« January 2009 | Main | April 2009 »

March 20, 2009

Across the Spectrum - 17/03/2009

Finance ministers from the G20 group of nations have pledged to make a "sustained effort" to pull the world economy out of recession. "We are committed to deliver the scale of sustained effort necessary to restore growth," they said in a joint statement after their talks in the United Kingdom. UK Chancellor Alistair Darling said they agreed the International Monetary Fund (IMF) should be given more money and guard against protectionism. The finance ministers have also pledged to continue economic stimulus packages and low interest rates. While the US and UK finance ministers have led the call for further spending on stimulus packages, some of their European counterparts, most notably France and Germany, have urged caution. Led by Germany's Peer Steinbruck, they are concerned about the increase to governments' debt, and have said it would be best to see if the current stimulus schemes start to work before more money is dedicated.

For the first time since 2001, foreign governments and private investors are both pouring money into dollars, a sign to Barclays Capital's chief currency strategist Steven Englander that the US currency is peaking. He estimates foreign purchases of American assets have reached record levels, with individuals buying USD 133 billion a month on average since November, based on government statistics. Central banks were net buyers of Treasuries for 29 of the past 30 weeks, a streak unmatched since at least January 1983. While the dollar strengthened 24% against the euro since falling to a record low on 15 July as investors sought the safety of US assets, zero per cent interest rates and the signs the financial crisis is abating will help lead to a 13% drop in the next year, Englander said.

OPEC agreed to maintain current production quotas, concerned that a fourth cut since September risked increasing energy costs at Sunday's meeting in Vienna. OPEC will aim to complete existing production cutbacks agreed last year and will meet again on 28 May to review policy. Higher prices could further erode global oil demand, already forecast to fall by 1 million barrels a day in 2009. Today, oil fell from a two-month high in New York on speculation US stockpiles increased last week because of lower demand. "We have very high crude oil inventories in the US." Said Sintje Diek, an HSH Nordbank analyst in Hamburg. "We still have very weak oil demand. We will remain in this trading range of USD 45 to USD 50 a barrel for the coming weeks." Crude oil for April delivery fell 1.7% to USD 46.53 a barrel on the New York Mercantile Exchange today. It was USD 47.10 a barrel in London.

Exxon Mobil Corp's oil discovery off the coast of Brazil may hold enough crude to rival the nearby Tupi prospect as the Western Hemisphere's largest find in three decades. Exxon's Azulao-1 well tapped a reservoir that could contain 8 billion barrels of recoverable oil. The size of the discovery will intensify interest in Brazil's offshore region among US, European and Chinese producers amid a downturn in supply of untapped oil basins outside the Persian Gulf and Russia.

The yen fell for a third day yesterday against the dollar and the euro on speculation a Bank of Japan plan to buy government debt will spur investors to seek higher yielding assets overseas. The yen weakened to 98.11 versus the dollar today from 97.95 in New York last week. It reached 99.68 on 5 March, the lowest level since 5 November. Japan's currency declined to 127.02 per euro from 126.65. The euro traded at USD 1.2946 from USD 1.2928. The British pound climbed to USD 1.4078 from USD 1.4002 late last week.

Gold, little changed in London, may rise as falling equity markets boost demand for the precious metal as an alternative investment. Bullion is "looking back toward equity markets," for direction, said Emanuel Georgouras, a precious metals trader at Marex Financial Limited in London. "We've gone back to negative correlation with equity markets." Gold for immediate delivery lost USD 1.01 to USD 922.15 an ounce in London today. April futures fell 80 cents to USD 921.20 an ounce in New York.

Spotlight on Gold

According to the year-end edition of the World Gold Council's Gold Demands Trends report identifiable investment demand for gold, which incorporates exchange traded funds and bars and coins, was 64% higher last year than in 2007, equivalent to an additional inflow of USD 15 billion. Demand for bars and coins rose 87% over the year with shortages reported across many parts of the world. Retail investment in gold rose 396% from 61 tonnes in the fourth quarter of 2007 to 304 tons in the fourth quarter of 2008. However, it is worth remembering that, while the recent surge in demand is quite remarkable, the gold price has been rising for several years, buoyed by a greater understanding in the investment community of its unique qualities as an asset.

A study undertaken by the World Gold Council, which examines the performance of gold during recessionary periods in the US, suggests that there is no clear relationship between the changes in US gross domestic product growth and changes in the gold price. Hence, a US recession would not have negative implications on the gold price. This reflects the unique market fundamentals and sources of demand which drive the price of gold and explain gold's role as a diversifying asset.

