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Markets
Summit 2018 features 20+ international and local geopolitical
specialists, economists, market/asset class experts, and
investment strategists debating their best ideas on the key
drivers of and medium-term outlook for the markets in the
context of the theme - Changing gears? - and the implications
for portfolios.
8.30AM-8.45AM: CRITICAL ISSUES FORUM 1
Changing Gears
Have
markets entered a period of “irrational exuberance”, and are
they headed for a fall? Should investors prepare for a
recalibration of asset prices? Or are the global economy and
financial markets finally changing gears?
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Graham Rich, Managing Partner & Dean, Portfolio Construction
Forum (Sydney)
Prep!
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IMF World Economic Outlook Update (Jan 2018)
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World Bank Global Economic Prospects (Jan 2018)
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World Economic Forum Global Risks Report 2018
8.45AM-10.15am: CRITICAL ISSUES FORUM
2
8.50am-9.10am
Brace yourself for a global inflation shock
A combination of tight labour markets, ultra-loose monetary
policy and a global economy firing on all cylinders is set to
generate an unexpected inflationary shock to the financial
markets. This will lead to significantly higher bond yields and
a recalibration of relative valuations. To complete the perfect
storm, we will see the velocity of money rise like a Phoenix
from the ashes of a broken banking system delivering traction
between money supply and the real economy.
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Jonathan Pain, Publisher, The Pain Report (Sydney)
9.15am-9.35am
Things (in the economics world) are broken
Every generation or so, things (in the economics world)
break. As Charles Goodhart, professor at the LSE, reminds us
"when an empirical regularity starts to be exploited as a basis
for economic policy, it is liable to break down". We’re at/close
to one of those once-in-a-generation moments. Increasingly
economists, policy makers, opinion formers and the electorate
(through the ballot box), are questioning the efficacy of the
current system. At the heart of the problem is a failure of the
current international monetary system and the associated
economic policies of the past 20 to 30 years. Indeed the history
of the world’s international monetary order is a history of
change, with that change occurring on average every 40 years.
This current system is, therefore, long in the tooth. Today’s
problems are here to stay until the root causes of the problem
are addressed. At the moment, other than changing political
winds, there’s little concrete sign that any meaningful progress
has been made on that front.
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Chris Watling, CEO & Chief Market Strategist,
Longview Economics (London)
Prep!
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Things break
9.35am-9.50am
Focus on what’s important!
Synchronised global growth, rising interest rates,
the end of quantitative easing, tightening employment
markets – global economies and central banks are
certainly changing gear. What does this mean for
markets? Should you be switching gear with your
portfolios? To make these decisions, you need a laser
focus on what is important for you – your process, your
portfolio construction philosophy. Only then will you
get the most out of this Summit.
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Tim Farrelly, Principal, farrelly's Investment
Strategy (Sydney)
9.50am-10.15am
Panel
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Jonathan Pain, Publisher, The Pain Report
(Sydney)
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Chris Watling, CEO & Chief Market
Strategist, Longview Economics (London)
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Tim Farrelly, Principal, farrelly's Investment
Strategy (Sydney)
10.15AM-10.55AM: MORNING BREAK
10.55AM-12.25PM: CRITICAL ISSUES FORUM 3
11.00am-11.20am
Ignore the exit ramp, better conditions ahead
The US economy has shifted to a higher gear that should
sustain for several more years. Since its inception, people have
sought historical parallels that do not exist for the current US
recovery. This backward-looking approach has led to a
fundamental misunderstanding of the contour and duration of the
recovery. The US might have three to five years of additional
growth ahead, as the recovery has entered its third phase driven
by the middle class consumer. There are risks that could derail
this but global synchronised growth is likely to drive earnings
growth to a higher gear that warrants current elevated
valuations.
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Ronald Temple, MD, Head of US Equities & Co-Head of
Multi-Asset Investing, Lazard Asset Management (New York)
11.25am-11.45am
Incorporate tech’s impact in your investment choices
Technological change is advancing with unprecedented
speed and scale. Explosive growth in processing power,
machine learning and AI has the potential to transform
economies and societies. The impact of these changes is
likely to accrue gradually at first – consistent with
Amara’s famous law that “we tend to overestimate the
effect of technology in the short run and underestimate
the effect in the long run”. Nevertheless, the early
effects of these technological changes on growth, labour,
policy and trade will begin to be felt over a 10- to
15-year investment horizon and should influence
investment choices now.
