Tuesday 31st May 2016
NEWS TICKER: TUESDAY, May 31st: The 90+ day delinquencies of the French prime RMBS slightly increased to 0.42% in March 2016 from 0.38% in December 2015, according to the latest indices published by Moody's. The cumulative defaults increased to 0.50% in March 2016 from 0.45% in December 2015. Moody's annualised total redemption rate decreased to 15.97% in March 2016 from 19.04% in December 2015. As of March 2016, the 7 Moody's-rated French prime RMBS transactions had an outstanding pool balance of €69.32bn, compared with €63.17bn in August last year, constituting an increase of 9.73% following the issuance of a new transaction FCT CREDIT AGRICOLE HABITAT 2015 since the last index publication. The European Central Bank's (ECB) interest-rate cuts have forced down the cost of mortgage loans in France and borrowers are taking full advantage of the conditions by renegotiating their loans - First Names Group has confirmed it has agreed terms to acquire independent trust and corporate services provider Nautilus Trust Company (Nautilus). The acquisition (which remains subject to regulatory approval) will significantly expand the Group’s presence in Jersey, Hong Kong and London. Nautilus was originally founded in 1999 as Beachside Trust Company by shareholders of BBA Chartered Accountants; the company rebranded to Nautilus Trust Company in 2000. The deal will considerably strengthen First Names Group’s existing international presence and service offering particularly in Jersey, increasing its headcount to over 300 ‘First Names’ in the island. It will also add to the Group’s existing private client offering in Hong Kong and London. Following the completion of the transaction, the trust and corporate services business will be integrated into First Names Group’s Private Client and Corporate Service Lines – The human rights subcommittee of the European Commission has been hearing evidence of widespread violence and violence and subjugation against Christians, Yazidis and other religious minorities in Iraq. It appears that mass killings by ISIS and mass movement of refugees is putting the existence of some of these groups at risk of extinction in Iraq. Minority representatives from the region shared their first-hand observations with the committee, though it is not yet known what the European Union can achieve in the short term or the extent of aid and support that it can provide to these groups. Archimandrite Emanuel Youkhana, leader of the Assyrian Christians noted: I thank the Parliament for this discussion but Iraq's minorities are tired of hearing statements of solidarity. We need immediate action. People are being removed from their homes, women and girls are being taken as slaves and churches are bombed and looted. 120,000 Christians were driven out of their towns and villages in the Nineveh plains and Mosul and for the first time in 2,000 years there are no Christmas services in the biblical city of Nineveh. The existence of an indigenous community that is 2,000 years old and predates Islam is now seriously endangered. There were over one million Christians in Iraq in 2003, now the most optimistic estimates are of 250,000. The richness of the Middle East comes from its diversity yet from primary school right through to university an Iraqi child will never learn a word about non-Muslim minorities like the Jews, Mandaeans, Yazidis and Christians. Daesh is uprooting us physically but we have already been uprooted from the national consciousness”. - Moody's has today affirmed the Baa2 long-term issuer rating of SES (SES), the (P)Baa2 rating on the backed senior unsecured MTN program of SES and SES Global Americas Holdings GP (SES Global), the Baa2 rating on the backed senior unsecured notes issued by SES and SES Global and the P-2 rating on the commercial paper program of SES and SES Global. Moody's also assigned a Ba1 long-term rating to the proposed perpetual deeply subordinated fixed rate resettable securities (hybrid bonds) to be issued by SES with a guarantee from SES Global. The affirmed and new hybrid bond ratings follow SES's announcement on May 26th last week that it intends to increase its fully diluted ownership of O3b Networks (O3b, unrated) from a 50.5% controlling stake (as announced on 29 April 2016) to 100.0%. The transaction is expected to close in H2 2016 and is subject to the receipt of regulatory approvals. The rating outlook remains stable. SES intends to increase its stake in O3b by exercising a call option it has, under a previously arranged shareholder purchase agreement, to acquire the remaining 49.5% of O3b shares for a consideration of $710m. As a result, the Board of O3b will no longer evaluate an IPO process and there will be no changes to the management of