Monday 8th February 2016
NEWS TICKER: February 8th 2016: SimCorp, a provider of investment management solutions says Vescore AG, a Swiss asset manager with $14bn in assets under management, has completed the implementation of SimCorp Dimension. Other divisions of the Vescore group will migrate to SimCorp Dimension in phase 2 of the implementation project, so the whole business will then operate on an integrated platform, designed to support modern, internationally active asset managers as they realize their growth potential. Frank Häusgen, senior sales & account manager at SimCorp says: “Vescore is another example that the ‘Investment Book of Record’ (IBOR) is so much more than a buzzword.” - S&P Capital IQ and SNL has rebranded as S&P Global Market Intelligence. The division’s new name is a strategic move forward as part of the integration of the two previously separate businesses, S&P Capital IQ and SNL Financial, under parent company McGraw Hill Financial (NYSE: MHFI). The businesses originally combined following the successful completion of the SNL Financial acquisition by MHFI on September 1, 2015. MHFI also recently announced its intention to rebrand at the corporate level as S&P Global, subject to shareholder vote in April of this year - RPMI Railpen has announced three new appointments to the in-house investment team for the Railways Pension Scheme. Sweta Chattopadhyay has joined as senior investment manager of the Private Markets team, joining from Adveq, a global alternative investment firm. Matthias Eifert has also joined the £22bn pension scheme from Macquarie Securities, and will take up the role of investment manager focusing on fundamental equity analysis and managing concentrated equity portfolios. Meanwhile, Tony Guida has joined the Alternative Risk Premia team at Railpen as an investment manager, from EDHEC Risk Institute - BCA Research, a provider of investment research, says has partnered with FiscalNote, a technology startup building a platform for analysing government risk, to integrate US policy data and analysis onto BCA’s digital platform BCA Edge. The collaboration will enable investors to factor in today’s complex regulatory landscape into their investment strategies and better understand how individual companies and industries are impacted by legislative actions, to identify alpha generating investment opportunities. The agreement with FiscalNote follows BCA’s collaboration with crowdsourced financial estimates platform Estimize to incorporate earnings and revenue estimates data on the BCA Edge platform - BroadSoft, Inc. (NASDAQ: BSFT), a global unified communication software as a service (UCaaS) provider, has acquired Transera, a provider of cloud-based contact center software for small-medium business (SMB) and large enterprises. The acquisition positions BroadSoft to lead the fast-growing Contact Center as a Service (CCaaS) market, while enabling service providers to offer a comprehensive cloud contact center portfolio with minimal new investments, rapid time-to-market, and seamless integration with BroadSoft's BroadWorks and BroadCloud solutions. BroadSoft believes that Transera's omni-channel (voice, email, chat and social) and analytics-driven cloud contact center software will enable businesses to optimise operational efficiency, strengthen financial performance and improve the business outcomes of customer interactions. "Today's acquisition brings together the leading cloud unified communications provider with a pioneer redefining contact center performance through omni-channel and big data analytics," says Michael Tessler, chief executive officer, BroadSoft. "The multi-billion-dollar contact center market is ripe for cloud disruption, and we now offer service providers a single stack solution with the flexibility to scale from SMB to large enterprise." "Cloud is rewriting the rules when it comes to how businesses can deliver a superior customer-engagement experience through simplicity, on-demand scalability, and advanced analytics," adds Prem Uppaluru, chairman and chief executive officer, Transera, who will assume the role of General Manager and Vice President of BroadSoft Cloud Contact Center - Singapore state-fund Temasek Holdings’ wholly owned investment arm Vertex Venture Holdings’ fourth Israel fund has been oversubscribed by as much as 50%, and is set to see its final close at $150m, according to Singaporean press reports. In the meantime, Temasek says it is set to close a new fund, Red Dot, also worth up to $150m to invest in mature Israeli high tech firms - Wealth manager Charles Stanley says it has appointed Vicky Casebourne and Elizabeth Feltwell as intermediary sales managers. Feltwell joins from The Ingenious Group and will work with financial advisers, solicitors and accountants across Scotland, Northern Ireland and London. Casebourne joined Charles Stanley in 2011 as a trainee investment manager from Brewin Dolphin. She worked as a central investment product specialist, assisting intermediaries with in-depth product analysis before moving to an intermediary sales manager role - Thin and thinner news from Asia today as Chinese New Year celebrations take over from worries about falling stock markets. The focus today is all on Japan: the Bank of Japan released the notes backing its decision to introduce negative interest rates (see news story below). Japan's Nikkei Stock Average rose 1.1%, but is still down 12% from the beginning of the year and is still at 12.8 times this year’s earnings according to S&P Capital IQ. Thailand's SET was up 0.4%. India's Sensex is up 0.1% (essentially flat), while Australia's S&P/ASX 200 ended down 0.01%. Other markets in Asia were closed for the Lunar New Year holiday. The pace of the US Federal Reserve’s tightening on monetary policy still hangs heavy on the market, as last Friday’s jobs figures showed a 151,000 increase in jobs while insurance claims for joblessness stayed flat overall on the previous month. Contrast that with slower and still slowing growth in China, a nervous monetary policy from the PBOC, which is being steered rather than steering markets, still volatile crude oil prices (which can only get worse not better as inventories continue to rise), a collapsing market in Brazil, concerns about NPLs at Indian banks, and the threat of ever looser monetary policy in Europe and you can see why investors are running on empty. Crude oil prices remain sharply lower compared with several months ago, but the pace of falls might be easing. New York Mercantile Exchange, light, sweet crude futures for delivery in March traded at $30.86 a barrel, down three cents from the previous close. The words rock and hard place come to mind this week as the US Federal Reserve will have to steer a delicate monetary course. On the one hand an increase might help cool the economy (but that won’t help US stocks); but if it says that the reason it doesn’t raise rates is because of worries about the global outlook, it will shake investor confidence in the markets and trigger another round of sell offs. The other key trend has been the steadily appreciating US dollar. The US dollar has risen since Friday, factoring in perhaps the possibility of an additional rate rise. The dollar was at ¥ 117.28 in late Asia, up from ¥ 116.82 late Friday in New York. The euro was at $1.1139, down from $1.1160. We’ll find out midweek, as Federal Reserve chair Yellen will testify before Congress on the progress of monetary policy on Wednesday.

