Global Investing

What fund managers think

Bank of America-Merrill Lynch’s monthly poll of around 200 fund managers had a few nuggets in the June version, aside from the usual mood-taking.

Gold is too expensive.  A net 27 percent of respondent thought it overvalued, up from 13 percent in May. Then again, the respondents to this poll have reckoned gold is too pricey since September 2009.

The fall in the euro should be tailing off. A net 14 percent reckon the single currency is still overvalued, but that is way down from the net 45 percent who thought so in the May poll.

BP is good for pharma. The net percentage of fund managers who remain overweight in energy stocks plunged to 7 percent in June from 37 percent in May as oil has continued to spill into the Gulf of Mexico.  The stock beneficiaries have been “dividend friendly” utilities, telecoms and pharmaceuticals.

China’s growth is slowing. A net 27 percent of investors reckoned China’s economy will weaken from where it is now over the next 12 months. That probably has mixed blessings given that investors both are expecting China to pull the world along the course of recovery and are worried about its economy overheating.

from MacroScope:

Economic Ties?

Ties

As rare as it is to get any two economists to agree, the chances are even slimmer of hearing three Nobel economics laureates concur.

And so it was that each of the award winning economists -- Eric Maskin (2007), Michael Spence (2001) and Robert Merton(1997) -- all had their own take on the legacy of three years of financial and economic crises when they spoke to a conference organised by Pioneer Investments  in London last week.

 To be fair, they broadly coagulated around the inevitability of greater regulation of banking and finance and also on the enormity of China's now imposing position in world economic affairs.

Can the euro zone survive Greece?

Wolfgang Munchau, co-founder and president of Eurointelligence, has raised an uncomfortable prospect for investors in Greece. In a Financial Times column today, the long-time Europe commentator argues that Brussels may not be willing to bail Greece out if it were to default on its debt à la all-but sovereign Dubai World is about to.

The EU’s authorities, rightly or wrongly, are more afraid of the moral hazard of a bail-out than the possible spillover effect of a hypothetical Greek default to other eurozone countries. If faced with a choice between preserving the integrity of the stability pact and the integrity of Greece, they are currently minded to choose the former.

Munchau reckons that outright default is unlikely, but wonders whether the current spread between Greek and benchmark German bonds really reflects the risk that investors are taking.  It is currently around 178 basis points after recovering from a blow out on Dubai worries last week.

It’s the dollar

Two graphs (from Scott Barber) to remind that what you get from assets depends on the currency:

from Raw Japan:

Whither the yen — a withering yen?

The yen's fall against the dollar the past few weeks has been remarkably fast, and calculated from where it is now around 97.70 yen, the dollar has jumped nearly 9 percent this month, on track for its biggest such gain since August 1995.

The yen surged last year as the worsening financial crisis forced investors to unwind risky carry trades - meaning they had to buy lots of yen - under the belief that Japan's economy and banks were holding up through the storm.

Only last month, the yen hit an over-13-year high of 87.10 per dollar. So why has the Japanese currency fallen so fast?

from MacroScope:

Is the ECB driven by pride?

All the G7 countries outside the euro zone now have interest rates of 1 percent or less, prompting some grumbling in various financial quarters that the European Central Bank is being particularly stubborn in keeping its rates at 2 percent.

Now comes an interesting take on this from JPMorgan Asset Management which suggests the gap may have more to do with egg on the face than monetary policy. 

"There is a school of thought," it writes in a new note "that the ECB has been in a state of denial ever since it decided to raise rates last July.  An organisational behaviourist would observe a desire to preserve 'face' in the deliberate way by which the central bank has reversed its previous tightening stance."

from MacroScope:

Falling out of the euro zone?

The periphery economies of the euro zone are suddenly in the spotlight.  Credit rating agency Standard & Poor's has cut its outlook on Ireland's sovereign debt to negative. It worries that fiscal measures to recapitalise banks and boost the economy might not improve competitiveness, diversity and growth -- all making it harder to manage debt.

Next came Greece. S&P basically put the country on watch with a negative bias. The global financial crisis has increased the risk of a difficult and long-lasting struggle to keep the Greek economy on track, it said.

All this is a long, long way from the unravelling of the euro zone -- it just got a new member, Slovakia, after all. But the subject has been raised. Gary Dugan, chief investment officer of Merrill Lynch's wealth management arm, told a group of reporters in London recently that he expected political calls to quit the currency to be heard in some member countries as the global recession bites. He added that it wouldn't happen, but that the talk could weaken the euro.

Please put a penny…

Britons are not only having to contend with a pound falling to near parity with the euro and hitting multi-year lows against the dollar, they are also now being weighed down with change.

The country has long been one for coinage. The smallest note is for five pounds, which earlier this year was worth about $10 and is now around a mere $6.50. No equivalent of the paper dollar and hence lost of change.

Now, however, pockets are filling up with more pennies than usual, courtesy of one of Prime Minister Gordon Brown‘s economic stimulus plans. Brown cut 2.5 percent off value-added tax. So now a £3.50 film rental costs £3.41 and a $2.15 coffee is £2.09. Lots of increasingly worthless coppers floating around — unless of course deflation joins the party.

End of carry trade unwind?

Merrill Lynch’s monthly poll of fund managers around the world has a bit of a surprise in the small print. More investors now reckon the Japanese yen is overvalued than see it as undervalued. This is the first time this has been the case since Merrill began asking the question, said by staff to be about eight years ago.

It clearly reflects a 13 percent dive in dollar/yen this year and a 24 percent plunge in euro/yen. But does the new view of value suggest that the unwinding of the carry trade is over? Another question from the Merrill poll shows hedge fund deleveraging levelling off.