http://www.economist.com/news/finance-and-economics/21636750-new-book-prescient-economist-lets-get-fiscal
Their central banks are being forced to keep interest rates close to zero.
“We are experiencing not only an economic crisis but also a crisis in
economics,” he writes. “Most economists failed to predict the current
crisis and the economics profession itself has fallen into a state of
complete disarray in its attempt to answer the question of what should
be done.”
balance-sheet recession: This occurs when the private sector has borrowed heavily to invest in
assets (particularly property); when asset prices decline, the nominal
value of the debt remains. Cutting interest rates helps a bit (by
reducing the cost of servicing the debt) but it does not persuade people
to borrow more money, because they are still trying to repair their
balance-sheets.
Private sectors in most countries in the West today are minimising debt
or maximising savings in spite of zero interest rates, behaviour that is
at total odds with traditional theory.
The policy of quantitative easing (QE), the creation of money to buy
assets, succeeded in expanding the balance-sheets of central banks but
did not push up bank lending or boost the amount of money circulating
among companies and consumers.
There was a burst of stimulus in 2009 but, alarmed by the size of their
deficits, governments started to cut back too quickly. They should have
paid attention to the examples of Japan in 1997 (or America in 1937)
when premature fiscal tightening derailed recoveries.
A side-effect of QE is that asset prices have risen sharply in value;
that should have repaired corporate and personal balance-sheets but the
private sector is still not borrowing. Why not? And he probably does not
take the arguments for secular stagnation seriously enough:
deteriorating demographics and sluggish productivity growth are
important.
Danny Wong, fund manager at Areca Capital
1. Our portfolios have declined
about 6.5% in value since oil started to come down drastically in June.
2. The impact is rather minimal since we were underweight on the bigger local oil and gas firms for their high valuations since the second quarter, we focused on the mid-small cap service-oriented players.
2. The impact is rather minimal since we were underweight on the bigger local oil and gas firms for their high valuations since the second quarter, we focused on the mid-small cap service-oriented players.
5. Alternative energy
is rather costly and capital intensive and therefore, not able to be a
major threat over the next few years.
6. Looking at some over-sold high beta local names. He believes what’s happening is temporary and “the dust will settle”.
Tan Teng Boo, founder of Capital Dynamics
1. May exit the one overseas oil and gas investment that his house has.
2. For the other overseas alternate energy stock that it is invested in, although its price has fallen sharply, we are still recording profits and holding on to it for the longer term.
2. For the other overseas alternate energy stock that it is invested in, although its price has fallen sharply, we are still recording profits and holding on to it for the longer term.
3. For its global funds, Capital Dynamics’ main exposures are to the London and Hong Kong stock markets. As for his Malaysian investments, Tan says there is no exposure
to the oil and gas sector whatsoever. We have zero cut-loss here and are cash-rich, we are watching but not buying yet.
4. Tan has been bearish on markets since the
end of last year and warns that there is more downside to come, stemming
mainly from the rich valuations in the local market, the New York
Stock Exchange and NASDAQ, to name a few. Reinforcing our worries is a US monetary
policy that is highly opaque and confusing and where the Federal Reserve
keeps shifting its monetary goal posts.
5. The fall in oil price has very
limited impact on us as our cash levels for both our local and global
funds are very high.”
Yong, Fortress Capital
1. Holding on to its oil and gas investments is the strategy for now.
2. The fund management
firm invests in regional stocks. It has less than 5% exposure
to the sector, largely in Singapore.
3. As our current positions are in large and
financially resilient oil and gas operators trading at single digit
forward earnings, we are inclined towards holding onto our existing
positions, he says.
New positions in the sector will be added
only with better crude oil price visibility.
4. His portfolios currently comprise mainly of China banks.
4. His portfolios currently comprise mainly of China banks.
5. While prices in Singapore have not been
spared, the impact is significantly muted because of the much lower
valuation levels there and our smaller position. The Malaysian O&G industry
has for the large part of the year been the most favoured sector
domestically due to Petronas’ large outsourcing expenditure.
6. The equity prices in this sector had performed strongly and as a result our interests had shifted to other sectors.”
7. Although supply
conditions of oil and gas have shifted as a result of US’ and Canada’s
expanded oil supply from shale gas, other global demand supply
conditions and the costs of production have not dramatically changed. Assumptions based on these factors easily justify eventual recovery above US$80 per barrel for Brent.
Gerald Ambrose, managing director of Aberdeen Asset Management
1. What investors really need to brace for is the increased volatility of prices going forward.
2. Our strategy remains the same, buy
well-managed stocks at the right price, in fact, some of the oil and gas
stocks are at attractive valuations already
Mark Mobius, executive chairman of Templeton Emerging Markets Group
Mark Mobius, executive chairman of Templeton Emerging Markets Group
Buying into niche companies
1. Some oil fields in Malaysia have
“very low cost” (of production), at well below US$50 per barrel.
2. It is important to stock-pick in Malaysia, where valuations have been higher than in some other Asian markets, while at the same time, performance has generally been somewhat disappointing.
2. It is important to stock-pick in Malaysia, where valuations have been higher than in some other Asian markets, while at the same time, performance has generally been somewhat disappointing.
3. He advocates buying into the utility and
consumer sectors to ride on Malaysia’s long-term goal of becoming a
high-income country but warns of a few bumps that could impact this
vision. As investors, we have to maintain a
long-term view and focus on companies we feel can survive and proposer
amid changing conditions, and that fill an interesting niche.
Oil Meltdown
The price of Brent crude, the global benchmark has collapsed to below US$70 per barrel, the lowest in four years and is about 37% down since the beginning of the year.
The drastic drop, made worse by The
Organization of Petroleum Exporting Countries’ recent decision to not
slash production has had chain effects, including affecting other
commodity and currency markets worldwide.
Some of the oil and gas stocks on Bursa
Malaysia that have been beaten down in the past three months include
SapuraKencana Petroleum Bhd, Bumi Armada Bhd and Dialog Group Bhd which
are trading about 50%, 143% and 31% off their respective 52-week peak
prices.