Monday, 29 December 2014

Let’s 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. 

Friday, 26 December 2014

World Economy: Past and future tense

The Economist | World economy: Past and future tense via @theeconomist

Friday, 12 December 2014

Fund managers rethink strategies

Saturday, 6 December 2014 

Fall in crude oil prices
- Switching to stocks from other sectors and taking a hit
- Holding onto their investments
- Mix strategy: Waiting for good buys in anticipation of more dips, considering exits from O&G exposure if crude oil shows no signs of abating

Malaysian market is among the worst stock-market performers in the region year-to-date, down more than 6%. As a contrast, China markets are up 30% on average.

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.
3. Switched to stocks from other sectors like insurance and utilities since the rapid decline of crude.
4. Demand for crude will not be an issue, moving forward in line with increasing population and wealth especially in high-growth countries like China, Indonesia and India.
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.
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.
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
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.
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.

Oil Could Return to $90 Soon as Next Year, Mobius Says

Mark Mobius, Franklin Templeton Investment Chairman

EM – emerging market
Nigeria, depends on oil – revive the economy – reform, or suffer through low oil price environment
China and India – benefit from low oil prices. Importers of oil.
Oil prices will recover, by next year or the year after, by 80 to 90 dollars. Fracking, what happens in US, will wind down, - under water prices not beneficial.
The positive coming out from low oil prices are short lived? – Countries with low oil prices, cut subsidy on gasoline and diesel, china. India, Indonesia. Recovery, local population will be ready for higher prices of diesel. Reformed measures
Turkish finance minister – huge impact on his current account – Russia, devastation to its economy –long short trades – benefits and loses out?
 Middle East – lots of reserves, can suffer through low prices, Africa depends on high oil prices bad side of this trade. Asia, most countries, e.g. Indonesia – producer and net exporter too. Latin America, Colombia, Brazil, Argentina – suffer, oil exporters, and suffer temporarily.
Will oil prices go down to $40 per barrel? – I doubt it, though there could be movement mainly because of shorting of oil futures – or financial manipulation.

Russia: political change in Moscow? – price could go down further – Russian government warned people – controls of currency outflow to limit volatility, - politically, not much difference, the population is ready – Ukraine, behind Putin, according to latest polls.

None of these sanctions, we would be in Russia, Russia is so cheap, now in oil sector – Asian countries  e.g. China, Thailand, Malaysia, South Korea, going to benefit on this.

Asian investment stories – believe the numbers? – Absolute numbers are higher. Percentage numbers, lower. Because you got a bigger base. In 2010, economy was growing at 10%, last year was 7%, from a larger base,  a smaller percentage creates a greater economic impact – electricity production consumption, going up, but percentage change is much smaller –

Biggest concern for emerging markets – biggest concern is volatility – incredible swings – we love volatility, could be good or bad – buy lower and sell high e.g. Volatility is bad for investors who are not in the market, not active, lose out on opportunities to invest – volatility is greatest concern we have right now.