Thursday 5th March 2015
NEWS TICKER – THURSDAY, MARCH 5TH 2015: Following a recent Morningstar Analyst Ratings meeting, Morningstar has moved the Henderson Horizon Japanese Equity fund and the Henderson Japan Capital Growth fund to a Morningstar Analyst Rating™ of Neutral. Both funds were previously Under Review due to a change in the lead portfolio manager. Prior to being placed Under Review, both funds were rated Bronze. The funds were solely managed by Michael Wood-Martin, who took over in 2005. However, in October 2014 Henderson decided to adopt a team-based approach. They are now run by the Japanese Equities team consisting of four investment professionals, including William Garnett, Michael Wood-Martin, Jeremy Hall, and Yun-Young Lee. Given this change to the investment process, Morningstar says it has less clarity around the likely shape of the portfolios and little evidence that the strategy can be implemented effectively. Morningstar believes a Neutral rating is appropriate at the current time —Moody's Investors Service has today republished a number of asset-backed securities (ABS) and residential mortgage-backed securities (RMBS) rating methodology reports. The updated ABS and RMBS methodology reports consolidate the secondary rating methodology "Revising default/loss assumptions over the life of an EMEA ABS/RMBS transaction" and which the agency will now retire; for RMBS specifically sees updates to the surveillance section; and for Consumer Loan-Backed ABS specifically a new appendix describing how Moody's will tailor its approach to rating consumer loans for marketplace lending loans. The republications do not represent a change in methodology and will not result in any rating changes —BATS Chi-X Europe reports a 23.7% market share, with average notional value traded at €12.3bn up substantially from €8.9bn in February 2014. Market share rose in 14 of the 15 markets the firm covers. Its trade reporting facility, BXTR, had its second-most successful month ever with more than €369.3bn reported in total during the month; an average of €18.5bn each trading day. In total, BATS Chi-X systems touched €616.1bn of trades in February—The Straits Times Index (STI) ended -20.26 points lower or -0.59% to 3395.27, taking the year-to-date performance to +0.90%. The FTSE ST Mid Cap Index declined -0.18% while the FTSE ST Small Cap Index declined -0.17%. The top active stocks were SingTel (-1.20%), DBS (+0.05%), Keppel Land (-0.44%), OCBC Bank (-0.48%) and Global Logistic (unchanged). The outperforming sectors today were represented by the FTSE ST Utilities Index (+1.66%). The two biggest stocks of the FTSE ST Utilities Index are United Envirotech (unchanged) and Hyflux (+0.58%). The underperforming sector was the FTSE ST Consumer Goods Index, which declined -1.31% with Wilmar International’s share price declining -0.61% and Thai Beverage’s share price declining -2.06%.The three most active Exchange Traded Funds (ETFs) by value today were the IS MSCI India (-1.22%), SPDR Gold Shares (-0.31%), DBXT MSCI Thailand TRN ETF (-0.38%). The three most active Real Estate Investment Trusts (REITs) by value were CapitaMall Trust (+0.94%), Ascendas REIT (+2.02%), CapitaCom Trust (+0.28%).The most active index warrants by value today were HSI25000MBeCW150429 (-14.16%), HSI24200MBePW150429 (+10.53%), HSI23800MBePW150330 (+16.92%)—Commerz Real and RFR Holding have signed an agreement to purchase the real estate Atlas Plaza in Miami/Florida for its open-ended real estate fund hausInvest. The retail trade complex, located in the burgeoning Design District and in part on two storeys, comprises two existing buildings and a new construction, scheduled to be completed by May 2015. Upon the completion of the building work the leasable area will total approximately 1,600 square metres. The total investment volume for the acquisition and extension of “Atlas Plaza” amounts to around 68 million US dollars (approximately €60m)—Malaysia’s corporate sukuk sales will rebound from the worst start to a year since 2010 as a recovery in oil prices spurs issuance before the US raises interest rates, according to investment bank CIMB. Islamic bond offerings to date are down MYR9.7bn on a year on year basis. Kuala Lumpur-based AmInvestment Bank Bhd predicts sales could surpass last year’s MYR62bn as more projects come on stream under the government’s 10-year development programme. A 34% rally in Brent crude from January’s six-year low will shore up the country’s finances after Fitch Ratings warned the loss of revenue for oil-exporting Malaysia puts its credit ranking at risk. The average yield on AAA rated Malaysian corporate securities has dropped to a three-month low, cutting costs for issuers involved in Prime Minister Datuk Seri Najib Razak’s $444bn spending drive and those seeking to refinance debt—Bahrain’s BIBF has announced the launch of the region’s first Islamic Finance and Muslim Lifestyle Convergence Training programme, developed as part of the Waqf Fund’s initiatives to enhance Islamic Finance training in the region, in partnership with New York-based DinarStandard, at a press conference yesterday. The burgeoning Halal food and Muslim Lifestyle sectors is estimated to be worth $2trn in 2013, and is expected to reach $2.47trn by 2018, based on the State of the Global Islamic Economy 2014 report, produced by Thomson Reuters in collaboration with DinarStandard. This represents a huge opportunity for Islamic Finance, which has been for the most part, untapped—Kames Capital is to lower the annual management charge on the Kames Investment Grade Global Bond Fund following a review of the fund’s positioning in the European markets. The move will see the AMC on the Kames Investment Grade Global Bond Fund B share class fall to 0.65% from its current rate of 0.80%, while for the A share class the charge will drop to 1.15% from 1.30%. The changes will take effect from the 1st April 2015. As part of the review, Kames will also be changing the benchmark of the fund to the Barclays Global Aggregate Corporate Index from the Lipper Global Bond Global Corporate Median. The changes are intended to bring the fund into line with its peer group particularly in Continental Europe. Whilet there will be no change to the investment process of the fund, there will be a slight change to the fund’s duration. In order to maintain its index-neutral duration, the Fund will now be aligned to the Barclays Global Aggregate Corporate Index which has a duration of around 6.4 years. This compares to the existing Lipper peer group which has an estimated duration of 5 years.

