee, director of global real estate and infrastructure securities, Franklin Real Asset Advisors®, believes this environment is causing many investors to search for alternative investments that can add an income-oriented asset to their portfolio as well as gain exposure to global economic growth potential. He outlines why he thinks it’s an opportune time for many investors to consider diversifying into global real estate through an actively managed investment vehicle.
Emerging Markets Equity Commentary: February 2015
by Team of Thomas White International,
Emerging Market Equities
Emerging market equity prices advanced during the month of February on signs of improvement in global economic trends as well as expectations about quantitative easing in Europe and Japan. Encouraged by reduced inflation risks after the oil price decline, some of the emerging market central banks have also lowered interest rates in recent months.
Enjoying the Shade
As commentator Cherian George has said: “The legacy passed down to today’s Singaporeans isn’t one of random opportunism…There is nothing accidental about it.” Singapore’s first prime minister, Lee Kuan Yew, took charge of the city-state, transformed and drove it forward in the span of just a few decades. This week Matthews Asia pays tribute to this “giant of history.”
Latin America Is Blowing Up Your EM ETF Performance
by Team of GaveKal Capital,
On an equal-weighted, USD basis, the MSCI Emerging Markets Index is up just 0.99% YTD compared to MSCI World Index which is up 5.65%. So is this just a simple continuation of the trend of emerging market underperformance that has been in place over the last 4 years ? Yes, but with a caveat.
The New World Order: Part II
In the second installment of our four-part series we focus on two themes. First, we examine the global public goods the superpower provides, and second, we analyze how the U.S. has done so. The global hegemon often faces tensions between the desires of domestic constituencies and its foreign obligations. Every superpower negotiates these pressures and each tends to have its own ways of meeting both objectives. However, no superpower can subjugate the goals and aspirations of its citizens indefinitely. If the cost of hegemony becomes too high, a nation may be unable to maintain the position.
Northern Trust Perspective
by Team of Northern Trust,
The long-telegraphed launch of quantitative easing by the European Central Bank (ECB) has added some accelerant to financial market trends in place so far this year. European stocks, which had been strong performers in local currencies, have continued their strong performance while European bond yields have declined even further.
Key Questions for China Investors in 2015—Part III
by Andy Rothman of Matthews Asia,
In this final installment of a three-part Sinology series, Andy Rothman, Matthews Asia Investment Strategist, answers the question: is China’s property market heading for a crash? He also discusses what he believes are the biggest long-term risks to growth and stability—an absence of the rule of law and trusted institutions.
Charting The Winners And Losers Of The Latest Surge In The USD
by Team of GaveKal Capital,
On March 4th we wrote in The Dollar Is Breaking Out Again And What It Means For Stocks that "for a variety of cyclical and structural reasons...stocks in North America tend to be the relative beneficiary of USD strength while stocks in other regions generally, but not always, tend to underperform. The negative correlation is especially strong for European stocks." Well, since then the USD has surged another 6% so we thought we'd review how things have played out.
America's China Codependency
by Michael Edesess,
The massive Chinese investment in Treasury securities helps keep interest rates extremely low. This hugely increases the incentive for Americans to borrow. All that is needed is "collateral," and Americans will go out and borrow to their hearts' content and buy Chinese goods.
The 6th Anniversary of 676
On March 9th, 2009, the S&P 500 made an intra-day and 20 year low at 676.53. Millions of Americans drew a straight line from the mid-September 2008 failure of Lehman Brothers through that March low and projected that the S&P 500 would be zero by June. Armed with that projection, average investors liquidated hundreds of billions of dollars in stock investments, never to return. Those investors will never be able to retire.
On My Radar: Rut Ro Rastro
At the beginning of each month, I like to look at a series of valuation metrics: Median PE, Price to Sales and Price to Operating Earnings. Let’s look at them today. The logic, of course, is simple. When expensively priced, reduce exposure and reduce return expectations. When inexpensively priced, overweight exposure and increase return expectations. Let’s also take a look at what has been driving the market higher. Some argue that individual investors are still on the sidelines. I don’t think so and I show evidence that they are almost as fully invested as they were at the 2000 and
China’s Reforms: Will They Work?
by Hayden Briscoe of AllianceBernstein,
The internationalization of China’s currency is proceeding hand in hand with the liberalization of the country’s capital markets. If China can surmount its short-term challenges, the impact of these reforms on global economies and markets should be profound.
Opportunities in Global Financial Disintermediation
Increasing financial disintermediation is a strong secular theme providing tailwinds in several financial industries, but a likely arduous and complicated process warrants the need for a disciplined focus on both risk and reward. The financial system essentially performs one basic function—the direct or indirect movement of funds from savers to borrowers or investors. Although financial disintermediation is formally defined as the shifting of funds from indirect to direct financing, the term is more commonly used to describe the increasing role of non-bank intermediaries.
The Dollar Is Breaking Out Again And What That Means For Stocks
by Team of GaveKal Capital,
The ICE US dollar index looks to have broken out of what has been a rather short-lived consolidation after the massive move since the middle of 2014. If this is in fact the start of another round of dollar strength, then stock investors should carefully consider where in the world to deploy cash into stocks. For a variety of cyclical and structural reasons, certain regions of the world tend to outperform in periods of USD strength and others lag. We'll try to shed some light on that with the below charts.
Results 3,301–3,350
of 4,282 found.