O3b as a result of the transaction. "The stable outlook recognizes the transaction's sound strategic fit as well as the announcement of SES's balanced funding plan for this transaction," says Alejandro Núnez, a Moody's vice president -- senior analyst. Moody’s says the rating affirmation reflects: (1) the strategic fit and revenue contribution from O3b's satellite constellation to SES's geostationary satellite fleet; the cautious approach SES has taken with respect to increasing its stake in O3b, in line with its return requirements for infrastructure investments; and the financing plans announced by SES to fund its own peaking capex program and the acquisition of O3b's minorities in a manner consistent with SES's financial policies and within our credit metric expectations - Independent investment banking firm Freitag & Co is expanding its advisory board: From tomorrow (June 1st), Robert Steven Miller, Dr Stefan Schmittmann and Matthias Wissmann will join the board. Miller is known for restructuring AIG, Bethlehem Steel, Chrysler Corporation (Vice Chairman), Delphi, Federal Mogul, Hawker Beechcraft, United Airlines (Director). Currently, he is CEO of IAC, Luxembourg, a director of AIG, Dow Chemical, Symantec, and MidOcean Partners (Chairman). Meanwhile Schmittmann has extensive experience in risk management and banking leadership. He was chief executive of Vereins- und Westbank as well as member of the executive boards of Bayerische Hypo- und Vereinsbank and Commerzbank. Currently, he is chairman of the supervisory board of Commerz Real AG and member of the supervisory board of Schaltbau Holding. Matthias Wissmann was German Federal Secretary of Transportation. He is president of the German Association of the Automotive Industry (VDA) and Vice President of the Association of the German Industry (BDI and a member of the supervisory board of Lufthansa - Eastmain Resources has appointed Joe Fazzini as chief financial officer & vice president corporate development based in Toronto, effective today. In addition to his duties as CFO, Fazzini will also oversee corporate development activities including company strategy, project analysis and financial modelling. Most recently he worked at Dundee Capital Markets where he served as vice president, senior mining analyst covering Precious Metals Equities. While at Dundee, he modelled, analysed and advised global institutional investors as well as mining companies ranging from junior gold explorers to intermediate producers. Claude Lemasson, Eastmain's president and chief executive officer says, "Over the past decade, Fazzini has been extensively involved in the mining industry as a trusted advisor to colleagues and institutional investors. His enthusiasm and expertise in all facets of finance and strategy will be an asset to our team, ensuring the company is well-supported and well-funded as we increase the scope of work on our Triangle of Success in the James Bay gold district.” – Axioma says that HedgeMark International, LLC has completed the implementation of Axioma Risk. HedgeMark, a BNY Mellon company, provides hedge fund dedicated managed account and risk analytic services. Axioma Risk is a multi-asset class risk management platform that allows clients to support their risk reporting across diverse and innovative investment strategies more seamlessly and with increased efficiency. “Existing risk management solutions rely on legacy systems and technology that cannot meet the demands of modern multi-asset class investing,” explains Sebastian Ceria, CEO of Axioma. “As our clients increasingly look for customization options for their hedge fund investments, it’s critical that we employ flexible technology that can accommodate the layer of complexity this adds to managing risk,” adds Andrew Lapkin, CEO of HedgeMark. “Axioma’s modular cloud-based platform was clearly the best solution for us to deliver detailed risk analysis on global multi-asset class portfolios for our clients.” - Russia’s National Settlement Depository (NSD) is stepping up its role in the sovereign debt market, in the process picking up business that is traditionally the preserve of either Clearstream or Euroclear (or both). The Russian finance ministry appointed the NSD as the clearing system for last week’s $1.75bn eurobond without involving the world's largest clearing banks, Euroclear and Clearstream; which apparently took investors by surprise but which did not stop them utilising the Russian depository, having bought $1.2bn of the Russian finance ministry’s $1.75bn issue. The sovereign is expected to issue a further $1.25bn/$1.5bn this year and will focus on using the country’s own market infrastructure to clear and settle the transaction. The issue, the first in three years, will help