Markets Summit 2017 - Resources Kit

Strong winds of change are blowing - we appear to be entering a new age of populist and economic nationalism. Will this mean a future of trade protectionism, higher inflation and rising bond yields? Are we at an inflection point in monetary and fiscal policy? What does it all mean for the outlook for the markets? Simultaneously, people are questioning long-held beliefs about money, investing and retirement, as improved longevity, new technologies and social media change the way we live and how we relate to others.

Markets Summit 2017 featured a stellar lineup of international and local experts offering their best high conviction idea/thesis on the opportunities and risks ahead as the winds of change sweep through economies and asset classes - and the implications for portfolios.

Quicklinks

This online Resources Kit is a key feature of the Markets Summit 2017 program (in fact, all our programs feature an online Resources Kit). It enables all Members to "attend", whether or not they were part of the "studio audience" at the live program. It's an invaluable set of continuing education material. This Resources Kit includes all the presentations and papers for each session.

Topics
Faculty
Resources

An overview list of all the presentation topics from the jam-packed program;
25 leading investment thinkers from around the world;
Session summaries, presentations (sync'd video/slides), papers, podcasts, and slides.

TOPICS

The jam-packed one-day Markets Summit 2017 program featured a carefully selected faculty of over 25 international and local investment experts offering their best high conviction idea/thesis on the opportunities and risks ahead as the winds of change sweep through economies and asset classes - and the implications for portfolios.

FACULTY

Markets Summit featured a stellar lineup of 25 leading investment thinkers from around the world:

RESOURCES

Markets - Economies & Asset Classes
 The winds of change
Strong winds of change are blowing - we appear to be entering a new age of populist and economic nationalism. Will this mean a future of trade protectionism, higher inflation and rising bond yields? Are we at an inflection point in monetary and fiscal policy? What does it all mean for the outlook for the markets?

Graham Rich - Managing Partner & Dean, PortfolioConstruction Forum (Sydney)

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Geopolitics | Economies
 The economic and geopolitical consequences of Mr Trump
We are just weeks into a new and unfamiliar era for the world and there is no subject of more importance to investors than what Donald J. Trump will do with the powers of the US presidency. His political opponents, who include a large proportion of journalists as well as outspoken members of the coastal elites, speak of Trump and his advisers as if an authoritarian regime is being established in Washington. His admirers draw parallels with the first phase of Ronald Reagan's presidency. There are pluses and minuses of Trumponomics: on the one side, tax reform, deregulation and infrastructure investment; on the other side, protectionism, immigration restriction and likely fiscal incontinence? Can Trump deliver a doubling of the US growth rate and a revival of manufacturing the Rustbelt states that helped elect him? What are the main headwinds his administration faces? And how big is the risk of a trade war between the US and China - or even an actual war?

Professor Niall Ferguson, PhD, Senior Fellow, The Hoover Institution (Stanford)

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Economies
 Trump the game changer - the only certainty now is uncertainty
2017 will present many risks and opportunities, as the winds of change sweep through the global economy and markets. Geopolitics will dominate - in the US, UK, Europe and China. All eyes are on Donald Trump, who represents the first true change from centrist politics in over two decades. But can his policies lead to a permanent shift higher in the potential economic growth rate in the US? If the answer is ‘yes’, then markets are right to be bullish. But the greater risk is a boom-bust scenario where significant fiscal policy easing leads to higher inflation, higher interest rates and tighter monetary policy. So the global environment will continue to present uncertainties for Australia. The RBA is likely to balance these risks and keep monetary policy on hold, while economic growth continues its transition and remains close to its long-term trend. With all this to consider, the only certainty for 2017 is uncertainty..

Stephen Halmarick - Chief Economist & GM Economic and Market Research, Colonial First State Global Asset Management (Sydney)

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Geopolitics | Economies
 Populist discontent spells danger for markets
In recent decades global growth, corporate earnings and asset returns have benefited strongly from a global policy consensus that has promoted the ever freer flow of capital and trade across borders. That consensus is now being threatened by a populist backlash in the advanced economies that is partly a response to the dislocations globalisation has wrought, but also to the economic disruption caused by the global financial crisis as well as deeper social and demographic forces. Despite growing market optimism about the near-term outlook for growth and earnings, investors should not ignore the risks from rising populism. If western governments cannot find a way to reconcile open markets with more stable and evenly distributed income growth, globalisation could begin to reverse, with dire implications for risk assets.

