Global Investing

Shadow over Shekel

Israel’s financial markets had a torrid time on Monday as swirling rumours of an imminent air strike on Iran caused investors to flee. The shekel lost 1.4 percent, the Tel Aviv stock exchange fell 1.5 percent and credit default swaps, reflecting the cost of insuring exposure to a credit, surged almost 10 percent.

There has been a modest recovery today as the rumour mills wind down. But analysts reckon more weakness lies ahead for the shekel which is not far off three-year lows.  Political risks aside, the central bank has been cutting interest rates and is widely expected to take interest rates, currently at 2.25 percent, down to 1.75 percent by year-end. Societe Generale analysts are among the many recommending short shekel positions against the dollar. They say:

Expect the dovish stance of the Bank of Israel to remain well entrenched for now.

That’s not all. Investors have been pulling cash out of Israel’s financial markets for some time (Citi analysts estimate $1.6 billion fled in the first quarter of the year). After running current account surpluses for more than 8 years, Israel now has a deficit (the gap was $1.7 billion in the first three months of this year, double the previous quarter) .

Looking behind the scenes, a key factor behind shekel performance is the relative performance of Tel Aviv stocks versus the U.S. market, says Citi analyst Neil Corney.  Last year, Tel Aviv fell more than 20 percent and it hasnt recovered this year. New York’s S&P500 on the other hand has rallied 12 percent so far in 2012 and outperformed last year as well. Corney tells clients:

LIPPER-ETF tiddlers for the chop?

(The author is Head of EMEA Research at Thomson Reuters fund research firm Lipper. The views expressed are his own.)

By Detlef Glow

The exchange-traded fund (ETF) market has shown strong growth since its inception in Europe. Many fund promoters have sought to capitalise on this, seeking to differentiate themselves from rivals and match client needs by injecting some innovation into their product offerings. This has led to a broad variety of ETFs competing for assets, both in terms of asset classes and replication techniques.

Looking at assets under management, however, the European ETF market is still highly concentrated. The five top promoters account for more than 75 percent of the entire industry. On a fund-by-fund basis the concentration is even greater.

Running for gold? The long-distance investor

What are you best at? Running a sprint?  Jumping a few hurdles? Or would you rather gear up for the long-haul with a marathon?

With the London 2012 Olympics in full speed UK investors are going for the long-distance rather than try to follow in Usain Bolt’s speed-lightning sprints, a poll by Barclays Stockbrokers showed.

Thirty-one percent of surveyed clients liken their investment strategy to a marathon ( “investing for the long term” ) and 34 percent to an heptathlon (“long term investment strategy which requires several different approaches.”)

Devil and the deep blue sea

Ok, it’s a big policy week and of course it could either way for markets. An awful lot of ECB and Fed easing expectations may well be in the price already, so some delivery would appear to be important especially now that ECB chief Mario Draghi has set everyone up for fireworks in Frankfurt.

But if it’s even possible to look beyond the meetings for a moment, it’s interesting to see how the other forces are stacked up.

Perhaps the least obvious market statistic as July draws to a close is that, with gains of more than 10 percent, Wall St equities have so far had their best year-to-date since 2003. Who would have thunk it in a summer of market doom and despair.  Now that could be a blessing or a curse for those trying to parse the remainder of the year. Gloomy chartists and uber-bears such as SocGen’s Albert Edwards warn variously of either hyper-negative chart signals on the S&P500, such as the “Ultimate Death Cross”, or claims that the U.S. has already entered recession in the third quarter.

GUEST BLOG: Is Your Global Bond Fund Riskier than You Thought?

This is a guest post from Douglas J. Peebles, Head of Fixed Income at AllianceBernstein. The piece reflects his own opinion and is not endorsed by Reuters. The views expressed  do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AllianceBernstein portfolio-management teams.


Global bond funds continue to attract strong inflows as near-zero interest rates lead many investors to look abroad for assets with attractive yields. As we’ve argued before, global bonds provide many important benefits, but it’s crucial that investors select the right type of fund.

Not all global bond funds are cut from the same cloth. One key consideration that investors often overlook is the extent to which the fund elects to hedge its currency exposure. When a domestic currency depreciates – as it did for US-dollar–based investors during most of the period between 2002 and 2008 – foreign currency exposure can help boost returns from holding global bonds.

Certain danger: Extreme investing in Africa

The Arab Spring, for all its democratic and political virtues,  put a big economic dent in the side of participating North African countries, particularly when it came to attracting foreign investment in 2011.

