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PortfolioConstruction Forum


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 Friday 28 August 2015

Independent continuing education for investment portfolio construction practitioners


This week's Fodder picks up where last week's onstage PortfolioConstruction Forum Conference 2015 left off, by continuing to address our theme, "Crossroads - Dilemmas | Decisions".  This week we focus on the first of those five Crossroads: The global outlook - lower for longer, or higher is here? We'll pick up on the other four Crossroads over coming weeks.

First up, Dr Woody Brock looks at the four reputed sources of this week's global market correction. It's not over, in Woody's view. On the part China plays, Woody has the quote of the week: "global markets are now teaching Xi and Li who in fact is the boss."

Dr Bob Gay doesn't agree with Woody. In Bob's view, the end of this investment cycle is a few years off, and he outlines the likely path forward for equities, EM currencies, and China (which is now facing some very difficult choices). The bottom line? We now have the world's three largest central banks all facing policy predicaments - and all three seem destined to make the wrong choices in the months ahead, Bob believes.

More specifically on China, GaveKal's China research team highlights four areas where fears about Chinese economic fragility are overstated, and four areas where concerns are justified.  And Dom McCormick answers a question he was asked by a client - Is China done?  Dom's long-term view is that investors need to be there over time, not looking for simplistic excuses to avoid China.

Finally, we bring you two opposing views on the global outlook Crossroad, as debated at last week's Conference. Hamish Douglass argues that rates are likely to go higher than most expect, increasing the risk of an equity market correction while Brett Lewthwaite argues that his "lower for longer" case is actually the view of the bulls, not the bears. Who's right?  Listen to both and then check out the panel debate that followed, featuring PIMCO's Fed watcher, Tony Crescenzi, and independent UK-based economist, Chris Watling. Then, decide for yourself whether it's "lower for longer, or higher is here?" and what that means for portfolios.

All the best for another great weekend's learning! - Graham

P.S. We're rapidly loading the online Resources Kit from last week's Conference 2015 (Crossroads - Dilemmas | Decisions) so you can "attend" all 40 sessions online, and earn CPD hours.  


The true causes of this week's global market correction
This week's market correction is long overdue. It is also not over because the true underlying problems are much more serious than the commonly cited causes. And, at last, markets are teaching Xi and Li who in fact is the boss.
Dr Woody Brock, SED

Time to think contrarian
I don't believe this week's market corrections portend the ultimate downturn in this investment cycle. The endgame will take a few more years. Here are some market, currency and China milestones to watch for to check this view is correct.
Dr Robert Gay,  Fenwick Advisers Opinion

What to worry about and what not to in China
Fears that China's economy is teetering on the edge of collapse are exaggerated. But it is slowing. And, as it continues, the slowdown will inevitably highlight problems that until now have remained largely hidden, triggering fresh bouts of market volatility..
Andrew Batson, Gavekal Opinion

Is China done?
Many have taken an alarmist approach to the recent sell-off in China's A sharemarket, declaring the bubble has definitely burst. The question was well put by one of our key clients who in late June asked, "Is China Done?".
Dominic McCormick, Select Asset Management

Markets are mispricing the future level of interest rates
With the Fed signalling its intention to raise rates, there is great disagreement about the quantum of the rises ahead. Rates are likely to go higher than most expect over the next three years - and the risk of a material equity market correction is elevated.
Hamish Douglass, Magellan Financial Group

"Lower for longer" is the view of the bulls, not the bears
The view that markets will go on tolerating lower interest rates for far longer is the more benign, market friendly (almost bullish) outlook than the common thinking that higher interest rates will be good.
Brett Lewthwaite, Macquarie Investment Management Resources

Crossroad: The global outlook - lower for longer, or higher is here?
Our panel debated the contrasting views of Hamish Douglass and Brett Lewthwaite on this crossroad - that global growth and rates are likely to go higher than most expect over the next three years vs that markets will go on tolerating lower interest rates for far longer.


Individuals' three types of capital
Individuals have three types of capital - financial capital (pretty obvious, everybody understands that) as well as human capital and social capital. All three affect our financial and retirement decisions.
Prof Moshe Milevsky, York University

Australia – recession beckons
At 94 quarters old, Australia's economic expansion is the second longest expansion on record amongst the main developed economies. Does a recession beckon?
Chris Watling, Longview Economics White Paper

The boutique premium
While the debate over the value of active investment management has intensified in recent years, the outperformance of boutique managers over non-boutiques and indices has been overlooked.
Affiliated Managers Group
White Paper

Why 'smart beta' is really dumb
Does smart beta deserve the attention it is getting? I can't see how it's possible to have more diversification benefit using a factor approach to constructing portfolios than any other approach.
Michael Edesess, EDHEC-Risk Institute 0.75 CE Opinion

China’s property bubble is set to burst!
There are a number of reasons to be optimistic about China's long-term economic future, but the short-to-medium term challenges are considerable.
Sam Churchill, Magellan Asset Management

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