Jeremy Lawson - Chief Economist, Standard Life Investments (Edinburgh)

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Economies
 The myth of declining living standards
Contrary to popular belief, western living standards have not declined in recent decades. Rather, government statistics failed to capture dramatic improvements in the quality of goods and services during the past 20 years – leading to an overstatement of inflation, and an understatement of real GDP growth. Surveys show consumers feel better off than they did in the past.

Dr Horace "Woody Brock - President, Strategic Economic Decisions, Inc. (Boston)

Insight

 

  

Asset Classes - Global Debt
Into the unknown: Ignore left tail risks at your peril
With Trump, Brexit, Italy's "No" and China's currency woes, the world economy and markets have embarked on a journey into the unknown. The world has now fully arrived in the radically uncertain, "stable but not secure" predicament. The only certainty is that the tails of the distribution of potential macro outcomes have become fatter. Rather than betting big on one direction or the other, investors today should consider a patient approach and aim for capital preservation until the veil of uncertainty over future policies starts to lift.

Joachim Fels - MD & Global Economic Advisor, PIMCO (Newport Beach)

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Geopolitics | Economies | Asset Classes - Global Equities
We are entering a year of nationalism by trial and error
The arrival of President Trump, following the election of Prime Minister Theresa May, and the shifts toward populism and nationalism in other key European capitals, appear to be heralding a new period of nationalism, posing major risks for the global economy. Over the course of the year, President Trump will likely retreat from his confrontational and protectionist policies, as he sees that the risks could destroy more jobs than they create, and as he works to find cooperative solutions to complex problems surrounding job creation. Thus, 2017 will be divided into roughly two periods: the first half - trial and error, volatility and more setbacks than successes for Trump's new economic policies; and, in the second half, a shifting of gears to less confrontation, more cooperation and the prospect of a win-win for the US and the world. Meanwhile, fragmentation will continue in Europe, leading to weak growth despite fiscal stimulus. And in Asia, expect strong performance by both the Indian economy and Indian markets, but growing risks that China's capital outflows and rising debt will weaken the underpinnings of growth and investment in this important economy.

Charles Dallara, PhD - Partner & Chairman of Americas, Partners Group (New York)

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Asset Classes - Global Equities
The winds of change are stronger than you think
A cold breeze is blowing through the global economy. Is it the beginning of the Great De-Globalisation? As increased political uncertainty continues to elevate portfolio tail risks, investors should question the assumption that inflation and interest rates will be "lower for longer" and instead consider that inflation could be whipped into a storm by trade, monetary and border policy, while unusually high stock, sector and regional correlations could break down in the near term. Any major dispersion will create an opportunity for those with a strict valuation lens to extract value by maintaining nimble capital and investing with fewer constraints.

Ronald Temple, CFA - MD, Co-Head of Multi-Asset & Head of US Equity, Lazard Asset Management (New York)

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Panel
 Charles Dallara, PhD - Partner & Chairman of Americas, Partners Group (New York)

Ronald Temple, CFA - MD, Co-Head of Multi-Asset & Head of US Equity, Lazard Asset Management (New York)

Hamish Douglass - CEO, CIO and Lead Portfolio Manager, Magellan Asset Management (Sydney)

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Asset classes - Global Debt
Don’t confuse the winds of change with "hot air"
2016: A predictive nightmare. The year began with wild statements that capitalism was dead and that clients should de-risk to cash immediately. Chinese currency devaluations, Japanese negative rates, the odds-on Bremain resulting in Brexit and likewise Trump's surprise victory all highlighted that in an environment of change, sound portfolio construction techniques were the only prudent approach to managing client capital. 2017 will be more of the same - and arguably, the breadth of potential outcomes is even wider. The biggest portfolio risk will be over confidence in assigning scenario probabilities. Don't confuse the winds of change with "hot air" when it comes to portfolio construction.

Robert Mead - MD & Co-Head of Asia-Pacific Portfolio Management, PIMCO (Sydney)

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Asset classes - Australian Debt
Australian gov’t bonds can still provide positive returns
Markets are experiencing the biggest changes since the fall of the Berlin wall, while uncertainty dominates the global macro lens. Investors must adjust their thinking by focusing on risk allocations rather than returns. High debt burdens create a self-correcting interest rate environment over time. With record Australian debt issuance funding budget deficits, there is a significant opportunity for actively managed Australian government bonds to continue to provide positive returns, while protecting against the storms of uncertainty.