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Patrik Schöwitz, CFA, Global Strategist, JP Morgan
Asset Management (New York)
Prep!
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The impact of technology on long-term potential
economic growth
11.45am-12.25pm
Panel
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Ronald Temple, MD, Head of US Equities & Co-Head of
Multi-Asset Investing, Lazard Asset Management (New
York)
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Patrik Schöwitz, CFA, Global Strategist, JP Morgan
Asset Management (New York)
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Chris Watling, CEO & Chief Market
Strategist, Longview Economics (London)
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John Beck, Senior Vice President & Director of
Fixed Income, Franklin Templeton Investment
Management (London)
12.25PM-1.10PM: LUNCH
1.10PM-2.40PM: SPECIAL INTEREST FORUM
Featuring
four concurrent breakouts – in each, three speakers present one
after the other followed by Q&A.
The
assumption of unendingly low interest rates is dangerous
Generational low long-term real yields and a gear shift in
innovation mean that structural growth, as an equity style bias,
has rarely been more pervasively expensive. Cyclical stocks
appear cheaper and may be hiding the next crop of structural
winners. Investors should focus more than ever on uncovering
sources of idiosyncratic alpha, rather than relying on momentum
or passive beta.
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Jacob Mitchell, Founder & Chief Investment Officer,
Antipodes Partners (Sydney)
Prep!
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The blind assumption of unendingly low rates is dangerous
Bonds are
no longer a reliable risk diversifier
The traditional assumption that bonds act as defensive risk
diversifiers in balanced portfolios is no longer reliable. Years
of extreme central bank stimulus have distorted valuations,
eroded yield cushions and left bondholders with asymmetric risks
of capital losses. Long-term data demonstrates that bond-equity
correlations often become unstable when rate paradigms shift. We
are currently experiencing such a shift as nascent inflationary
pressures compel central banks to change gears from stimulus to
policy normalisation. Simply holding bonds no longer diversifies
your investment portfolio, with genuine risk diversification
better achieved by exploiting currently under-priced risk premia
in volatility and inflation markets.
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Gopi Karunakaran, Portfolio Manager, Ardea Investment
Management (Sydney)
Avoid
constant gear changes with a generational perspective
We live in times of uncertainty. Forecasting the future can
be a daunting exercise. Too much time is spent on thinking about
whether it is a ‘risk on’ or ‘risk off‘ environment instead of
focusing on factors about which you as an investor stand a
decent chance of being correct – over the long term. A case in
point is the continued rise of India or the trend towards
mega-cities around the world. Whether an investor’s investment
horizon is three to five years, 10 years, or even 30 years, they
would benefit from taking a generational perspective to enhance
returns.
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Bo Knudsen, Managing Director & Portfolio Manager, C
Worldwide Asset Management (Copenhagen)
Prep!
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The next 30 years
Licence
To Tilt – DAA can overcome lower returns
Asset allocation is predicated on riding the only “free
lunch” in investments (i.e. diversification). Those that believe
we are living in a world of extreme uncertainty will favour
diversification, while those believing a continuation of the low
volatility environment that we have experienced in recent years,
will lean towards high conviction exposures. In practice, many
investors will find themselves somewhere in the middle of this
spectrum, needing to balance conviction with management of
downside risk. Today, 10 years on from the global financial
crisis, we are seeing a raging “bull market in everything”
fuelled by central bank policy. But the macro backdrop that has
prevailed over recent decades is shifting gears and impacting
future expected returns. Historical asset allocation methods
will not generate appropriate returns in the period ahead,
driving the need to be more dynamic to increase both absolute
and risk-adjusted portfolio returns.
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Kej Somaia, Senior Portfolio Manager, Colonial First State
Global Asset Management (Sydney)
Bond
yields will rise much more than the Fed is letting on
The world’s major central banks have taken a position that
Quantitative Tapering (QT) will have only a very small impact on
financial market prices. Philadelphia Fed president Patrick
Harker stated that the Fed intends to make shrinking its balance
sheet about as boring as “watching paint dry.” Bond yields may
rise by up to 90bps a lot faster than the Fed is suggesting. The
speedier rate rises, not to mention any impact from rising
inflation – would be rather quick drying paint. If you haven’t
already, it is time to consider what happens to your portfolio
if bond yields change gears.
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Brett Gillespie, Head of Global Macro, Ellerston Capital
(Sydney)
Global
Bonds - It’s time to shift gears from auto to manual
Data from the larger economies around the world generally
support the scenario of a synchronised global expansion.