According to a recent UNCTAD report:

Sub-Saharan Africa drew FDI not only to its natural resources, but also to its emerging consumer markets as the growth outlook remained positive. Political uncertainty in North Africa deterred investment in that region.

So far, so logical. Except that simply can’t be all there is to it.

Why? Because plenty of African countries marred by political uncertainty have succeeded in attracting inward FDI.

In Brazil, rate cuts but no economic recovery

Brazil’s central bank meets today and almost certainly will announce another half point cut in interest rates, the eighth consecutive reduction since last August. But so far there is little sign that its rate-cutting spree – the longest and most aggressive  in the developing world – is having much success in resuscitating the economy.

HSBC’s closely watched emerging markets index (EMI), released this week, shows Brazil as one of the weak links in the EM growth picture,  with sharp declines in manufacturing and export orders in the second quarter.

The government is expected to soon revise down its 4.5 percent growth projection for 2012; the central bank has already done so.  Industrial output is down, and automobile production has slumped 9 percent in the first half of 2012. Nor  it seems are record low interest rates encouraging the middle classes to take on more debt — the number of Brazilians seeking new credit fell 7.4 percent in the first half of this year, the biggest fall on record, according to credit research firm Seresa Experian.

Investors hungover after wine binge

During this depression, it would appear that investors are no longer finding solace in turning to the bottle.

Fine wines are being hit hard by the global downturn, with the Liv-ex Fine Wine 100 index down 7.4 percent on the year, according to July’s Cellar Watch Market Report.

The Liv-ex Bordeaux 500 was down by 3.4 percent month-on-month - an especially disappointing showing given that the market is usually energised in June by new Bordeaux releases.

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: Call and response?

The Greek vote next Sunday now stands front and centre of pretty much all investment thinking, but the problem is that it may still be days and weeks before we get a true picture of what’s happened, whether a government can be formed and what their stance will be. If the new parliament cannot clearly back the existing bailout, even after a bout of  horse-trading, then a game of chicken with Europe ensues.  Eurogroup meets again on Thursday and there’s a German/French/Italy/Spain summit on Friday.  But G20 leaders gather in Mexico as all this is unfolding, so they will certainly be quorate if some sort of global response is required to any initial market shock. What’s more, the FOMC is meeting Tuesday and Wednesday should Bernanke feel the US needs urgent insulation from the fallout regardless of broader action. But it’s certainly not beyond the bounds of reason that coordinated central bank action materializes next week if markets do indeed go skewways after the Greek poll. They have all clearly been consulting on the issue lately via telephone and bilaterals. And the assumption of more QE is there among investors. Three quarters of the 260+ funds polled by BoAMerrill Lynch this month expect another ECB LTRO by the end of Q3 and almost a half expecting more Fed QE over the same time.

And maybe it is this assumption of massive policy response that’s preventing markets capitulating outright. Money is gradually going to ground, but it’s not yet thrown in the towel completely as you can see from major equity indices, volatility gauges and interbank spreads etc. And there are a lot of headwinds everywhere over the next six months, the US election, fiscal cliff, end of operation twist stateside – and that’s in one of the few major western economies that was generating any significant growth this year. In other words, there are no shortage of arguments for another monetary boost. A heavy econ data slate during the week will also reveal just how much the world economy has run into sand this quarter. The standouts are the flash PMIs for June, the US Philly Fed index for June and UK jobs and inflation numbers.

As to the lack of response to last weekend’s Spanish bank bailout, it was weird in many ways that anyone really expected a major rally on this just six days ahead of a Greek vote which could throw the whole bloc into chaos.  Even if you thought the Spanish bailout was good, and it was certainly a necessary if not sufficient step, you would still not return to Spanish debt until the next couple of weeks of events had cleared. So, in that respect, it’s unlikely the market made any real judgement on it either way. The subsequent credit rating cuts from Moody’s have not helped and yields have spiked to the 7% level flashing red lights. But it’s hard to see how any exposed frontline euro market, from Spain to Italy and Ireland to Portugal, can really stabilise ahead of the weekend.  One fear on the Spanish rescue was of private investors’ subordination to EU/IMF creditors in any workout of Spanish debt. But even that too may have been overstated when it comes to the sovereign. For a start, the interest rate charged on the funds means a massive saving for Madrid compared with prevailing market rates and, as Barclays argued, actually increases the overall pie available for any workout, with a possible increase in projected recovery rates compared with the pre-bailout setup.  If that was the big concern, then the subsequent rise in Spanish yields most likely is more Greek than Spanish in origin.