Charles Jamieson - Executive Director, Jamieson Coote Bonds / Channel Capital (Melbourne)

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Asset Classes - Global Debt
Bonds are the "walking dead" - time to rotate into loans
Bond investors have enjoyed a multi-decade bull run in yields, fuelled by unsustainable post-GFC stimulus, but "the times they are a-changing". With portfolios exposed to rising rates, investors navigating the inflection point in the political and macroeconomic landscape are asking if bonds are the ‘walking dead’? In the immortal words of Bob Dylan: "The answer is blowin' in the wind". It's time to rotate into loans! Offering a high level of stable monthly income by investing in liquid floating rate loans to a diverse group of global companies, senior secured loans are uniquely suitable for diversified, income and retirement portfolios.

Jeffrey Reemer, CFA - Director, Senior Analyst & Client Portfolio Manager, Invesco Senior Secured Management (New York)

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Asset Classes - Infrastructure
Rising rates, populism... but infrastructure remains reliable
Current infrastructure valuations assume rising bond yields – but, while increasing bond yields may lead to increasing volatility, valuation remains appropriate. New government sponsored infrastructure investment is unlikely to materially change the investment outcomes for the infrastructure asset class. So while the winds of change are blowing through the current macro environment leading to increased share price volatility, return expectations for infrastructure remain unchanged. For the foreseeable future, earnings of the infrastructure assets asset class, if defined in a disciplined manner, should continue to be reliable.

Gerald Stack - Head of Investments & Head of Infrastructure, Magellan Asset Management (Sydney)

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Asset Classes - Global Equities
Caveat Emptor
The market appears to have made up its mind. We’re in for a year of rising rates, reflation and growth. What if this doesn’t eventuate, or not in a smooth fashion? In 2016, only 16% of Global Equity managers outperformed the Index (Morningstar World Large Blend category). There are two conceivable reasons - either market valuations are not what they were, making opportunities to outperform somewhat more difficult as we oscillate between risk on/risk off; and/or we have moved into an era driven by nationalism and economic populism which are harder to forecast and may lead to binary outcomes. The temptation is to pay for perceived high conviction - thus, "caveat emptor"! Investors should plan for THE future, not A future. A large number of small high conviction positions will lead to better outcomes versus a small number of large high conviction positions.

Olivia Engel, CFA - Deputy CIO & Head of Quantitative Equities APAC, State Street Global Advisors (Sydney)

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Asset Classes - Global Equities
Winds of change are driving opportunities in Europe and Korea
The world around us is in constant flux, now more than ever. As individuals succumb to the inertia of habit, marketing prowess, monopolies and the ephemeral, investors should embrace change as the cradle of opportunity. The market’s tendency for extrapolation, often irrational, ignores the effects that success or failure can have on shaping future behaviour and outcomes. Investors are over-paying for profitability and growth. They should instead focus on asymmetric opportunities with a margin of safety and multiple ways of winning. Today, developed Asia and Europe offer an abundance of these anomalies.

Jacob Mitchell - MD, CIO & Portfolio Manager, Antipodes Global Investment Partners (Sydney) / Pinnacle Investment Management)

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Economies | Asset Classes
There are 4 fundamental decisions to make from Markets Summit 2017
When positioning a multi-asset, portfolio for the medium-term, there are four fundamental decisions we must make from the high conviction insights presented today:
1. Growth assets: long or short? Why?
2. Equities: over- or under-weight US? Why?
3. Real/Alts: increase or decrease? Why?
4. Debt - long or short duration? Why?
These questions are, in some cases, interdependent NOT independent. What's your view? What's your rationale for your view? How does each answer impact on the others? And what's your central thesis for portfolio construction going forward?

Tim Farrelly - Principal, farrelly's Investment Strategy (Sydney)

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Asset Classes - Global Debt
Now is the time to accumulate duration
As we begin 2017, there is (once again) an air of optimism that interest rates are about to return to normal. The US Federal Reserve are forecast to hike three times and the current cyclical uptick is about to be extended as the US embarks on fiscal stimulus. However, this optimism dismisses the significant structural headwinds that are prevalent – and the possibility of a policy error from president Trump. These factors limit the extent to which bond yields can move higher so investors should accumulate duration at these more attractive levels and ensure portfolios have an appropriate defensive allocation in anticipation of the next downturn.

