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July 15, 2009

Across the Spectrum - 14th July 2009

US Treasury Secretary Timothy Geithner said the global economy probably will suffer setbacks during its recovery as nations adapt to a loss of wealth and surge in public debt. "This crisis has been brutal in the extent and severity of damage to economies around the world," Geithner said in the prepared text of a speech in Saudi Arabia. "Given the extent of damage to financial systems, the loss of wealth, the necessary adjustments to a long period of excessive borrowing around the world, it seems realistic to expect a gradual recovery, with more than the usual ups and downs and temporal reversals." Economies will need to start growing again before jobs can be created, he said. He also said credit conditions will remain "unusually tight," even though markets have opened up somewhat in response to government actions. The US yesterday reported a USD 1.1 trillion budget deficit for the fiscal year that began on 1 October. Geithner's visit to Saudi Arabia and the United Arab Emirates, two of the oil-exporting countries that are the fourth largest holders of US Treasury debt, comes as the US braces for a 2009 budget deficit of USD 1.8 trillion, more than four times the previous fiscal year's USD 459 billion shortfall.

Chinese stocks are among the world's best investments because the nation's economic growth is poised to exceed forecasts, according to Barton Biggs, who runs New York-based hedge fund Traxis Partners LP. Biggs said the US economy rebound is "in place" and may take the form of a so-called U-shape recovery, which may help the Standard & Poor's 500 Index climb 11% to 1,000 or higher this year. Shares in Asian markets including China and Hong Kong are also attractive after having retreated from their highs this year, he added. "The emerging markets, particularly Asia, are the growth area of the world and they're emerging from the financial crisis faster than any other part of the world," said Biggs. China's economy is expected to grow 8% this year, compared with a 2.5% contraction in the US, according to economic forecasts compiled by Bloomberg. "In terms of China, GDP growth is going to be 2 to 3 percentage points higher than the consensus," he said.

Singapore's government raised its economic forecast for 2009 as gains in construction and pharmaceutical output lifted the nation from its deepest recession since independence in 1965. GDP will shrink 4% to 6% this year, less than an earlier forecast for a contraction of as much as 9%, the trade ministry said in a statement on Tuesday. The economy expanded an annualised 20.4% last quarter from the previous three months, the first growth in a year. "The Singapore economy is back, and back with a vengeance," said Robert Prior-Wandesforde, a senior economist at HSBC Holdings plc in Singapore.

Latin American stocks are poised to rebound after a six-week slump as the US economy grows and earnings recover, according to Citigroup Inc. strategists. The MSCI Latin America Index has fallen 10.6% since reaching its high for the year on 1 June. "The correction in regional equity markets has reached our expected 10-15% range," Citigroup strategists Geoffrey Dennis and Jason Press wrote in a note. "Although the mood has turned sour on worries over the timing of economic recovery, we see little more downside from here and expect regional markets to break out to the upside again later this summer." Dennis, who said Latin American stocks were expensive on 1 June, now predicts as estimated total return of 24% for regional equities by the end of the year as the US economy resumes growing in the third quarter.

Oil put in its worst performance since January last week as supply is well above normal levels. A new consensus seems to be emerging that supply needs to be driven down before the price can go up again. While that is good news for consumers and businesses, with the world's governments clearly relieved, it is not such good news for investors. By Friday WTI oil was down 55 cents to USD 59.34, having fallen 11% in a week. On Wednesday, OPEC cut its oil demand forecasts. It now does not expect demand to rise back to 2008 levels until 2013. The strongest growth in demand is expected in developing countries and regions, in particular China and South Asia.

Spotlight on Standard & Poor's Fund Services' Annual Review of Emerging Markets

Most fund managers believe emerging markets will be the key economies that lead the world out of recession, according to Standard & Poor's Fund Services' annual review of global emerging markets, Latin America and the EMEA region (Europe, the Middle East and Africa).

Roberto Demartini, lead analyst, said fund managers and stock pickers with a "growth at a reasonable price" (GARP) approach felt now was their time to perform. He said this group believed that, after a low-quality rally, which many fund managers compared with the market conditions of 2003, the focus would shift towards quality growth names trading at attractive valuations. Demartini added that, while many managers were confident in the so-called "decoupling theory" last year, very few would be willing to name it now.

S&P said most survey respondents believed that, while the "essence" of the decoupling theory lied in diverging fundamentals between the developed and emerging worlds, the correlation between macroeconomic trends and stock market behaviour "was not perfect over the short run". According to S&P, managers see this as supporting the decoupling theory. Demartini said, "Looking forward, managers' view is that the market will be led more by fundamentals and earnings, as opposed to flows or sector rotation."

One manager who is particularly bullish on emerging markets is Bryan Collings, manager of the Ignis Hexam Global Emerging Markets fund. He said most UK and US investors had just 5% emerging markets exposure in their portfolios despite "sound structural drivers" and "impressive market performance". "It makes no sense to have so low an allocation to such a large and important asset class," he added.

Collings said there were a number of reasons why emerging markets were so attractive, including their growing number of consumers and favourable demographics. Emerging markets represent approximately 75% of the world's land mass and house more than 80% of the global population. Most of the future population growth is expected to be in emerging markets, where the population is expected to grow five times as fast as developed countries.