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Argentina - Ten years on from the default

Friday, 15 June 2012
Argentina - Ten years on from the default In the hubble and bubble in the press around Greece and Spain, some commentators have lately drawn comparisons with Argentina, suggesting that is the way forward. Humbly, we suggest they might be wide of the mark. Greece will exit from a currency union; Argentina has its own currency and can set its own interest rates. In other ways too, the countries are way different and drawing comparisons between them is not helpful to Greece or Greek bondholders. Vanja Dragomanovich explains the long term impact on Argentina of its latest default (back in 2001) and what, if any, lessons might be drawn from that debacle and the long term impact on the Argentine financial markets. http://www.ftseglobalmarkets.com/

In the hubble and bubble in the press around Greece and Spain, some commentators have lately drawn comparisons with Argentina, suggesting that is the way forward. Humbly, we suggest they might be wide of the mark. Greece will exit from a currency union; Argentina has its own currency and can set its own interest rates. In other ways too, the countries are way different and drawing comparisons between them is not helpful to Greece or Greek bondholders. Vanja Dragomanovich explains the long term impact on Argentina of its latest default (back in 2001) and what, if any, lessons might be drawn from that debacle and the long term impact on the Argentine financial markets.

In the hubble and bubble in the press around Greece and Spain, some commentators have lately drawn comparisons with Argentina, suggesting that is the way forward. Humbly, we suggest they might be wide of the mark. Greece will exit from a currency union; Argentina has its own currency and can set its own interest rates. In other ways too, the countries are way different and drawing comparisons between them is not helpful to Greece or Greek bondholders. Vanja Dragomanovich explains the long term impact on Argentina of its latest default (back in 2001) and what, if any, lessons might be drawn from that debacle and the long term impact on the Argentine financial markets.

As Greece edges closer to political and economic immolation, market watchers have been in a flurry, casting around for examples of how a country could survive leaving the eurozone and a hard default. One example being touted around the markets is Argentina, which went through a spectacular default ten years ago but managed to follow it up with a decade of fast growth, a boom in commodity exports and a golden period in banking. Argentina’s finances are in relatively good shape. At $185bn, the country’s total debt load last year equated to just 41.3% of GDP. That’s better than both Spain, whose debt-to-GDP ratio stands at 70%, and Italy, which is saddled with an ­eye-popping 120% burden. Moreover, with GDP growth at 4% and funds available from central bank reserves, pension funds and YPF’s coffers, Argentina has ample cash.



Argentina’s expansion was fuelled by two things: liberal policies and a sharp rise in the prices of com­modities. Argentina is one of the world’s largest exporters of wine, soy, corn and wheat and China is its enthusiastic buyer. And while Greece may try to emulate the policies component of the Argentina story, unless the Chinese take to drinking retsina and cooking with olive oil it will have difficulty replicating the Latin American country’s recovery.

Argentina has also come good on almost 93% of its initial debt obligations, but to this day has not been able to return to international financial markets. In large part this is because of an ongoing dispute with two hedge funds. The bulk of the outstanding amount is owed to the Paris Club, a total of $6.4bn. “Technically, Argentina is not locked out of international markets the way it was in 2001 and 2002 when nobody would lend them money. In theory they could try to raise money but in practice they can’t go back because they would risk a seizure of assets while the [legal] cases are pending,” explains Michael Henderson, emerg­ing markets economist at Capital Economics in London

In 2001 the country defaulted on $100bn of its sovereign debt. Four years later, Argentina’s president at the time, Nestor Kirchner, offered to swap the defaulted bonds for new ones worth 70% less, in a similar deal to what Greece is hoping for. Around three quarters of the bondholders agreed. The process was repeated in 2010 by current president Cristina Fernandez de Kirchner who said at the time that this was the final deal being offered to remaining bondholders.