Second, like all physical commodities, gold is an asset that bears no default risk. Holding assets in gold involves no counterparty risk and is no one's liability. Third, there is a substantial body of research to bolster gold's reputation as a protector of wealth against inflation and currency fluctuations. Gold is the asset that investors turn to when currencies fall or inflation rises threatening to devour wealth. In fact, gold offers better protection against dollar weakness than any of the other main commodities, having the strongest negative correlation. This has intuitive appeal for any investor with significant holdings of dollar biased or dependent assets.

With gold's role as a portfolio diversifier and a hedge against inflation and currency weakness, combined with its liquidity and lack of counterparty risk, there are several compelling arguments for investing a portion of a portfolio into gold. The events of the last year have shown that you must always be prepared for the unexpected, and this is where gold shines; gold plays a role of an insurance policy within a portfolio. As with all insurance policies, a safety net which should be maintained in good times as well as bad.

The real value of gold is its capacity to provide a trusted means of protecting wealth and to enhance consistency of returns, thus providing an effective risk management tool.The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation there to and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

 

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

 

This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.

 


If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website
www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France."

 


TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 -
www.orias.fr

 

[ Yahoo! ] options

Across the Spectrum - 10/03/2009

The global economy is nearing the start of a rebound, top central bankers have said this week. Central bankers from the Group of 10 industrialised nations, including the UK, France, Germany, Japan and the United States, offered a more optimistic outlook at their meeting at the Bank for International Settlements in Switzerland. "We have a number of elements that are suggesting that we are approaching the moment where you would have a pick up," said European Central Bank head Jean-Claude Trichet, spokesman for the influential group.

Malaysia's government has announced an additional 60 billion ringgit (USD 16.3 billion) in spending and tax incentives over the next two years as it predicted the nation's first recession in a decade. Malaysia is spending 8.4 billion ringgit to accelerate projects under its five-year plan and will spend 700 million ringgit on programmes to create jobs. The government will recruit 63,000 people to work in various state agencies and reduce tax for workers, said Finance Minister and Deputy Prime Minister Najib Razak. Malaysia's two plans combined are equivalent to about 10% of GDP. Singapore has spent about 8% and China over 10% on stimulus packages.

China vehicle sales rose 25% in February, the first gain in four months, after the government cut taxes for some models, helping the country extend its lead as the world's largest car maker this year. Sales of cars, buses and trucks climbed to 827,600. China has halved retail taxes on small cars and drawn up plans to give out vehicle subsidies in rural areas to revive demand after car sales rose at their slowest pace in a decade last year. "Consumers are regaining confidence because of the government's stimulus policies," said Ricon Xia, an analyst at Daiwa Research Institute in Shanghai.

Mexico replaced Brazil as UBS AG's favourite equity market in Latin America because investors have already factored in a severe recession this year. Declines this year means Mexican stocks are trading at the lowest valuations in at least 10 years, while the nation's largest companies will probably be able to return to profit by raising prices, UBS strategist Damian Fraser wrote in a report this week. Mexico's Bolsa Index is valued at 11 times reported earnings, compared with 8.7 times for the Brazilian stock index, according to data tracked by Bloomberg. "For the first time in recent history, Mexico's market multiples are in line with Brazil's, despite comprising less cyclical, more defensive stocks," the analyst wrote.

The yen and the dollar have weakened as advances in stocks have curbed demand from investors seeking refuge. The yen fell the most against the South Korean won. The pound climbed against the euro after UK housing sales fell to their lowest level since 1978. The euro approached a two-month high against the yen on speculation European investors will bring home overseas earnings before the end of the first quarter. "We've seen some stabilisation so that has undermined the US dollar and allowed the euro to make some gains," said Daragh Maher, a currency strategist at the investment banking arm of Credit Agicole. The yen depreciated to 124.94 per euro in New York from 124.65 yesterday. The dollar weakened to USD 1.2707 per euro from USD 1.2611. The dollar declined to 98.33 yen from 98.84.

Crude oil traded little changed near USD 47 as Qatar said OPEC needs 100% compliance with existing quotas before discussing a fresh production cut. OPEC has lowered output three times since September to combat price declines and prevent a glut on world markets. Ministers meet in Vienna on 15 March. Crude oil for April delivery traded USD 47.22 earlier today in New York.

