The Great Debate UK

Prescription for happy investing

Patrick Yves Berger is Head of Environmental, Social And Governance Equity Research at UniCredit. The opinions expressed are his own.

Are you a CEO or a financial professional involved in investing, financing, advising or managing? Feeling down when reading the headlines on how the rest of the society is looking at you? Feeling some fatigue in the morning when looking at those red figures? Getting nauseous when you start thinking where all this might end?

If “yes” to any of the above, try one of the following at least once a week.

Ah yes! And do not worry about the side-effects. All these actions reduce costs, improve profitability and enhance returns in the long-term:

Buy shares in a company like Linde and feel responsible for saving a person from fuel poverty through the company’s 251 MWh/sales reduction in energy intensity.

Expand the operations from a company like Energias de Portugal and feel responsible for saving a polar bear’s calf from drowning through the company’s 254 t/sales reduction in GHG intensity.

Sustainable investment: linking the thinking

Mike Tyrrell is the editor of SRI-CONNECT (a research exchange and network for CSR, IR & SRI professionals) and a consultant with Sustainable Investor. The opinions expressed are his own.

Slowly but surely UK corporate pension funds are “linking the thinking” between capital provider and capital recipient and waking up to the potential in SRI (sustainable and responsible investment).

Indeed, corporate pension funds may even prove to be the next big growth driver for a set of investment strategies (SRI) that have defied the recent market downturn and, in its wake, are maturing with a new-found professionalism.

The “how” of this is presented in a recent UK Sustainable Investment Investment and Finance (UKSIF) report entitled Responsible Business: Sustainable Pension.

In this article, I plan to discuss the “why?” and the “what next?”

The “why” has three parts: investment performance, strategic rationale and the increased professionalism of SRI.

from MacroScope:

Give me liberty and give me cash!

Come back Mr Fukuyama, all is forgiven.

In his 1992 book "The End of History and the Last Man", American political scientist Francis Fukuyama famously argued that all states were moving inexorably towards liberal democracy. His thesis that democracy is the pinnacle of political evolution has since been challenged by the violent eruption of radical Islam as well as the economic success of authoritarian countries such as China and Russia.

Now a study by Russian investment bank Renaissance Capital into the link between economic wealth and democracy seems to back Fukuyama.

Looking at 150 countries and over 60 years of history, RenCap found that countries are likely to become more democratic as they enjoyed rising levels of income with democracy virtually 'immortal' in countries with a GDP per capita above $10,000.

" Only five democracies above the $6,000 income level have died. Even democracies above the $6,000 level have a 99 percent chance of sustaining their political system each year. The only exceptions were the military coups in Greece in 1967 ($9,800), Argentina in 1976 ($8,180) and Thailand in 2006 ($7,440), and the events in Venezuela in 2009 ($9,115), as well as Iran in 2004 ($8,475)," RenCap global chief economist Charles Robertson writes.

The $6,000 per capita GDP seems to be a crucial level, marking the point where a country is likely to shift to democracy. Tunisia, which early this year triggered the wave of uprisings against autocracy across the Arab world, recently crossed that threshold.

Conversely, democracy is most fragile at the lowest income levels and when incomes are shrinking. The world's populous democracy, India, is a notable exception as its per capita income was under $800 from 1950-1967, and only exceeded $2,000 in 2003.

from Davos Notebook:

Will Goldman’s new BRICwork stand up?

Jim O'Neill, the Goldman Sachs economist who coined the term BRICs back in 2001, is adding four new countries to the elite club of emerging market economies. But does his new edifice have the same solid foundations?

In future, the BRIC economies of Brazil, Russia, China and India will be merged with those of Mexico, Indonesia, Turkey and South Korea under the banner “growth markets,” O'Neill told the Financial Times.

Hmmm.  Doesn't quite grab you like BRICs, does it? The Guardian helpfully offers an amended branding banner of  "Bric 'n Mitsk" (geddit?). But which ever way you cut it, it's hard to see a flood of investment conferences and funds floating off under the new moniker.

Ten years ago, Goldman had this field to itself. Now more and more acronyms are being bandied around by  banks  seeking to pique investors' appetite for higher returns.

Goldman has already launched the N-11, or Next Eleven countries, and other contenders include the VISTA economies (Vietnam, Indonesia, South Africa, Turkey and Argentina), the CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) and the EAGLES (Emerging and Growth-Leading Economies).

So far, none of them have really caught on. One thing you can bank on: the term BRIC will still score highly in any tally of the millions of words that will issue forth from Davos next week.

from Global Investing:

Solar activities and market cycles

Can nature's cycles enrich our finance and market theories?

Market predictions based on the alignment of the sun, moon and the earth and other cycles could help investors stay disciplined and profit in economic storms, says Daniel Shaffer, CEO of Shaffer Asset Management.

Shaffer writes that sunspot activities show that the sun has an approximate 11-year cycle and as of March 31, 2009, sunspot activity has reached a 100-year low (this, interestingly, coincides with a cycle low in equity markets, reached sometime mid-March in 2009).

But a low in solar activity seems to be followed by a high. Scientists are predicting a solar maximum of activity in sunspots in 2012 that could e the strongest in modern times, according to Shaffer.

"The concern is that something weird is going on and that the current extreme low in the sunspot cycle, similar to the stock market, can be followed by an unusually high sunspot cycle leading to a solar maximum, or in other words, a peak in sunspot activity," he writes in his latest book.

"Our analysis is currently indicating a stock market low in the United States in approximately year 2012, which coincides with either a sunspot low or high depending on the cycle. "

from MacroScope:

Building BRICs in Africa

Some eye-catching numbers from Standard Bank out today on the influence of BRICs countries -- Brazil, Russia, India and China -- on Africa.

