In a recent meeting with a London based fund manager, an investment case was made for a macro bet to be made on the secular shift towards fiscal expansion in one of the countries most famed for their discipline and steadfastness in this area, Germany.
At Parkview, we are finding it increasingly difficult to justify an allocation to “Emerging Markets” as an asset class (EM). This isn’t a tactical change in position, but a structural change of view. There are both positive and negative developments that lead us to this change in positioning. Over the next few quarters we plan to shift out of emerging market funds and to focus on only a few countries and regions where the investment case remains strong.
I recently had a falling tree knocking out power of the whole neighborhood. I was puzzled, as it occurred in the middle of a sunny, windless day, but even more so, as I have had an Arborist from a well-known firm checking all our trees just a few months earlier. How was that accident possible? I turned to another tree expert, recommended by a friend. This independent advisor used to work for our previous advisor and shed some light on the mystery.
Two-thirds of the wealthiest families globally are self-made (1), a proportion that continued to grow over the last decade at the expense of inherited wealth. This trend seems to be largely driven by accelerated wealth creation across the emerging markets, but also by a new generation of risk-taking entrepreneurs in fast-growing sectors such as technology.
Since the beginning of the year we took the view that, despite blustering rhetoric, the US-China trade dispute would be resolved within weeks of its initial deadline. Our optimism was grossly misplaced.
Prior to joining Parkview, Paul held positions as a management consultant in the South African financial services sector and then as an Investment Analyst for a wealth management firm. After relocating to the UK, he joined Principal Global Investors where he was part of the firm’s global macro currency strategy team.
Paul holds a Bcom(Hons) degree in Financial Analysis and Portfolio Management from the University of Cape Town and is a CFA Charterholder.
There are two certainties in economics. The first is that economic cycles exist: recessions eventually happen. The second is that economists are terrible at forecasting them. A recent study found that the IMF was able to forecast 5 out of nearly 470 past economic downturns.
In early December we argued that despite the increase in earnings, and the move in equity prices, the attractiveness of the equity market was somewhat ambiguous. While the earnings yield of equities increased through most of 2018, so did the return on cash, leaving the difference between the two virtually unchanged.
At the start of 2018, we argued that while the economic outlook was strong, the certainty of rising short-term interest rates will have implications for the relative valuation of all asset classes. This implied that for equity markets, P/E multiples will need to fall, and consequently price returns will be less than earnings growth. For fixed income markets, this implied that long duration bonds will perform poorly, but credit spreads are likely to remain stable.
Many emerging equity markets are now in bear market territory, having tumbled by 20% this year. A number of currencies reached historic lows, while external bond spreads widened. Such sell-offs often offer opportunities to investors. But to understand whether the current sell-off represents such an opportunity, it is important to understand the causes behind it.
A less hospitable external environment
