Thursday 26th November 2015
NEWS TICKER, THURSDAY, NOVEMBER 26TH: In the last six months River and Mercantile Group (R&M) says has been appointed to design, execute and provide ongoing management of over £1.7bn of structured equity options mandates for pension clients, including the Royal Mail Pension Plan and another FTSE 100 company’s pension scheme. James Barham, global head of Distribution at R&M, says, "With increased volatility in equity markets, we have seen a growing number of clients that are taking advantage of our market leading derivative capabilities to manage the downside exposure in their equity portfolios. The derivatives team at R&M has an exceptional long term track record in designing and managing structured equity solutions for clients over the last ten years. We continue to see significant demand from pensions and institutional clients for structured equity to actively manage the profile of their equity investment returns while maintaining their allocation to equities. The design and execution of these mandate demonstrates R&M’s ability to design innovative, outcome oriented solutions for our clients, which are delivered to meet their governance requirements.” - Demand to borrow Asian stocks surged in the wake of the recent market volatility reports Markit. While short sellers have since pulled back slightly, the current demand to borrow shares across the region is still up by a fifth since the start of the year. Short interest across Asia is up by 18% year to date, reaching 2.7% of free float. However, says Markit, Japanese short selling has been relatively flat since the start of the year. The firm adds that consumer sectors have made Australia the most shorted country in the region - Trayport, a provider of energy trading solutions to traders and exchanges, says Power Solutions Enerji Ticaret ve Danışmanlık Anonim Şirketi has chosen Trayport’s GlobalVision Broker Trading SystemSM (BTS) for trading in the Turkish power market. Power Solutions, founded in Turkey in 2015, provides OTC Brokerage services in the Turkish electricity market.. The Trayport BTS offers brokers access to a growing network of traders using Trayport’s trading technology - The Dutch residential mortgage-backed securities (RMBS) market remained strong during the three-month period ended September 2015, according to the latest indices published by Moody's The 60+ day delinquencies of Dutch RMBS, including Dutch mortgage loans benefitting from a Nationale Hypotheek Garantie, continued to decrease to 0.73% in September 2015 from 0.81% in June 2015. The 90+ day delinquencies also continued to decrease to 0.56% in September 2015 from 0.64% in June 2015. Cumulative defaults increased to 0.78% of the original balance, plus additions (in the case of master issuers) and replenishments, in September 2015 from 0.70% in June 2015. This compares to cumulative defaults of 0.49% in September 2014. Cumulative losses increased to 0.15% in September 2015 from 0.14% in June 2015. Moody's has assigned definitive credit ratings to two new transactions since the last publication of the Index on September 9th, including five classes of notes issued by STORM 2015-II BV. and two classed of notes issued by Hypenn RMBS IV BV. As of the end of September, the 107 Moody's-rated Dutch RMBS transactions had an outstanding pool balance of €217.9bn, representing a year-over-year decrease of 4.8% - Thanksgiving holidays in the US has coloured trading today. In the Asia-Pac, low commodities prices are weighing on the Australian economy. Australia's S&P/ASX 200 gained 0.3% in thin trading volumes across the whole Asia-Pac region. With the exception of the Australian dollar, trading volumes were ridiculously small EUR/USD traded within a 10 pips range between 1.0615 and 1.0625. Similarly, GBP/USD traded sideways between 1.5115 and 1.5131. According to Yann Quelenn, market analyst at Swissquote: “When commodities price lower, there is a transfer of wealth between exporters (producers) and importers of commodities. The decline favours industries that need commodities as primary source for manufacturing products. Australia is on the exporters’ side. Indeed, an important part of the Australian’s revenues accounts for the revenues on the extraction of gold, silver, platinum and other metals. Materials shares fell 1.3%, and are down 4.6% so far this week, with commodities like copper and nickel having tumbled to multiyear lows. In Japan, The Nikkei Stock Average ended the day up 0.5% at 19944.41, while and South Korea's Kospi rose 1.1%. The Shanghai Composite Index fell 0.3% and Hong Kong's Hang Seng Index closed flat. Japan shares have posted one of the strongest rebounds in the region since September. The Nikkei is the second-best performing market in Asia year to date with a gain of 14%. China's Shenzhen Composite Index is up 65% year to date. The Straits Times Index (STI) ended 6.89 points or 0.24% lower to 2884.69, taking the year-to-date performance to -14.28%. The top active stocks today were OCBC Bank, which declined 0.91%, SingTel, which gained 0.26%, UOB, which declined 1.79%, DBS, which declined 0.36% and Global Logistic, with a 1.91% fall. The FTSE ST Mid Cap Index declined 0.05%, while the FTSE ST Small Cap Index declined0.84%.In Brazil, the BCB left rates unchanged at 14.25% yesterday in spite of rampant inflation. The latest economic survey by the central bank showed that inflation expectations are not anchored yet as it is expected to reach 10.33% by year-end and 6.64% by the end of 2016. Broadly, expectations the U.S. Federal Reserve will raise interest rates in December has pushed the yen weaker. The currency has weakened 3.1% against the U.S. dollar in the past three months. Japan shares nevertheless remain vulnerable to global central bank moves and geopolitical tensions - The London Metal Exchange's three-month copper contract closed down 1.3% at $4,549 a metric ton on Wednesday. Copper last traded at $4,692.50 a metric ton, up from the opening price of $4,538 a ton on Thursday. Overnight, the latest U.S. report on jobless claims pointed to a strengthening employment picture, pushing the dollar higher. U.S. stocks ended mostly unchanged as consumer discretionary and health-care shares offset losses in other sectors on the last full trading day of the week before the Thanksgiving holiday. Brent oil futures fell 0.2% to $46.06 a barrel. US crude-oil futures rose 0.2% to $43.13 a barrel. Gold prices were up 0.3% at $1,073.50 a troy ounce.

