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Reuters blog archive

from Breakingviews:

Biggest risk of geopolitics is as a distraction

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Investors consider geopolitics the most important risk to financial markets over the next year. That judgment, reported in a Barclays survey this week, shows people taking greater cues from headlines than numbers.

It’s easy for market participants to work themselves into a panic. A calmer analysis suggests the level of geopolitical risk has only increased from negligible to minor over the last six months. In the bank’s similar poll of more than 900 investors at the end of last year, war and foreign policy decisions barely registered compared to hand-wringing over a diminished flood of U.S. Federal Reserve money and a weaker China.

The biggest apprehension now is that problems in Iraq will infect the whole Middle East, and then the worldwide oil market. Even including Turkey, though, the region’s economy will account for only 6 percent of global GDP measured at market prices, according to the IMF.

from Breakingviews:

M&A targets can get stiffed when they “go shop”

By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Shopping ’til you drop doesn’t really work for merger targets. The so-called “go shop” strategy of seeking higher bids after signing up a buyer is designed to ensure top dollar is paid. More often, it leads to final prices that are lower than they otherwise would be, new research suggests. Tweaks to deals like Media General’s buyout of Lin Media may mean sellers are wising up, though, portending better value for shareholders.

from Breakingviews:

Hedge fund customers’ yachts washing further away

By Martin Hutchinson
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Hedge fund customers’ yachts are washing further away. The flood of money – now $2.7 trillion – in hedge funds has squashed returns below public stock markets. Private equity doesn’t seem to be doing much better. Investors beware.

from Breakingviews:

Rob Cox: The worry now is a brewing M&A bubble

By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Stop worrying about the tech bubble – there may be an even bigger one inflating beyond the confines of Silicon Valley. The corporate urge to merge has gone into global hyper-drive this year. Deal activity has surged as investors egg companies on and bid up the shares of acquirers well beyond mathematical explication, or prudence. As new metrics from interested parties are trotted out to justify the irrational, it’s time to exercise caution.

from Anatole Kaletsky:

Behind Wall Street’s anxiety

The recent economic news has been about as investor-friendly as anyone could imagine.

It started with last week’s strong U.S. employment figures; continued through Tuesday’s reassuring International Monetary Fund forecasts, which put the probability of avoiding a global recession this year to 99.9 percent, and culminated in dovish Federal Reserve minutes, which soothed concerns about an earlier than expected  increase in U.S. interest rates.

from Alison Frankel:

Sotheby’s shareholders defend activist investors in suit vs board

The heat surrounding so-called activist investors -- hedge funds that buy up big chunks of a company's stock, then leverage their position to mount proxy campaigns or otherwise force boards to change the way the company is managed -- could hardly be more intense than it is now. Well, okay, maybe there would be even more controversy if Michael Lewis wrote a book about a genius upstart who defied accepted deal conventions and revolutionized corporate takeover battles. But putting aside the Wall Street tizzy inspired by this week's publication of Lewis's new book about high-frequency trading, the deal world's favorite topic remains activist investors like Carl Icahn, Paul Singer, William Ackman and Dan Loeb.

Just in the last two weeks, Chief Justice Leo Strine of the Delaware Supreme Court published his extraordinary essay on shareholder activism at the Columbia Law Review, the Wall Street Journal did a fabulous story on hedge funds tipping each other off about their targets, and Martin Lipton of Wachtell, Lipton, Rosen & Katz -- whose avowed disdain for short-term investors has recently manifested in litigation with Icahn -- revealed at the Tulane M&A fest that there are actually a couple of activist funds he respects. (He said he wouldn't go so far as to say he "likes" them, though.)

from Global Investing:

Braving emerging stocks again

It's a brave investor who will venture into emerging markets these days, let alone start a new fund. Data from Thomson Reuters company Lipper shows declining appetite for new emerging market funds - while almost 200 emerging debt and equity funds were launched in Europe back in 2011, the tally so far  this year is just 10.

But Shaw Wagener, a portfolio manager at U.S. investor American Funds has gone against the trend, launching an emerging growth and income fund earlier this month.

from Alison Frankel:

Strine: Stop shareholder activism from hurting American investors

This country's most important arbiter of corporate law - Chief Justice Leo Strine of the Delaware Supreme Court - believes that shareholder democracy has run amok. In a startling new essay for the Columbia Law Review, "Can We Do Better by Ordinary Investors?" Strine outlines the deleterious long-term effects of subjecting corporate decision-makers to shareholder votes dominated by short-term investors. These ill consequences range, according to Strine, from the outright dollars corporations must spend to educate shareholders about everything they're entitled to vote on all the way to excessive risk-taking and regulatory corner-cutting by executives and directors worried about delivering quick returns lest they be ousted by shareholders. Strine is deeply worried about a divergence of interests between money managers, who wield the power of shareholder votes, and ordinary investors in their funds, who are typically saving for retirement or their kids' education. He's convinced that the entire American economy will suffer unless short-term investors are reined in.

Strine's diagnosis is interesting enough, though he's previously written about what he considers to be the cancer of short-term investing. In the new essay, though, he also suggests a cure: eight actual suggestions to restore power to corporate boards and long-term investors (plus a pie-in-the-sky fantasy about changing the U.S. tax code to encourage shareholders to take a long view of their investments). Strine, who calls himself "someone who embraces the incrementalist, pragmatic, liberal tradition of addressing the world as it actually is," argues that his proposals do not roll back shareholders' hard-won rights to a voice in corporate affairs. Instead, he says, he's "trying to create a system for use of those rights that is more beneficial to the creation of durable wealth for them and for society as a whole."

from Unstructured Finance:

Jim Chanos, bad news bear, urges market prudence

Prominent short-seller Jim Chanos is probably one of the last true “bad news bears” you will find on Wall Street these days, save for Jim Grant and Nouriel Roubini. Almost everywhere you turn, money managers still are bullish on U.S. equities going into 2014 even after the Standard & Poor’s 500’s 27 percent returns year-to-date and the Nasdaq is back to levels not seen since the height of the dot-com bubble in 1999.

“We’re back to a glass half-full environment as opposed to a glass half-empty environment,” Chanos told Reuters during a wide ranging hour-long discussion two weeks ago. “If you're the typical investor, it's probably time to be a little bit more cautious.”

from Global Investing:

Steroids, punch bowls and the music still playing: stocks dance into 2014

Four years into the stock market party fueled by a punch bowl overflowing with trillions of dollars of central bank liquidity, you'd think a hangover might be looming.

But almost all of the fund managers attending the London leg of the Reuters Global Investment Summit this week - with some $4 trillion of assets under management - say the party will continue into 2014.

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