Two distressed-debt hedge funds opted for litigation in US courts while a group of Italian bondholders asked for an arbitration award at the World Bank’s International Centre for Settlement of Investment Disputes.

The US courts are still pondering the issue. Initially the courts ruled that NML Capital Fund, one of the funds suing Argentina, was entitled to a repayment of $1.6bn, including the payment of interest, only for this to be overruled this spring. Now the remaining debt holders are collectively appealing to the US Court of Appeal with the case due to be heard in mid-June.

While this is going on, not only is Argentina not in a position to issue bonds, it has also little hope  of raising loans from major international institutions as the United States is actively blocking the country’s loan applications on the grounds that it is a recalcitrant debtor. In September last year the US, which holds a 30% voting share in Inter-American Development Bank, voted against a $230m loan to the country.

 Of the remaining debt, $6.4 billion is still owed to the Paris Club of official creditors and Argentina has yet to reach agreement with the Club on how to reschedule the repayments. “For that Argentina would need to get the approval from the IMF and that is not likely to happen as they have a strained relationship,” says Henderson. He argues that that would mean that Argentina would have to let the IMF carry out a health check on its economy and in the process the government would have to admit that the country’s official statistics have been doctored. Just how far the country’s figures have been massaged was made clear by Carlos Maria Regunaga, a former adviser-in-chief to the Argentina’s secretary of commerce and a director at Menas Argentina. Regunaga cites the fact that although consumer price inflation in 2011 was around 22%, “the government denies this and insists that inflation is only 9.5%.”

So where does this all leave Argentina? Over the years it has been turning increasingly inwards for solutions. The government’s tactical arsenal has included printing money, dipping into central bank reserves, seizing the assets of pension funds, controlling imports and exports to tweak its trade balance and privatising pension funds. Moreover, both Kirchner presidents have been fuelling growth by heavy public spending. Despite some questionable actions, the economy has grown. Again, according to official statistics, economic growth came in at over 8% in 2010 and 9% last year. 

Even so, growth has come at a price and the high public expenditure is now a major problem, says Regunaga.  “Historically, the public sector represented an average of 30% of GDP. The Kirchners have increased it to a level of 45% of GDP,” leading to a financial shortage in the public sector, he says. In 2011, for instance, 70% of public sector spending has been financed by printing more pesos and reaching into central bank reserves.

Government raids

The government has been raiding what there is to raid in the country. In April it said it would borrow almost $3bn from the state-run bank Banco de La Nación to cover its funding needs, $2.36bn in 12 instalments and the rest as a lump sum. Argentina also regularly issues bonds directly to pension fund agency Anses, which operates the bulk of Argentina’s pension money after the government nationalised all private pension funds in 2008.“There are no signs that the government will go back any time soon on the nationalisation of pension funds. Why would it?” says a Buenos Aires banker who did not want to be named. “The move has achieved two major objectives: not only did it give the government access to a large sum of money but also major stakes in top companies and seats on their boards of directors,” the banker adds.

This and other political decisions such as strict exchange controls, import and export restrictions and the recent nationalisation of oil company YPF, formerly majority owned by Spanish oil producer Repsol has alienated Argentina from foreign mutual funds and private equity investors. Julio Lastres, managing director at Darby Private Equity, part of Franklin Templeton Investments, explains: “In order to make an investment you have to see how the local capital market has been developing, to see if you can fund the company in the local market and exit through an IPO. And then you typically have the growth of local pension funds that fuel the growth of the local market. But what we hear in Argentina makes it challenging to take a long term view and invest there. You have better places to invest in Latin America.”

Argentina has some presence in the international financial markets through GDP warrants, which were issued as part of two debt restructuring instalments (one in 2005, the other in 2010) to sweeten the deal for bond holders caught out by the country’s default on $100bn of debt in 2001.

The warrants are structured in such a way that the government will pay investors as long as the GDP grows by 3.3% per year, based on the annual GDP. Although initially there was little appetite for these GDP warrants in the open market, as the country’s economy grew so did niche investors’ interest. “We had very good volumes on Argentina’s GDP warrants, hedge funds in particular like them,” says Gabriel Sterne, director at frontier markets investment banking boutique Exotix.

This is also about to change as falling commodity prices and heavy government spending are catching up with Argentina’s economy. While the government predicts that growth this year will be 6% Henderson at Capital Economics forecast that the number will be closer to 2.5%. “Our belief is that Argentina is headed for a recession, most likely next year,” says Henderson, particularly if the global economic backdrop deteriorates over the next year, which could possibly lead to a more disorderly adjustment. With Argentine state accounts under pressure, it would be handy not to have to pay warrant holders. But that might do no favours to Argentina’s already rocky investment reputation. For now, warrant payments are hanging in the balance. Ultimately though, while Argentina has some mounting troubles, it is a story of rich resource management and a deep economy; very different from that of Greece. 

Greece’s economic recovery may also not be as certain as in Argentina’s case as it cannot devalue and does not have such a strong export market to boost its coffers. So if Greece is looking for a blueprint for the exit from the euro and a default it might be better looking somewhere other than Argentina. Or perhaps better yet, try and avoid the default in the first place. n

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