However, just as attempts to use historical precedents to
predict the length and durability of the US economic cycle are
undermined by the idiosyncratic nature of its recovery since the
global financial crisis, much the same argument can be made
about the wider global economy. The overall structure and pace
of global growth - combined with the disinflationary forces
affecting most of the largest economies - has been unparalleled,
as indeed have the extraordinary measures taken by central banks
over this period. The current global expansion may be halted by
a geopolitical crisis or even a significant misjudgement of
policy by central banks - both of which are inherently difficult
to predict – but, for now, the biggest risk to portfolios is
strong growth and investors need to position themselves in
anticipation of rising rates.
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John Beck, Director of Fixed Income, Franklin Templeton
Investments (London)
Electric
vehicles are not game changing
Consensus appears to assume that electric vehicle adoption
rates will increase dramatically over the coming years,
displacing significant oil demand. This view is misplaced; there
are significant raw material and technological hurdles to rapid
EV adoption. In terms of oil supply/demand dynamics we are not
‘Changing Gears’ at all; the future will look very much like the
past. The impact of this on the oil price and equity market
leadership is not something that investors are positioned for.
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Stephen Anness, Fund Manager, Invesco Perpetual
(Henley-on-Thames)
Bonds are
more important than ever
After many years of supportive policy, central banks have
begun to shift gears, moving into a period of gradual rate hikes
and the slow reduction of accommodative monetary policy. Keep in
mind however, that while central banks have started to tap the
brakes on accommodative measures, the structural and demographic
headwinds weighing on potential growth remain. These factors
limit the extent to which bond yields can accelerate higher and
the low yield, low growth environment will persist. As low
yields prevail, investors should ensure their portfolios hold an
appropriate defensive allocation as the diversification benefits
of bonds increases in a low yield market. Furthermore, bonds
remain one of the best instruments available to investors
looking for liability matching as they approach retirement.
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Dean Stewart, Executive Director & Fixed Income and Currency,
Macquarie Investment Management (Sydney)
Prep!
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The place of bonds in a low yield world
Investors
need growth equities as change accelerates.
Conventional finance theory suggests that you cannot start a
business in your college dormitory in 2005 and have it become the
world’s fifth biggest company at US$500bn in market capitalisation
in just 12 years. But it happened and it keeps happening. As
interest rates rise and economies normalise ‘Growth Equities’,
‘FANG’ and ‘BATS’ are again under the microscope, but focusing
on interest rates and conventional valuation analysis alone
underestimates how these companies got to this point in the
first place. Structural change and the resulting earnings growth
will always outrun interest rates in the long run, which is why
as change continues to accelerate, investors need growth
equities in their portfolio.
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Nick Griffin, Founding Partner & CIO, Munro Partners
(Melbourne)
Prep!
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Do stocks outperform
Treasury bills?
As we
approach peak growth, gear down your risk allocation
Bonds have delivered strong real returns over the past
decade while still offering diversification benefits against
risk assets. The global economy is approaching peak growth and,
while the expansion may not come to a rapid end, investors
should prepare for increasing left tail risks. As a consequence
of overly bullish investor sentiment, equity valuations are at
their highs compared to the past. The record-low implied
volatility attracts cautious investors to be maximum long risk
at this stage of the cycle. With higher rates than 12 months
ago, this may be an opportune time to increase allocation to
bonds as your portfolio’s insurance policy.
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Rob Mead, Managing Director & Co-Head of Asia-Pacific
Portfolio Management, PIMCO (Sydney)
The
reflationary regime will persist and propel risk assets
Last year created a remarkable sweet spot for equity markets
and for the first time in a decade the global economy
experienced synchronized acceleration. The year ahead promises
to be disruptive across industries, companies – and consensus
views, particularly the market regime/cycle. Most analysts
believe we are in a late market cycle. But there are many
classic mid-cycle characteristics driving a reflation of
confidence and investment that can extend the cycle even
further. The regime shift now underway will challenge portfolio
construction designed for the previous regime – those who don’t
change gears accordingly will have low probability of achieving
strong risk-adjusted returns moving forward.
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Hani Redha, CAIA, Managing Director & Portfolio Manager, PineBridge Investments (London/Bahrain)
Europe:
It’s a long way to the top
Having been considered “uninvestable” 18 months ago, Europe
has enjoyed renewed investor interest and strong equity market
performance. Europe is a continent with relative political
stability, true reform efforts, competitive companies and a
rapidly growing eastern hinterland. It is doubtful that “safe”
exposures (think global consumer giants) will earn investors
strong returns from this point – shift gears rather to domestic
European exposures like banks, plus materials and energy.