Blog

The European Review

By Patrick Artus, chief economist at Natixis

Why the ECB will need to purchase bonds again

Friday, 27 July 2012 Written by 
Why the ECB will need to purchase bonds again Even if the European Central Bank (ECB) does not particularly like the idea, it will soon have to return to buying government bonds from several eurozone countries. The reasoning behind this prediction lies in a chain of events already taking place. http://www.ftseglobalmarkets.com/

Even if the European Central Bank (ECB) does not particularly like the idea, it will soon have to return to buying government bonds from several eurozone countries. The reasoning behind this prediction lies in a chain of events already taking place.

Earlier this year the ECB froze its securities market programme (SMP), which, since its inception in 2010, has bought over €210bn worth of sovereign bonds. The responsibility of buying sovereign bonds from various eurozone countries, it said, would now shift to the European Financial Stability Fund (EFSF) and European Stability Mechanism (ESM).

Despite the high level of interest rates in Spain and Italy, the ECB has not resumed its purchases of government bonds, and shows no enthusiasm for doing so. As mentioned, its official stance is that government bond purchases should be carried out by the EFSF/ESM.



However, many analysts (us included) believe the EFSF/ESM will not be able to react sufficiently – mainly due to its size but also the fact it lacks access to monetary creation, which the lender of last resort for governments must have.

To see the chain of events taking place, we only need look at the economic position of Spain, Italy, France and Portugal – which are all deteriorating. This reinforces the risk that investors will refuse to finance these countries, which will push interest rates to the point where there is a threat of default.

In these countries (obviously to different extents):

  • the private sector continues to deleverage;
  • the fiscal policy is and will be restrictive;
  • there is a decline in real wages since labour's bargaining power is weakening;
  • household demand is deteriorating, which leads to companies reducing their investment rate;
  • sluggish activity is leading to job losses and preventing these countries from improving their public finances; and
  • despite the decline in domestic demand in Italy, Spain and Portugal, there remains a substantial external deficit; in France, on the other hand, domestic demand has not started to fall yet, but the external deficit is rising.

The improvement in competitiveness due to the fall in wages (in Spain, Italy and Portugal, but not yet in France) is unable to improve foreign trade, either because the industrial sector is too small as a proportion of the whole economy (Spain, Portugal, France), or because this improvement is insufficient (Italy).

So there is clearly a downward spiralling risk. The crisis spreads from one country to the next via foreign trade and, since the external deficits are only partially being reduced, the crisis may be exacerbated by the rise in interest rates.

Therefore, we can see a continuous weakening of the economy. If the countries’ economic situation deteriorates, it will be increasingly difficult to finance their debts. Investors will be concerned about the countries’ situation and their solvency – in fiscal and external terms. Interest rates will rise further, and this means that countries and governments will be threatened with default.

Realistically, if this occurs the ECB will have to intervene because the officially planned solution (bond purchases by the EFSF/ESM) will not be sufficient. Given the size of the countries’ debts, the need to buy bonds will exceed the capacity of a bond issuer such as the EFSF/ESM – especially in the event of a bond market crisis affecting several eurozone countries.

Given that the lender of last resort for governments must have access to monetary creation, the only institution capable of buying bonds at the volumes required will be the ECB.

We believe that at the end of this process the ECB will have to intervene via massive government bond purchases (similar to the action taken by Bank of England). This is legal, provided that it relates to purchases in the secondary market, irrespective of some countries’ reservations.

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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