Markets
Summit 2016 - Resources Kit
Does it feel like we've been
here before? It was expected (again) that the Fed would raise rates at
its last meeting. Only, this time, they did! The situation in the Middle
East is (again) alarmingly tense. Currency wars are (again) rife. Bond
market liquidity is (still) tight while high yield bonds are back at
2009 price levels. And many believe some asset markets are (again) in
bubble territory. Yet, for commodities, it's like the 21st century never
happened. The more things change, the more they seem to stay the same!
Does that mean that, going forward, markets and asset classes will
behave as in the past? Is it different this time? Or is it deja-vu (all
over again)?
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Quicklinks |
This online Resources Kit is a key feature of the Markets Summit 2016 program (in fact, all our programs feature an online Resources Kit). It
enables all Members (whether or not they were part of the "studio
audience" at the onstage program) to "attend" Markets
Summit 2016. It's an
invaluable set of continuing education material.
This Resources Kit includes all the presentations and papers for each
session.
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Session
titles
Faculty of speakers
Session
resources |
An overview list of all the sessions from the jam-packed program;
24 leading investment professionals;
Presentations (sync'd video/audio with slides), papers, podcasts, slides and
Faculty bios.
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Session titles |
The jam-packed
one-day program delivered 20+ high
conviction ideas about the outlook for markets - and the
implications for portfolios, of course - around the Markets
Summit theme - with particular emphasis on "Is it deja vu (all
over again)?"
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Faculty of speakers |
Our 2016 program featured a stellar lineup
of
international and local experts offering
their best high conviction idea/thesis around the Markets Summit
theme - is it deja vu (all over again)? - and the resulting
portfolio construction decision(s) that must be made.
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Alex Wolf, Emerging Markets Economist, Standard Life
Investments (Edinburgh)
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Aneta Wynimko, Co-Portfolio Manager, Fidelity
International (London)
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Brett Lewthwaite, Head Fixed Income & Currency,
Macquarie Investment Management (Sydney)
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Bruce Campbell, Strategic Investment Advisor, Pyrford
International (London)
- brought to you by BMO Global Asset Management
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Chris Watling, CEO & Chief Market Strategist, Longview
Economics (London)
-
David Holstein, Portfolio Manager, Capital Group (New
York)
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Graham Rich, Managing Partner & Publisher,
PortfolioConstruction Forum (Sydney)
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Hamish Douglass, CEO, CIO & Lead Portfolio Manager (Global), Magellan Financial Group (Sydney)
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Jacob Mitchell, MD, CIO &
Portfolio Manager, Antipodes Global
Investment Partners (Sydney)
- brought to you by Pinnacle Investment Management
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Jonathan Pain, Author, The Pain Report (Sydney)
-
Dr
Joanne Warner, Head of Global Resources, Colonial First
State Global Asset Management (Sydney)
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Joe Bracken, Principal, Tempo Asset Management (Sydney)
- brought to you by Fidante Partners
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Kerry Craig, Global Market Strategist, JP Morgan Asset
Management (Melbourne)
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Kevin Anderson, Head of Investments (APAC), State Street
Global Advisors (Hong Kong)
-
Madeleine Beaumont, Senior Portfolio Manager, BlackRock
(Sydney)
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Matthew Sherwood, Head of Investment Strategy - Multi-Assets,
Perpetual Investments (Sydney)
-
Oleg Ruban, Head of Analytics Applied Research Asia
Pacific, MSCI (Singapore)
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Dr Oliver Hartwich, Executive Director, The New Zealand
Initiative (Wellington)
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Olivia Engel, Head of Active Quant Equity (APAC),
State Street Global Advisors (Sydney)
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Dr Robert Gay, Managing Partner, Fenwick Advisers
(New York)
- brought to you by Pinnacle Investment Management
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Rob Mead, MD & Head of Portfolio Management, PIMCO
(Sydney)
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Ron Temple, MD, Co-Head Multi-Asset & Head US Equity,
Lazard Asset Management (New York)
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Dr Susan Gosling, Head of Investments, MLC (Sydney)
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Tim Farrelly, Principal, farrelly's Investment Strategy
(Sydney)
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Vimal Gor, Head of Income & Fixed Interest, BT
Investment Management (Sydney)
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Session resources |
Critical
Issues Forum
1 |
Is it deja-vu (all over again)?