the government, battered by an economic slowdown and still in play western sanctions, to fill gaps in its budget. Sanctions do not forbid anyone from investing in or handing Russian sovereign debt. Demand for the issue was over US$7bn. The final yield was set at 4.75%, in the middle of an initial range of 4.65%–4.90% in a transaction brought to market by VTB Bank. In the event it raised $7bn in commitments. Russia last issued a eurobond back in 2013. "The NSD has fiduciary accounts with most of the largest global custodian banks," NSD chair Eddie Astanin told Reuters in a written statement "So foreign investors may buy into a new Eurobond issue also via (the banks') Moscow units,” he explained. The NSD also has fiduciary accounts with both Euroclear and Clearstream, and vice versa, making it easy for investors to access other markets, Astanin added. In an interview with Russia's Tass news agency yesterday, Astanin also said the depository was gearing up to handle further sovereign Eurobond issues and was seeking to widen its base of investors - Chinese property development firm China Resources Land has come to market with a RMB5bn ($760m approximately) panda bond in the mainland debt capital markets. The issue is in two tranches: an RMB2bn three-year note priced at 3.2% and an RMB3bn five-year note priced at 3.6%. The issue was oversubscribed by a factor of two. Panda bonds, or yuan-denominated bonds sold by foreigners on the mainland, have been growing steadily in volume since when the World Bank subsidiary the International Finance Corporation (IFC) opened the market with an RMB1.13bn issue back in 2005. However, the pace of growth, while steady has been slow, as each issue needs approval from market authorities. However, the market has picked up some pace in recent months, as HSBC, British Columbia and Hungary have tapped the market - Morningstar has placed the Neptune US Opportunities fund Under Review. The fund previously held a Morningstar Analyst Rating™ of Bronze. Fatima Khizou, manager research analyst at Morningstar, comments: “James Hackam, who joined Neptune in 2012 and currently runs the US Equity Income fund, has been appointed lead manager on the fund and head of US equities concomitantly. The Compound Edge investment philosophy, which uses a proprietary quality composite score screening tool that Hackam helped develop, will now be used across the whole range, including this fund. We will be meeting with the new management team to discuss this approach in further detail.” - Over the long weekend, India’s ONGC Videsh Ltd (OVL), the overseas arm of state-run explorer Oil and Natural Gas Corporation (ONGC), today announced it has signed a Memorandum of Understanding (MoU) with SOCAR Trading SA, the trading arm of Azerbaijan's government-owned energy firm SOCAR, for foraying into oil trading business. The agreement covers joint marketing of OVL's crude oil portfolio by leveraging SOCAR Trading's experience in oil trading, OVL says in a statement. "Initially, both the parties agreed to initiate discussion on joint marketing agreement in respect of OVL's equity crude from ACG, Azerbaijan,” the firm says.the Azeri-Chirag-Guneshli (ACG) field is located off the coast of Baku and is the largest oilfield in the Azerbaijani sector of the Caspian basin. OVL owns a 2.7% stake in the field, which it acquired from US-based Hess for $1bn - According to the provisional data published yesterday by ELSTAT real GDP growth in Greece contracted by 1.4% year on year in Q1 on the back of lower private consumption, gross fixed capital investments and exports - Statistics Canada will provide its latest read on how the economy is performing later today when it releases gross domestic product results for the first three months of the year. The consensus view is that the economy grew at an annual pace of 2.9% for the quarter, though the prediction is for a small contraction in March. Worrying for the Bank of Canada is that the Q1 figures will not take into account the damage done by the recent wildfires in Alberta - Telia Company AB (formerly TeliaSonera AB says it is inviting holders of its outstanding £400,000,000 4.375 per cent notes due 5 December 2042 (XS0861990173) to tender any and all of their securities for cash in an offer memorandum released today. The firm says the offer will help it optimise its liability structure and that it will use some of the money (alongside revenue from the sale of Ncell) to reduce its overall debt exposure. To tender securities for purchase eligible securities holders should deliver the securities either via Euroclear or Clearstream. Details of the final principal amount of securities up for purchase and the tender price will be distributed at or around noon GMT on June 8th -