By 2030, more than one billion people in emerging markets are forecasted to join the ever-increasing consumer middle class. Currently, personal consumption in China accounts for only 37% of GDP compared with more than 60% and 70% in Europe and the US, respectively.

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

 

 

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July 01, 2009

Across the Spectrum - 1st July 2009

The outlook for emerging markets is "far more optimistic" than for developed economies as growth picks up, said investor Marc Faber, who advised investors to buy gold before its eight-year rally. "We are living through major changes in the world," said Faber, the publisher of the Gloom, Boom and Doom report. Emerging markets such as China are becoming more significant to the global economy, and "I don't think this will be reversed," he said on Tuesday at an AsianInvestor magazine forum in Seoul. The MSCI Emerging Markets Index has jumped 35% since the end of March, headed for a record quarter after inflows from investors increased substantially and stimulus plans from China to Brazil bolstered confidence. That compares with a 21% increase in the developed market MSCI World Index. No developed markets rank among the year's 10 best performers out of 89 global indexes, according to Bloomberg. Peru and China have led gains.

Oil, copper and emerging market stocks rose as evidence that the worst of the global recession has passed fanned appetite for high-yielding assets. Crude oil advanced as much as 2.6% in London early on Tuesday, rising to the highest level in eight months. Crude oil for August delivery rose to USD 73.38 a barrel on the New York Mercantile Exchange. Copper for three-month delivery on the London Metal Exchange gained 1.4% on optimism industrial demand will rebound as the global economy recovers. Copper has risen 68% this year. The MSCI World Index of 23 developed nations added 0.4% on Monday, extending its biggest quarterly gain since 1987.

The dollar declined against 13 of the 16 most traded currencies before a US government report today that economists say will show consumer confidence rose to a nine-month high in June. The dollar weakened to USD 1.4104 per euro in London earlier on Tuesday from USD 1.4083 in New York on Monday. The dollar depreciated to USD 1.6607 per pound from USD 1.6567, after sliding to USD 1.6743, the weakest level since 21 October last year.

Deutsche Bank AG, Germany's biggest lender, raised its forecast for global growth next year, predicting that the world economy will expand 2.5%, compared with a March forecast of 2%. Increased demand for assets with higher returns is fuelling gains in oil and reviving capital flows into emerging markets, Bank of America-Merrill Lynch said on Tuesday. "Risk-asset markets have shaken off their lethargy of last week to begin a renewed push higher," Steven Pearson, a strategist at Bank of America in London, wrote in a report. "It is not clear whether market participants are starting to contemplate the prospect of a quiet summer or are simply becoming more comfortable with the macro outlook."

Japanese industrial output increased 5.9% in May compared with the month before, the third consecutive monthly climb, according to official data. The rise last month was the same as April's revised figure, though less than analysts' forecasts of 6.9%. The output of cars, mobile phones and electronic devices was particularly strong as firms started to reverse earlier cuts in stock levels. But analysts predict output could slow again. "Production has been rebounding sharply in response to earlier drastic cuts but the momentum is likely to slow in the months ahead," said Hirohi Watanabe, an economist at the Institute of Research in Japan.

The eurozone's annual rate of inflation turned negative in June for the first time since the single currency was introduced in 1999. Prices in the eurozone fell 0.1% in the past year, Eurostat said. The inflation rate had been 0% in May. Inflation has been dragged down by lower energy and food prices, and by falling demand for goods from companies and household.

Spotlight on the investment opportunities from a changing climate

Climate change will alter the shape of the global economy over the coming years. As a result there is an expectation the environmental technologies sector will benefit and grow, providing attractive, long-term investment opportunities for global investors.

It is important to note, however, it is not only the renewable energy sector that will benefit from the changes required to deliver a low-carbon economy. Companies emerging from sectors, such as energy efficiency, water infrastructure and pollution and waste control also have contributions to make in addressing not only climate change, but also wider environmental threats facing society. Growth in this sector will, in part, depend on access to capital by companies emerging in all of these areas.

Additionally, it is necessary for the global economy, including governments, to facilitate capital investment flows into the environmental markets arena. Today, investors are already seeing the start of this evolutionary phase, with governments across the globe pledging high proportions of their economic stimulus packages towards environmental technology investment.

The focus on climate change and its implications in terms of assessing economic cost and portfolio risk is being highlighted increasingly by political and industry commentators worldwide. This includes two of the world's most powerful economies, the US and China, whose pledges in this field have made it clear that addressing the impact of climate change is critical to economic growth and prosperity, despite current market conditions. Incentives derived from economic stimulus packages are expected to play an increasing role in this growth over the coming years.

As many of the drivers of the environmental markets catch political and public attention, such as energy security and supply, water scarcity and disruptive weather patterns from a changing climate, those companies and sectors providing solutions to these issues will attract the interest of global investors. Attractive returns may be achieved from the investment opportunities emerging from the leading companies in these sectors.

This increased interest will challenge the industry and index providers to develop to tools to reflect this growth and suit the needs of a variety of investment strategies. The challenge for the next decade is to continue to build on these many successes. Global investors will have a key role to play in decarbonising economies, rewarding companies that adopt sustainable and responsible business practices.

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

 

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