Gold fell for a second day in London as a gain in equities may reduce demand for gold as an alternative investment. "If risk perceptions ease, then of course you'll see the appetite for gold do the same," said Daniel Brebner, executive director of commodity research at UBS in London. Gold for immediate delivery dropped as much as USD 12.67 or 1.4% to USD 909.30 an ounce earlier. Prices fell 1.9% yesterday.

Spotlight on Asian Optimism

Asian markets stand at an interesting point after the ravages of 2008, with the much vaunted decoupling theory in tatters. Many commentators has suggested that the region had shed its long-term reliance on the US, driven by growth in China and India. But after a strong 2007, these markets were down significantly last year. Overall, Asia proved very liable to global shocks. Export-dependent countries, such as Singapore, are expected to go into recession this year, suffering from a much depleted US consumer.

Against this background, share prices have plunged almost as far as during the Asian financial crisis of a decade ago. Funds investing in the region have suffered a difficult time, with the average fund down around 30% over the 12 months to the start of February according to Morningstar figures.

Asia's performance is not substantially worse than other equity markets but such losses are significant for a region thought to be more insulated than in the past. Its banks are also generally more healthy than Western counterparts and have not needed such drastic government intervention. Commentators highlight this superior banking picture and a general lack of corporate and personal debt as key structural factors behind longer-term Asian strength.

Invesco Perpetual head of Asian equities Stuart Parks predicts growth of 7% and 5% for China and India respectively this year, which remains strong in a global context. He points out that Asian economies, with the exception of South Korea, are not leveraged and high savings levels should support domestic demand. The banking sector has limited exposure to toxic assets and is generally well capitalised, which should lead to robust lending rates and decent access to capital. Parks says, "The region's authorities have been proactive in attempts to ease the effects of the downturn through lower interest rates and fiscal stimulus packages. The most notable of these was the USD 580 billion spending programme announced by China, equivalent to 15% of GDP. It is worth remembering, that for the most part, Asia is structurally sound." Many managers feel that recent equity falls have also removed pockets of overvaluation in the region and left Asia at historically cheap levels.

HSBC economists Frederic Neumann and Robert Prior-Wandesforde also predict a return to positive growth in Asia as the year progresses. The pair believe the region has been hit by two recessions, domestic and external, rather than just collapsing exports. Overseas shipments did fall from October, providing a crippling hit to the region's vast export machine but they said domestic demand had already started to decline over the summer, with investment and consumption starting to slow rapidly. "Here, the inflation surge over the first half of 2008 and attendant monetary tightening are mostly to blame," they add.

Looking ahead, they believe domestic demand should begin to pick up as price pressures abate and interest rates come down. In tandem with powerful fiscal stimulus, the HSBC economists expect this will cause growth to turn positive as the year progresses. To put some numbers on this, they predict Asia excluding Japan, in weighted terms, will grow by 5.5% this year, down from 7% in 2008. Within this, Korea, Taiwan, Singapore, and Hong Kong, will see their economies contract on a full-year basis, with China and India more resilient given their vast internal markets and limited exposure to turbulence elsewhere.

Aberdeen Asia managing director Hugh Young is another high profile commentator who believes the recent demand shock will be short term. He says Asian economies must now focus on the next stage of their development, which will see domestic demand take over from external demand and the region's markets truly decouple from the West. He says, "What we are witnessing is a critical point at which economic dominance shifts rapidly from one global force to another. Asia's time has come. "With the region set to emerge from the credit crunch stronger than ever, now is without doubt one of the most attractive times to invest in Asian-Pacific equities I have witnessed in 25 years."

 

The information set out herein has been obtained from various public sources and is published by way of information only. The Spectrum IFA Group can accept no liability of any sort in relation there to and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

 

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

 

This information is only provided as a guide and, if you need assistance in this area you are strongly advised to seek the help of a specialist in this field as each individual case is different.

 


If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website
www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  
Spectrum IFA Group company TSG Insurance Services Sarl is registered and licensed in France."

 


TSG Insurance Services S.A.R.L.
Siège Social: 34 Bd des Italiens, 75009 Paris
« Société de Courtage d'assurances » R.C.S. Paris B 447 609 108 (2003B04384)
Numéro d'immatriculation 07 025 332 -
www.orias.fr

 

 

[ Yahoo! ] options


Hosting by Yahoo!