Brett Lewthwaite - Executive Director & Head - Fixed Income and Currency, Macquarie Investment Management (Sydney)

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Asset Classes - Australian Equities
Australian equities portfolios are vulnerable to inflation
Loose monetary policies have disfigured share markets by pushing investors into stocks with bond-like characteristics. The worry for investors is that bond-sensitive stocks now form a record 60% of the ASX’s market cap. That means Australian equity investors are vulnerable to interest rates rising if consumer prices rise as much as the growth in credit says they should. A sensible way to mitigate the risk of higher inflation and higher interest rates would be to hold a greater proportion of the ASX allocation in real-asset stocks and reduce exposure to artificially inflated financial stocks.

Martin Conlon, CA - Head of Australian Equities, Schroders (Sydney)

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Asset Classes - Property
Australian real estate is in for a soft landing
A-REITs may face headwinds over the next two years, but total returns will likely remain positive, before returning to a more normal level of 8% to 10% per annum.

Damien Barrack - Director, Renaissance Property Securities (Sydney)

Insight 

 

Economies | Asset Classes
The hunt for yield is over
Money velocity is accelerating in the US and UK, as commercial banks rediscover their appetite for risk and the two economies continue to normalise. The shift has significant implications for asset allocators.

Chris Watling - CEO & Chief Market Strategist, Longview Economics (London)

Insight 

 

Asset Classes - Global Debt
Credit – the epicentre of the next crisis
Markets have run hard in recent months on speculative exuberance. However, the critical question is will President Trump prove to be a tailwind, or a headwind for the global economy? Is he the saviour of the US economy or the wrong man at the wrong time? We highlight the forces of change that may in fact see credit underperform in the medium term. It is a long list that includes rising US borrowing costs, a risk of contagion from emerging markets, worsening demographics, a frothy Chinese credit environment and European banking woes; a litany of potentially market-disrupting issues that every investor needs to hear.

Vimal Gor - Head of Income & Fixed Interest, BT Investment Management (Sydney)

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Asset Classes - Global Equities
Stereotypes and noise obscure good decisions
Many of us take comfort from an illusion of knowledge derived from headlines, partial information and opinion pieces. As a result, impressions of the world are driven for many by stereotype: Japan's demographics; Europe's sclerosis; China's excessive leverage; India's chaos. When applying discipline, fact and data to the assembly of a portfolio, one is led to investment opportunities overlooked by many who pursue their 'feelings' rather than data. Today, Japanese exporters, Chinese consumer companies, Indian utilities and European banks offer attractive attributes for medium-term investment.

Kerr Neilson - CEO and Founder, Platinum Asset Management (Sydney)

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Geopolitics
Expect turbulent US-China ties to test the region
US-China relations under President Donald Trump will be turbulent. Trump's confrontational remarks during the months he was president-elect, coupled with his transactional approach to dealing with foreign countries, are bound to increase friction between Beijing and Washington. While no government in the region wishes to choose between the US and China, no one wants to see the US neglect the Asia-Pacific either. This will be testing for an economically interdependent region. Intraregional ties will be strained. A major crisis over Taiwan, the South China Sea, or a trade war would deeply affect the region as a whole. In an era of volatility, Canberra should reach out to Beijing.

Linda Jakobson - Director, China Matters (Sydney)

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Geopolitics | Economies | Asset Classes
The winds have changed
The tectonic plates of the political and economic landscape are rupturing as the winds of change herald a new geopolitical reality of anti-establishment populism and nationalism. The cosy Post-Cold War liberal and globalist consensus has fractured and we must now brace for a period of instability as we search for a new political and economic equilibrium. The good news is that after eight long years of Alice in Wonderland monetary policy, animal spirits have emerged from hibernation and lower for longer, is no longer. The first derivative of reflation is easy: stronger growth, higher inflation and rising bond yields. The second and third derivatives are more complex as the first derivative collides with record debt and the third derivative ushers in a new political reality of instability. Brace yourselves for a wild and entertaining ride.

Jonathan Pain - Author, The Pain Report (Sydney)

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