Does it feel like we've been here before? It was expected
(again) that the Fed would raise rates at its last meeting.
Only, this time, they did! The situation in the Middle East is
(again) alarmingly tense. Currency wars are (again) rife. Bond
market liquidity is (still) tight while high yield bonds are
back at 2009 price levels. And many believe some asset markets
are (again) in bubble territory. Yet, for commodities, it's like
the 21st century never happened. The more things change, the
more they seem to stay the same! Does that mean that, going
forward, markets and asset classes will behave as in the past?
Is it different this time? Or is it deja-vu (all over again)?
Graham Rich, Managing
Partner & Publisher, PortfolioConstruction Forum (Sydney) |
Resources |
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Debt cycles do not repeat
themselves - but this one rhymes
A 50-year era of inflation is ending and we are left
with an environment of no inflation, little growth
and too much debt. Unlike inventory and debt cycles
of the past, this one is moving slowly toward its
demise. Central banks have postponed the day of
reckoning with extraordinary programs of negative
rates and asset purchases. Those policies should be
viewed as palliatives that buy time for debtors to
mend their ways - not as remedies. China's slowdown
and the current oil glut are early signs that this
debt bubble may end badly. Like other debt cycles,
however, this one will end in much the same way as
they have in the past, namely when banks tighten
lending standards and refuse to roll over maturing
debt. We are not there yet. In the interim,
investors will need investment strategies that are
more nimble, more opportunistic and off-index.
Dr Robert Gay, Managing Partner, Fenwick Advisers (New York)
- brought to you by Pinnacle Investment Management
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Resources |
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The distorted reality is unwinding
The Fed recently began its interest rate tightening, and it's
deja-vu - there continues to be a great disagreement about the
quantum of the rises. Rates will go higher than most expect and
quantitative tightening (QT) will impact on financial asset
volatility. This scenario heightens the likelihood of an equity
market correction. As this rate cycle unfolds further, the
impact of these higher rates on financial markets and client
portfolios will be greater volatility, requiring closer
attention and more dynamic asset allocation.
Hamish Douglass, CEO, CIO and Lead Portfolio Manager (Global),
Magellan Financial Group (Sydney) |
Resources |
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2015 was a year to forget, 2016 will
not be the year to forgive
For all its ups and down, 2015 ended up being a year to forget
for Australian investors, with little variation in the
performance of major asset classes. The coming year will be a
rerun of this theme – little variation in the performance of
asset classes that generate an excess positive return for the
additional risk. Investors should be compelled to hold riskier
assets because of the low returns on cash and Australian
investors, in particular, will no longer be able to hide behind
higher income from equities to guarantee positive returns.
Dynamic allocation within portfolios and additional levels of
diversification will be critical for 2016 to avoid the feeling
of deja-vu.
Kerry Craig, Global Market Strategist, JP Morgan Asset
Management (Melbourne) |
Resources |
Insight |
Is it deja-vu 2008?
Many people have written to me in recent months and
asked whether I believe this is yet another 2008. In
my view, there are many significant differences. But
I'm afraid we're set for some extreme volatility in
the months, if not the years, ahead.
Jonathan Pain, Author,
The Pain Report (Sydney)
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Insight
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Critical Issues Forum
2 |
Fasten your seatbelt for a
volatile 2016
Debt levels are too high (deja-vu!). However, this
time the problem is bigger - but until now, QE has
softened the impact and supported risk taking. Now
with consensus perceiving the Fed to return to
normal (?), markets are entering unchartered waters.
Against this backdrop, 2016 is set to be a wide
ranging and volatile year. But, with volatility
comes opportunity. Investors need to find assets
that have re-priced to attractive entry points
(investment grade credit), or offer shelter
(developed market bonds), and avoid areas that are
most likely to still bear some pain (emerging market
debt and energy securities). Portfolios must be
nimble and flexible to navigate this environment.
Brett Lewthwaite, Head of Fixed Income and
Currency, Macquarie Investment Management (Sydney)
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Resources |
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China contagion is driven more by
sentiment than fundamentals
China’s Black Monday renewed investor concerns about a possible
hard landing. As global economic uncertainty persists in the
markets, a coherent and structured approach to assess
macroeconomic and market scenarios and their impact on
investors’ portfolios becomes critical. The prospect of an
economic hard landing in China may significantly impact Chinese,
emerging and Japanese equity markets. However, the impact on
globally diversified multi-asset class portfolios greatly
depends on investors' perceived degree of economic contagion
from shocks to Chinese growth to the rest of the world. While
the loss could be muted (-3.0%) under a medium contagion
scenario, it could be more severe (-8.4%) under a high contagion
scenario.