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Michael Levy, investment manager, Baring Frontier Markets Fund,  says a steady flow of new companies to the market marks steadily increasing liquidity in the frontier markets asset class. Michael Levy, investment manager, Baring Frontier Markets Fund, says a steady flow of new companies to the market marks steadily increasing liquidity in the frontier markets asset class. Photograph kindly supplied by Barings, November 2013.

Barings makes case for frontier markets in 2014

Wednesday, 27 November 2013
Barings makes case for frontier markets in 2014 Frontier markets such as Argentina, Kenya, Nigeria, Saudi Arabia and the United Arab Emirates have delivered strong investment returns in 2013, and the asset class is set for continued strong performance in 2014, according to international investment firm Baring Asset Management.

Frontier markets such as Argentina, Kenya, Nigeria, Saudi Arabia and the United Arab Emirates have delivered strong investment returns in 2013, and the asset class is set for continued strong performance in 2014, according to international investment firm Baring Asset Management.

The firm sees every reason for investors in such markets to be positive as they look ahead to next year. Michael Levy, investment manager, Baring Frontier Markets Fund, explains why: “Frontier markets are inefficient markets at an early stage of development, providing many mispriced investment opportunities, and we expect the drivers which have supported markets in 2013 – potential for long-term structural growth combined with a low correlation to other asset classes – to remain intact. 

"We are encouraged by the political developments we have seen this year, which show that the countries in our investment universe continue to move towards economic liberalisation and democracy, albeit at a slow pace.”

Levy notes the performance of the MSCI Frontier Markets Index, which has returned +16.4% in US dollar terms to mid-November, reflecting the prospect of long-term structural economic and corporate earnings growth and continued allocations from investors attracted by low correlations to other asset classes.  The performance compares very favourably with a 7.1% decline in the MSCI Emerging Markets Index over the same period.

Two asset classes where Barings sees particular investment potential are new energy opportunities and healthcare companies.  The former encompasses exceptionally large oil and gas deposits in Kurdistan, Northern Iraq, which are likely to be brought to market shortly.  The latter reflects the rapid growth of generic pharmaceuticals production in many frontier economies as well as the increasing use of private healthcare provision to supplement public healthcare, particularly in the Middle East. 

Al Noor Hospitals, for instance, is one of the largest private healthcare providers in the United Arab Emirates and a core holding in the Baring Frontier Markets Fund.

In terms of country performance, Middle Eastern markets including the UAE stand out as one of the better performing regions, according to Barings, as the banking sector in the UAE has benefited as a safe haven at a time when continued instability has impacted some other countries in the region. 

In Africa, a continent where Barings sees the strongest long-term equity market potential, elections in Kenya have resulted in a more market-friendly government coming into power – evidence of the wider, long-term trend towards democratisation across the frontier market universe.  Nigeria’s Central Bank also continues to make good progress in managing the currency and inflation, and investments made in security and customer identification augur well for the development of Nigeria’s retail banking market, in Barings’ view.

Levy adds: “From an investment perspective, a steady flow of new companies to the market marks steadily increasing liquidity in the frontier markets asset class, and we expect further progress here next year, with potential for privatisations in Romania for example in 2014.  We recently invested in a company which has operations based in Laos, and increasingly, other Asian frontier markets, and continue to monitor new investment opportunities very closely.”

Barings launched its Frontier Market Fund in April this year, investing in markets outside developed and emerging market benchmarks.  In the six months to the end of October 2013, the Baring Frontier Market Fund has delivered a return of 9.48% versus 8% for its benchmark, the MSCI Frontier Markets Index.  The portfolio is diversified across the major Frontier markets, with significant exposure to Nigeria, the UAE, Saudi Arabia, Qatar, Kuwait and Kenya.  The top three sector holdings are Financials, Telecoms and Consumer Staples.

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