Global Investing

Obama better bet for US stocks?

The wealthy in the United States have a reputation for being firmly on the side of the Republican Party, but maybe they shouldn’t be for the November presidential election.

According to Tom Stevenson, investment director at asset manager Fidelity Worldwide Investments, past evidence points to Democrat Barack Obama as possibly the more lucrative bet for equity  investors.  He says:

Looking at stock market performance following the last 12 elections suggests that investors should, in the short term at least, be rooting for an Obama victory. History shows that markets tend to rally after a win for the incumbent party by more than 10% on average, but fall modestly if the challenger is successful.

The graphic below provides the comparitive returns after Democrat and Republican presidential election victories.

 

But there’s more.  U.S. Big Business  tends to support the Republican Party which supports lower taxes and less government involvement in the economy.  But Fidelity says this stance has not delivered stock market returns; in fact the S&P 500 has delivered an average annual return of over more than 10%  under the Democrats in the past half century, compared with around 5% under the Republicans, Fidelity says.

Lipper: Getting serious about giving

“Wouldn’t you rather your donations achieve a lot rather than a little? Then you’ll need to get serious and proactive. If you do it wrong, you can easily waste your entire donation.”

Caroline Fiennes is not one to pull her punches when talking about charitable giving, but the more I talk to her, or read her new book – ‘It Ain’t What You Give It’s The Way That You Give It’ – the more it becomes apparent that her philosophy is not all that different from that of a professional fund manager.

No self-respecting fund manager would invest in a company just because they were asked to. A fund manager will choose to invest (or disinvest) because they believe it will help their fund perform well and that the investment fits within their investment objectives. Fiennes, who advises companies and individuals on their giving, advocates a similar approach for any donor: be clear about your objective and find organisations that have done a good job of achieving this, not just the ones that market themselves well.

Next Week: Managed expectations

Here’s a view of next week from our team’s weekly news planner:

Not unlike England’s performance at the Euro 2012 football tourament, EU summit expectations have been successfully lowered in advance by all concerned and  so it will be hard to disappoint as a result!

The gnawing realization in markets is that the really game-changing steps by Germany on some form of debt pooling now look unlikely before next year’s general election there and so investors may have to hang on tight to what can get done in the meantime if the system is to hold together. Yet for all the understandable policy scepticism, there are a lot of big changes on the table — from banking union, more flexible budget-cutting programs, infrastructure growth pushes, a roadmap at least to euro bonds and a euro finance ministry and the launch of the ESM next month (barring a last-minute torpedo from the German constitutional court at least).  It may be a little too easy to dismiss all that is happening just because there’s not going to be a grand instant fix ready for Monday. The ESM alone should have powerful stabilization powers for markets at least. What’s more, Merkel says ”over my dead body” to Euro bonds in one breath, and then “when conditions are right” in another. Assuming she’s referring to her political body, then even these may not be a million miles away.

But the saga has become as much about politics and personalities now as percentages and public opinion, and so you always have to factor in the chance of a major bust-up or row. Broad agreement itself, as a result, may be a relief for a bit come next week — at least until Thursday’s next Spanish debt auction!

Money in containers. Many see big bucks in Russia’s infrastructure push

A lot of things are wrong with Russia, one of them being its rickety infrastructure.

Many see this as an investment opportunity, however, reckoning the planned $1 trillion infrastructure upgrade plan will get going, especially with the 2014 Winter Olympics and 2018 soccer World Cup looming. Bets on infrastructure have also gathered pace as the Kremlin, seeking to placate a mutinous populace, has pledged reforms, privatisations and a general push to reduce Russia’s dependence on oil exports.

Takouhi Tchertchian at asset managers Renaissance says one sector – shipping containers — reflects the potential for gains from infrastructure improvements. Such containers, usually made of steel, can be loaded and transported over long distances, and transferred easily and cheaply from sea to road to rail.  But Russia has among the lowest levels of containerisation in the world, at around 4 percent compared to the emerging markets average of 15 percent, Tchertchian says. Even in India, almost 3o percent of goods travel by container while in a developed country like Britain, the figure is 40 percent.

Emerging market local bond rally has more legs

Just a month and half into 2012, emerging local currency bonds have already returned 9 percent, one of best performing asset classes. But the rally has further to go, says J.P. Morgan which runs the most widely used emerging debt indices. The bank is now predicting its benchmark local currency debt index, the GBI-EM, to end the year with returns of 16 percent, upping its original expectation for 11.9 percent.

There are several reasons for this bullishnesss. JPM’s latest client survey reveals investors’ positioning is still neutral, meaning there is potential for more gains. Cash inflows to EM local debt have been dwarfed this year by investments into dollar bonds, considered a safer, albeit lower-yielding asset than locally issued bonds. So when (and if) euro zone uncertainties abate, some of this cash is likely to make the switch.

Many emerging countries are still cutting interest rates, which will push down yields on short-dated bonds. Other countries may tolerate some more currency appreciation to dampen inflation, benefiting the currency side of the EM local bond trade. Above all, with all developed central banks intent on quantitative easing (Japan announced a surprise $130 billion worth of extra QE this week), the yield premium offered by emerging markets — the carry — is irresistible. On average the GBI-EM index offers a 4.5 percent yield pick up on U.S. Treasuries, JPM notes:

How green is your investment?

Is your investment green enough?

A survey by consultancy firm Mercer, carbon data provider Trucost and environmental organisation WWF finds that greenhouse gas emissions from 118 UK-based investment management firms, with 206 billion pounds in assets under management, range from 209 to 1,487 tonnes per million pounds invested.

The report showed that the funds hold investment to 1.4 percent of the market capitalisation of 2,380 companies, which accounts for approximately 134 million tonnes of carbon emissions. These equate to 22 percent of UK greenhouse gas emissions.

Nine of the 10 main contributors to the overall carbon footprint of the portfolios are in the utilities and oil and gas sectors. The research includes in-depth analysis of the increasingly negative effects that carbon costs could have on carbon-intensive utilities and oil and gas companies.

Falling on deaf ears

The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.

In what it must hope will be seen as a carefully considered and constructed response to the European Commission’s hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association — the voice for private equity in Europe — calls for the threshold for reporting on its companies’ activities to be lifted to 1 billion euros assets under management from 500 million.

It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.

Terminal problems

If Nigerian banks appear to have suffered disproportionately in the global financial crisis, maybe they have Heathrow Terminal 5 to blame.

Nigerian banks were advertising their services on billboards in Terminal 5 last year, and travelling investors felt it showed the banks were rashly trying to keep up with international investment banks in aiming for a global profile, causing many to sell, a banker specialising in Africa told journalists this morning over breakfast.

“Those adverts were a sign to sell Nigerian banks,” Luca del Conte, executive director in treasury and capital markets at Medicapital Bank said.

from Funds Hub:

Listen to LV’s Tom Caddick

Tom Caddick, fund of funds manager at LV= Asset Management, talks about his funds' allocation to equities and his positive outlook on corporate bonds.

Bah Humbug

Value managers and contrarian analysts long derided as permanent bears have been poking their heads out of the woods to bring some early Christmas cheer to delegates assembled at the CFA Institute’s European Conference in Amstedam.

James Montier, global strategist at SocGen, who likes to swim with sharks in his spare time, opened the conference on Tuesday by saying that he was more optimistic about equities than he had been for a long time, with the UK and European markets approaching bargain basement prices.

But on day two, Matt King, managing director, credit products strategy at Citigroup, rained all over this parade. “I have a message for equity investors,” he said. “It’s worse than you think!”