Oleg Ruban, Head of Analytics Applied Research Asia Pacific,
MSCI (Singapore) |
Resources |
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China is falling into the middle income
trap
Recent Chinese equity market volatility has been a wakeup call
for global investors. As the Chinese economy slows and
policymakers struggle to deal with a range of challenges -
stabilising growth, liberalising financial markets, reducing
overcapacity, and eliminating corruption - economic frictions
are mounting. The current policy mix will not be enough to
stabilise growth and without more drastic reforms China will
find it difficult to avoid the middle income trap. Volatility
and uncertainty will increase as a result, so investors must
remain highly selective in their allocation to emerging markets.
Alex Wolf, Emerging Markets Economist, Standard Life Investments
(Edinburgh) |
Resources |
Insight |
More from your core
Core assets - Australian equities, global equities,
and fixed income - are going to generate pretty
lacklustre returns this year. Having as efficient a
portfolio as possible is going to be really key to
your return success.
Kevin Anderson, Senior
Managing Director, State Street Global Advisors
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Insight
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Due Diligence Forum
1 |
Debt - Global
Investment grade credit - income without destroying capital
It’s Groundhog Day - anaemic global growth rates coupled with
low inflation highlight the ongoing lower return environment
that we are all in... The New Neutral is here to stay. In this
environment, you should stop blindly following a barbelled
approach in deriving income - term deposits mixed with retail
hybrids and high dividend-paying stocks. It's possible to have
your cake and eat it too by, being smart and exploring today's
global fixed income universe. Global investment grade credit has
not been this attractive in spread terms for the past six years,
yet the sector has returned over 7.0% p.a. to Australian
investors over the same time period.
Rob Mead, MD & Head of Portfolio Management, PIMCO (Sydney)
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Resources
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Equity - Global
Sell/short beneficiaries of the US high yield debt bubble now
The extreme thirst for yield has pushed the US high yield cycle
into unchartered territory, with the stock of debt outstanding
and the average leverage ratio expanding significantly beyond
the previous 2007 peak. In a clear case of déjà vu (replace "subprime"
for "high yield"), the cycle has reached the shakeout phase. The
recent widening of spreads, triggered by commodity market
dislocation, is unlikely to remain silo'ed as interlinked
funding mechanisms react to accelerating bankruptcies. It's time
to sell/short the beneficiaries - the issuers that have applied
the funds to fast track corporate ambitions via capital
spending, M&A and buybacks and, accordingly, attract a growth
premium.
Jacob Mitchell, MD, CIO & Portfolio Manager, Antipodes Global
Investment Partners (Sydney) - brought to you by Pinnacle
Investment Management
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Resources |
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Equity - Global
Demographic shifts are polarising investment opportunities
Explosive population growth in some areas against declines in
others contributes to everything from shifts in economic power,
to resource scarcity, to the changes in societal norms. We are
at an inflection point where the global dependency ratio - the
ratio of young and old to the workforce - is becoming adverse.
This will lead to profound changes to the composition of the
population around the world, polarising investment
opportunities. In developed markets, growth is scarce. However,
investors can access growth in sectors such as healthcare, with
growing health care budgets necessary to support the growth of
the over-65s. In emerging markets, growth is more abundant but
more risky - an attractive exposure to growth is via emerging
market consumption, as GDP/capita moves closer to the magic
U$10,000/capita mark. Risk appropriate sizing of investments on
both sides of the coin is critical. It's deja-vu all over again,
as one thing never changes in investment markets – the quest for
earnings growth while avoiding a permanent loss of capital.
Aneta Wynimko, Co-portfolio Manager, Fidelity International
(London)
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Resources
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Equity - Specialty
- Australian
The ASX’s future is past
ASX performance from 2001 to 2010 was outstanding. But, over the
past five years, the index has significantly underperformed
global equity markets - as it did for much of the 1980s and
1990s. Diving commodity prices, combined with a high
concentration in a few stocks, means the Australian equity
market will continue to underwhelm going forward. As the
Australian economy begins to 'rebalance', so too Australian
investors will need to invest in an equally-weighted approach to
capturing market returns that places far less emphasis on
commodities and banking. Failure to do so will risk repeating
the poor returns of the past.