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Are there rational causes for “home bias”?

Wednesday, 02 May 2012 Written by 
Are there rational causes for “home bias”? Savers and investors in every country hold an excessive quantity of domestic securities relative to foreign securities, so-called “home bias”. In the euro-zone, home bias has been growing sharply of late. http://www.ftseglobalmarkets.com/

Savers and investors in every country hold an excessive quantity of domestic securities relative to foreign securities, so-called “home bias”. In the euro-zone, home bias has been growing sharply of late.

Suggested causes for home bias include:

  • holding domestic assets can protect domestic investors against domestic risks such as inflation or exchange-rate depreciation;
  • the benefits of international diversification are small relative to the transaction costs involved in buying foreign assets;
  • and information on domestic assets is of better quality than that on foreign assets.

The scale of the home bias
“Home bias” characterises an excessively high weight of domestic assets in portfolios, relative to what would be optimal, and therefore results in an excessively low weight of foreign assets.



Using Germany and France as examples, 65% of French and German institutional investors’ stock portfolio is in domestic equities while German institutional investors have 53% of their bond portfolio in German bonds. Indeed, French savers as a whole hold three times more French equities than foreign equities while German savers hold almost four times more German equities than they do foreign equities and more German bonds than foreign bonds. And in September 2011, German and French banks held respectively 75% and 42% of their own government’s securities.

Is it possible to find rational explanations of home bias?
There may be irrational explanations for home bias i.e. investors are not penalised by losses on domestic assets as much as by losses on foreign assets and they have a "patriotic" attitude etc. But there may also be rational explanations for home bias such as hedging domestic risks, small benefits of international diversification, and quality of information.

1. Hedging of domestic risks

Investors will hold large portfolios of domestic assets if these assets provide a better hedge against specific domestic risks than foreign assets do.

Exchange rates

Holding euro-zone equities is unlikely to protect investors in the euro-zone against a depreciation of the euro. Indeed, this much is evident when comparing the European stock market with the US stock market. Over the period 2008 to 2012, the European stock market declined relative to the US stock market and the euro depreciated.

Inflation

Certainly, this argument cannot apply to bonds since countries that experience an unexpected increase in inflation normally experience a rise in long-term interest rates, which generates losses for domestic investors – meaning that an internationally diversified bond portfolio would actually be preferable.

In the case of equities, one could think that this is an asset indexed to prices, which therefore provides a hedge against domestic inflation. However, in the case of France and Germany it is quite the opposite as the Price Earnings Ratio is negatively correlated to inflation. Indeed, equities do not provide any protection against domestic inflation, and the reverse is in fact true.

2. Small benefits from international diversification

The idea is that if the benefits of international diversification are smaller than the adjustment costs (transaction costs) incurred when buying foreign assets, investors will abstain from international diversification. If we take the example of euro-zone bond portfolios, one would see that diversification to the euro-zone as a whole in the period 1999-2012 reduces the return and the risk slightly, but in a very limited way.

3. Advantage in terms of information

It is an often-heard argument that the information available for investors is better for domestic assets than for foreign assets – largely because investors have better contacts with company management and their own government.

If this is true, this bias is likely to be far larger for small and mid-sized companies than for large companies that have better information resources. As a result, we should expect larger unexpected (news) shocks for small and mid-caps than for large-caps, and subsequently higher volatility in small and mid-cap indices. Indeed, this appears to be the case. The volatility of large-cap indices has been lower since 2003 than that of small and mid-cap indices.

Patrick Artus

A graduate of Ecole Polytechnique, of Ecole Nationale de la Statistique et de l'Adminstration Economique and of Institut d'Etudes Politiques de Paris, Patrick Artus is today the Chief Economist at Natixis. He began his career in 1975 where his work included economic forecasting and modelisation. He then worked at the Economics Department of the OECD (1980), before becoming Head of Research at the ENSAE. Thereafter, Patrick taught seminars on research at Paris Dauphine (1982) and was Professor at a number of Universities (including Dauphine, ENSAE, Centre des Hautes Etudes de l'Armement, Ecole Nationale des Ponts et Chaussées and HEC Lausanne).

Patrick is now Professor of Economics at University Paris I Panthéon-Sorbonne. He combines these responsibilities with his research work at Natixis. Patrick was awarded "Best Economist of the year 1996" by the "Nouvel Economiste", and today is a member of the council of economic advisors to the French Prime Minister. He is also a board member at Total and Ipsos.

Website: cib.natixis.com/research/economic.aspx

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