Saturday 31st January 2015
NEWS TICKER FRIDAY, JANUARY 30TH: Morningstar has moved the Morningstar Analyst Rating™ of the Fidelity Japan fund to Neutral. The fund was previously Under Review due to a change in management. Prior to being placed Under Review, the fund was rated Neutral. Management of the fund has passed to Hiroyuki Ito - a proven Japanese equity manager, says Morningstar. Ito recently joined Fidelity from Goldman Sachs, where he successfully ran a Japanese equity fund which was positively rated by Morningstar. “At Fidelity, the manager is backed by a large and reasonably experienced analyst team, who enjoy excellent access to senior company management. While we value Mr Ito’s long experience, we are mindful that he may need some further time to establish effective working relationships with the large team of analysts and develop a suitable way of utilising this valuable resource,” says the Morningstar release - The Federal Deposit Insurance Corporation (FDIC) today released a list of orders of administrative enforcement actions taken against banks and individuals in December. No administrative hearings are scheduled for February 2015. The FDIC issued a total of 53 orders and one notice. The orders included: five consent orders; 13 removal and prohibition orders; 11 section 19 orders; 15 civil money penalty; nine orders terminating consent orders and cease and desist orders; and one notice. More details are available on its website - Moody's Investors Service has completed a performance review of the UK non-conforming Residential Mortgage Backed Securities (RMBS) portfolio. The review shows that the performance of the portfolio has improved as a result of domestic recovery, increasing house prices and continued low interest-rates. Post-2009, the low interest rate environment has benefitted non-conforming borrowers, a market segment resilient to the moderate interest rate rise. Moody's also notes that UK non-conforming RMBS exposure to interest-only (IO) loans has recently diminished as the majority of such loans repaid or refinanced ahead of their maturity date - The London office of Deutsche Bank is being investigated by the Financial Conduct Authority (FCA), according to The Times newspaper. Allegedly, the bank has been placed under ‘enhanced supervision’ by the FCA amid concerns about governance and regulatory controls at the bank. The enhanced supervision order was taken out some months ago, says the report, however it has only just been made public - According to Reuters, London Stock Exchange Group will put Russell Investments on the block next month, after purchasing it last year. LSE reportedly wants $1.4bn - Legg Mason, Inc. has reported net income of $77m for Q3 fiscal 2014, compared with $4.9m in the previous quarter, and net income of $81.7m over the period. In the prior quarter, Legg Mason completed a debt refinancing that resulted in a $107.1m pre-tax charge. Adjusted income for Q3 fiscal was $113.1m compared to $40.6m in the previous quarter and $124.6m in Q3 fiscal. For the current quarter, operating revenues were $719.0m, up 2% from $703.9m in the prior quarter, and were relatively flat compared to $720.1m in Q3 fiscal. Operating expenses were $599.6m, up 5% from $573.5m in the prior quarter, and were relatively flat compared to $598.4min Q3 of fiscal 2014. Assets under management were $709.1bn as the end of December, up 4% from $679.5bn as of December 31, 2013. The Legg Mason board of directors says it has approved a new share repurchase authorisation for up to $1bn of common stock and declared a quarterly cash dividend on its common stock in the amount of $0.16 per share. - The EUR faces a couple of major releases today, says Clear Treasury LLP, and while the single currency has traded higher through the week, the prospect of €60bn per month in QE will likely keep the euro at a low ebb. The bigger picture hasn’t changed, yesterday’s run of German data was worse than expected with year on year inflation declining to -.5% (EU harmonised level). Despite the weak reading the EUR was unperturbed - The Singapore Exchange (SGX) is providing more information to companies and investors in a new comprehensive disclosure guide. Companies wanting clarity on specific principles and guidelines on corporate governance can look to the guide, which has been laid out in a question-and-answer format. SGX said listed companies are encouraged to include the new disclosure guide in their annual reports and comply with the 2012 Code of Corporate Governance, and will have to explain any deviations in their reporting collateral. - Cordea Savills on behalf of its European Commercial Fund has sold Camomile Court, 23 Camomile Street, London for £47.97mto a French pension fund, which has entrusted a real estate mandate to AXA Real Estate. The European Commercial Fund completed its initial investment phase in 2014 at total investment volume of more than €750m invested in 20 properties. Active Asset Management in order to secure a stable distribution of circa 5% a year. which has been achieved since inception of the fund is the main focus of the Fund Management now. Gerhard Lehner, head of portfolio management, Germany, at Cordea Savills says “With the sale of this property the fund is realising a value gain of more than 40%. This is the fruit of active Asset Management but does also anticipate future rental growth perspectives. For the reinvestment of the returned equity we have already identified suitable core office properties.” Meantime, Kiran Patel, chief investment officer at Cordea Savills adds: “The sale of Camomile Court adds to the £370m portfolio disposal early in the year. Together with a number of other asset sales, our total UK transaction activity since January stands at £450m. At this stage of the cycle, we believe there is merit in banking performance and taking advantage of some of the strong demand for assets in the market.” - US bourses closed higher last night thanks to much stronger Jobless Claims data (14yr low) which outweighed mixed earnings results. Overnight, Asian bourses taken positive lead from US, even as Bank of Japan data shows that inflation is still falling, consumption in shrinking and manufacturing output is just under expectations. According to Michael van Dulken at Accendo Markets, “Japan’s Nikkei [has been] helped by existing stimulus and weaker JPY. In Australia, the ASX higher as the AUD weakened following producer price inflation adding to expectations of an interest rate cut by the RBA, following other central banks recently reacting to low inflation. Chinese shares down again ahead of a manufacturing report.” - Natixis has just announced the closing of the debt financing for Seabras-1, a new subsea fiber optic cable system between the commercial and financial centers of Brazil and the United States. The global amount of debt at approximately $270m was provided on a fully-underwritten basis by Natixis -