First off, the bank says the global recession and its recovery have been nourishing these so-called South-South ties. But it is all now ready to take off. The bank estimates:

-- By 2015, BRIC-Africa trade will have incresed threefold, to $530 billion from $150 billion this year.

-- BRICs share of Africa's total trade will increase from one-fifth today to one-third in the next five years.

-- BRICS foreign direct investment stock in Africa will swell to more than $150 billion from around $60 billion today.

Standard Bank bases these assertions partly on estimates for BRICs growth over the next five years -- eg, domestic output, global output and a doubling of BRICs trade with the world in general. But it also sees Africa growing rapidly -- for example, a per capita real annual growth rate of 5.7 percent between now and 2015, and a doubling of private consumption in Africa's 10 largest economies. And it adds:

Crucially, a host of global-minded corporates is emerging from the BRICs. In 2010 231 (11.5 percent of the total) companies listed in the Forbes Global 2000 originated in the BRICs, up from only 83 companies (4 percent) in 2005. Recent trends are a harbinger of deeper potential.

from Global Investing:

Investors love those emerging markets

No question that investors are in the throes of passion over emerging markets. The latest Reuters asset allocation polls show investors pouring money into Asian and Latin American stocks in October to the detriment of U.S. and euro zone equities. Exposure to equities in emerging Europe, Asia ex-Japan, Latin America and Africa/Middle East rose to 15.6 percent of a typical stock portfolio from 14.3 percent a month earlier.

from Reuters Investigates:

Morbid money-spinners

If the life settlements market seems ghoulish, here’s a British scandal which isn’t doing the image of the business any favours. It’s one of the worst the country’s seen.

Around 30,000 mainly elderly investors in the UK put their money into a company called Keydata, hoping to make a little extra cash to fund their own retirement with the promise of a healthy return.

What they were buying sounded kosher, even if it did depend on how fast their wealthy American counterparts were dying. Of course, the investors may not have known that.

As is so often the case with these things, the projections were a little optimistic. And then some other irregularities blew up. Around 100 million pounds went missing, one of the business’s partners dropped dead in Singapore and the investment company was shut down by the regulators, leaving British pensioners like Tony and Pam Tobin out of pocket.  The Serious Fraud Office is investigating.

Tony and Pam Tobin

Undeterred, the other key character behind Keydata is determined to fight the regulators’ decision.  "I am someone who can make the impossible possible," he tells us.

Punishing investment bankers: the nanny-state goes global

- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

In a previous blog, I expressed the fear that in the aftermath of the financial crisis we were going to see either the innocent punished or guilty men convicted of the wrong crimes, or maybe both.

A topical case is Goldman Sachs, an investment bank which weathered the crisis better than most, only taking Fed money when all the other dominos had already fallen, repaying it extremely quickly, and facing accusations ever since of having been too clever for its own good.

The latest charge is that they foisted a type of complex securities known as Collateralised Debt Obligations – essentially, securitised mortgage packages – on their unwitting clients, in spite of the fact that the underlying assets were of extremely poor quality, as Goldman were allegedly fully aware.

If Goldman is guilty of outright deception, it should face the appropriate penalty. But here, as in many other cases we read of, the charge amounts to one of simply catering to the greed of corporate clients who ought to have known better.

As Gillian Tett says in today’s FT:

“It has long been an open secret that the [CDO] sector was so murky that it was easy for banks and hedge funds to engage in shady practices that enabled them to make a fast buck.”

Signs are positive for markets and economy

-Kully Samra is UK Branch Director at Charles Schwab. The opinions expressed are his own.-

There is no doubt that since the lows in March 2009 the U.S. market has rallied massively. However, at Charles Schwab we believe that whilst economic progress will continue, we must look to the months ahead with some caution.  We remain optimistic regarding the equity markets in the longer term and the economy in the short term, but recognise that increased volatility will likely characterise 2010.

Over the last month, we’ve certainly experienced a sense of this increase in volatility in the US markets and we would stress the importance of a diversified portfolio and an appropriate asset allocation that matches one’s risk tolerance in order to combat this. Investors should also ensure that they assess and rebalance their portfolios to fit the market conditions.

Despite this, the U.S. economy is undoubtedly still continuing to improve, evident from the initial read on fourth-quarter gross domestic product (GDP) which presented a much-better-than-expected 5.7 percent. Up to this point, the recovery that we’ve witnessed since March 2009 could be described as V-shaped. However, it will become more difficult for data to continue to move in that nearly vertical pattern. This will likely result in at least some flattening in the rate of improvement in the economy at some point in 2010, possibly making the recovery square-root shaped.

One thing that we’re keeping our eye on at Schwab is the increasing debt levels in the US. In the decade to September 2009 it’s taken nearly 6 dollars of debt to create 1 dollar of economic growth. This is clearly not sustainable, and is a threat to the long-term stability of the US economy. To give this some context, in the 1950s, it took 1.36 dollars of debt to create a dollar of economic growth. Government shake-up?

Although it may seem like an obvious point to make, it is near-impossible for investors to catch or predict every move in the equity market. The Greek banking crisis and the election upset at the Massachusetts Senate election are prime examples of this, as both events impacted short team market action in the U.S.

The outcome of the Massachusetts senate election, which gave the Republican Party a 41st seat in the Senate, has tilted the balance of power in Washington, exacerbating what was already a volatile atmosphere. It appears that some of the major proposals of the Obama administration are likely to be scaled back, which could provide some more certainty for the economy.   The proposed health care program has largely been taken off the table for now, as has major cap and trade legislation, both of which were met with some opposition by the business community.