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Nik Dvornak, Portfolio Manager of Platinum European Fund,
Platinum Asset Management (Sydney)
2.40PM-3.20PM: AFTERNOON BREAK
3.20PM-4.50PM: CRITICAL ISSUES FORUM 4
3.25pm-3.45pm
Don’t write off America
To paraphrase Mark Twain, reports of America’s retreat are
greatly exaggerated. Across most of Asia, there remains a
well-founded conviction that the US -- even with Donald Trump in
the White House -- will remain the predominant power in defence,
education, innovation and energy self-sufficiency. Meanwhile,
even if China can sort out its long-term demographic problems,
other big challenges loom: political, ethnic and environmental.
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Tom Switzer, Executive Director, The Centre for Independent
Studies (Sydney)
3.45pm-4.05pm
China’s Belt and Road Initiative is less than meets the eye
China’s Belt and Road Initiative, often compared to the
Marshall Plan, is expected to reshape the global economic
landscape. Over one trillion US dollars in planned
infrastructure investment linking 70 countries across Asia,
Europe, and Africa is expected to boost trade, investment, and
growth among the countries involved. However, the plan is poorly
understood. The Belt and Road initiative is unlikely to generate
significant economic benefits for the countries involved, and
may in fact mire them in unsustainable debt. The initiative may
generate political “returns” but financial returns will be
harder to come by, and opportunities for investors will be
limited.
-
Alex Wolf, Senior Emerging Markets Economist, Aberdeen
Standard Investments (Hong Kong)
4.10pm-4.45pm
Panel
* Each presenter speaks for 5 minutes, followed by
discussion/Q&A
Global
markets discomfort requires discernment in Au markets
At some point, the bull run in assets will run out of steam and
there could be many triggers for this; the US economy could
falter, stronger than expected inflation might force monetary
authorities to act more aggressively, or liquidity could implode
in corners of the fixed income market. But there appears to be
few signs of any such pressures erupting near-term. It may not
feel comfortable and this is not a time for complacency - but at
this stage, global market conditions leave little choice but to
be braver for just a little bit longer. For Australian
investors, international markets remain attractive sources of
growth relative to a subdued growth forecast for Australia.
Australian equities earnings are forecast to trail international
peers again in 2018, so aside from the wonderful dividend, on a
relative basis, higher returns are expected once again from
overseas assets in 2018.
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Alva Devoy, Managing Director, Fidelity International
(Sydney)
As global
rates rise, sovereign bonds will give protection
Current market pricing across all asset classes suggest late
cycle behaviour. Interest rates drive returns across all asset
classes affecting indebted consumers and economies alike. Higher
interest rates cause decay in instruments with lower credit
quality, which is often asymmetric in repricing. Global rate
hikes will bite Australian investors as a higher cost of capital
triggers credit decay and overwhelms indebted consumers. In this
environment, sovereign bonds remain an anchor portfolio
allocation for well diversified portfolios.
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Charles Jamieson, Executive Director, Jamieson Coote Bonds
(Melbourne)
Corporate
disruption is the critical Au equity factor for 2018
Recent performance shows that company and industry level
factors have now re-emerged as the key driver of stock returns
in the Australian stock market. This is after a long period
where the dominant driver has been sensitivity to bond yields.
Disruption across industries will continue, creating mis-pricing
and over-reaction that will benefit research driven, fundamental
active investors. The Australian equity market looks attractive
versus others, with limited or no exposure to the richly valued
tech and healthcare sectors, benign interest rates and
continuing tailwinds for resource stocks.
- Crispin Murray, Head of
Equities, BT Investment Management (Sydney)
4.50PM-5.30PM – CRITICAL ISSUES FORUM 5
4.55pm-5.20pm
Cryptocurrencies are a new epoch in monetary history
Blockchain-based digital currencies offer several advantages
over fiat currencies, including the ability to make online
transactions more quickly and cheaply. The Chinese authorities
recognise the potential of blockchain technology and are
outpacing the US, in the race to develop an "official"
cryptocurrency. If the Chinese experiment succeeds, we may
witness the start of a new epoch in monetary policy, in which
the US dollar's role as principal international currency is
challenged.
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Niall Ferguson, Senior Fellow, Hoover Institution,
Stanford University (San Francisco)
5.30PM-7.30PM: NETWORKING RECEPTION
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