Blog

The European Review

By Patrick Artus, chief economist at Natixis

France needs supply-side policies to stimulate growth

Tuesday, 14 February 2012 Written by 
France needs supply-side policies to stimulate growth France’s ailing economy urgently requires stimulation – and this must come from supply-side policies. Previously buoyed by borrowing, the strength of real estate and an increase in fiscal deficits, France is now suffering from significant economic weaknesses that can only be overcome by a stimulation of supply via institutional, tax and labour market reforms. http://www.ftseglobalmarkets.com/

France’s ailing economy urgently requires stimulation – and this must come from supply-side policies. Previously buoyed by borrowing, the strength of real estate and an increase in fiscal deficits, France is now suffering from significant economic weaknesses that can only be overcome by a stimulation of supply via institutional, tax and labour market reforms.

 

The French economy is experiencing a decline in investment, an inability to rebuild exports, continuing market share losses and a rapid rise in unemployment. Although previously bolstered by an increase in private sector indebtedness, growth in residential construction (until 2008), and a temporary increase in fiscal deficits, economic growth has fallen to virtually zero as of the second quarter of 2011.



However, unlike similar situations in Spain and the UK, France’s underperformance is due to a deterioration of supply rather than a decline in demand. Certainly, France’s weak economy cannot be blamed on a rapid correction in the fiscal deficit, nor to a decline in real wages. In fact, there has been a worsening of supply-side conditions since the late 1990s, highlighted by a decline in profitability, the tightening of profit margins (particularly in the industrial sector) and the distortion of income sharing in favour of wages and to the detriment of profits, itself the equivalent to an economy-wide fall in profit margins.

The result is a country where companies are hampered by poor levels of investment. Indeed, the economy has become stuck in a mid-market product range, as portrayed by the sharp drop in French exports caused by an appreciation in the euro. Furthermore, France is exhibiting advanced deindustrialisation (in the past decade both manufacturing employment and manufacturing volume as a proportion of GDP have steadily decreased), weak growth of companies (limiting the number of companies big enough to export) and a high proportion of small and medium-sized enterprises (SME) that are prematurely sold to large groups. 

Reforms to restore the economy

Supply-side reforms are urgently required: in particular, tax reform to reduce companies’ welfare contributions, labour market negotiations to take into account both wages and employment, and institutional reforms to encourage the growth of innovative SMEs.

Firstly, France must reduce welfare contributions, especially those paid by companies. It is well known that welfare contributions negatively affect employment. Therefore to boost the supply of goods, and the demand for labour, there needs to be a reduction in government expenditure on wages and welfare benefits, or (as happened in Germany and the UK in 2007 and 2011 respectively) an increase in VAT.

Secondly, the country’s labour market lacks a corrective force in periods of rising unemployment. Current pay talks are purely wage-based and do not take into account the need to reduce unemployment and create new jobs. The result is that increasing unemployment does not have a significant impact on wages and therefore unemployment levels can remain high for long periods without reducing wages.

Therefore the government needs to ensure that pay talks involve both wages and jobs, in order to create a trade-off between wage increases and job creation. Certainly, the close link between unemployment and wage increases can be seen in Germany, Spain, Italy and the UK – a labour market scenario that France must replicate.

Finally, institutional reforms are needed to boost SME growth. France’s already weak export levels are compounded by the low proportion of companies big enough to export their goods. In order to stimulate growth among SMEs, France should create a Small Business Act and Small Business Administration to improve relationships between large groups and their subcontractors, simplify administrative paperwork and improve cooperation between companies and the education system.

Going forward

In the short term, these reforms (government spending cuts, a VAT hike, reduction in wages in exchange for additional jobs, etc.) would inevitably lead to a fall in demand. But the current view – that the solution to the economy’s woes lies in stimulating demand – must be abandoned in favour of supply-side policies if a recovery is to be achieved. 

The acute question remains in play: Is there a political party ready to carry out this programme after the presidential elections?

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

Related News

Related Articles

Related Blogs

Related Videos

Current IssueSpecial Report

Tweets by @DataLend

DataLend is a global securities finance market data provider covering 42,000+ unique securities globally with a total on-loan value of more than $1.8 trillion.

What do our tweets mean? See: http://bit.ly/18YlGjP