Joe Bracken, Principal, Tempo Asset Management (Sydney)
- brought to you by Fidante Partners
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Resources
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Multi-Asset
This is anything but a new paradigm
Nominal growth is scarce in the world today and is likely
to stay that way, despite consistent flawed forecasts of an
impending improvement by central banks and consensus. In the
end, ageing, highly indebted and imbalanced societies are
destined for weak growth – and, therefore, strong sharemarket
returns in this environment are limited in a world of rising
valuations, which are already uncomfortably high. Historically,
investors have managed an imbalanced equity climate with
increased exposure to bonds. However, these securities are at
record valuations which has reduced the benefits of traditional
diversification. This means that growing wealth and managing
risk is a considerably more complex challenge than it was a
decade ago. In this environment, investors will need to be more
discerning about and more nimble with the assets they hold, as
markets today are faster moving than ever before and less
forgiving of investment mistakes. Excellence in asset allocation
and implementation are more important than ever before.
Matthew Sherwood, Head of Investment Strategy - Multi-Assets,
Perpetual Investments (Sydney) |
Resources
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Due Diligence Forum
2 |
Debt - Global
Don’t catch a falling knife: Avoid High yield and EM bonds
As world growth continues to slow and commodities come under
pressure - despite credit spreads moving out on high yield and
EM bonds - the market continues to misprice the risk of large
scale defaults and debt restructures. The impacts of regulation
on the liquidity of secondary markets will only enhance these
issues and could spill over onto other parts of credit markets
where liquidity issues are building. This is not deja-va back to
GFC - rather, the start of a new, vicious commodity cycle unwind
causing more pressure on many companies and countries. Now is
the time to sell your high yield and EM bonds exposure - while
you still can.
Vimal Gor, Head of Income & Fixed Interest, BT Investment
Management (Sydney)
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Resources
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Equity - Speciality
- European
The Eurozone is an economic calamity
After 17 years, the eurozone has managed annualised real GDP
growth of just 1.4%. Greece, Italy and Portugal have barely
grown at all. Labour productivity growth across the "zone" is
and has been woeful. Unemployment is more than 10%, while youth
unemployment stands at more than 20%. All of the eurozone faces
a serious "ageing" problem, and pension and social security
systems are inadequate. One currency and one short-term interest
rate continues to make no economic sense for 19 disparate
economies - and while full political union might work, it is
neither on the table nor agreeable to the bulk of the eurozone's
residents. The protest vote is growing and austerity is wearing
thin. The refugee crisis adds further uncertainty and is
chipping away at Mrs Merkel's power-base. Breakup will
eventually occur. First to go will be the countries suffering
from the largest public debt burdens (relative to GDP). In the
meantime, investment in "peripheral" Europe is a high-risk
proposition. Much has changed, but nothing has changed! Yes, the
eurozone is an economic calamity.
Bruce Campbell, Strategic Investment Advisor, Pyrford
International (London)
- brought to you by BMO Global Asset
Management
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Resources
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Equity - Specialty
- Australian
Australia is the land of complacent oligopolies
Australian equity investors may find their portfolios have
become reliant on a few companies for a significant portion of
their returns. While that might not have been a great concern
when returns have been positive, a portfolio that is
concentrated in specific companies and industry sectors may find
it is vulnerable to changing economic conditions and structural
shifts. Australian equity investors should look beyond the
largest blue chip stocks in the financial, resources and
telecommunications sectors – to industrial companies that are
better positioned for growth. Market dynamics are changing, and
in ways that we have not experienced before.
Madeleine Beaumont, Senior Portfolio Manager, BlackRock (Sydney)
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Resources
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Equity - Specialty
- Resources
The resources cycle is getting closer to the bottom
In a cyclical sector like commodities deja-vu abounds for those
with a long memory. Extended periods of high prices provide both
incentive and funding for new projects and expansions. Today,
after five years of declining prices, more than half the
industry is struggling to generate free cash flow. Companies are
forced to respond aggressively - cutting capex, costs, jobs and
high cost production. Assets sales and M&A usually come next.
Later cycle, consumer-oriented commodities such as base metals,
precious metals, diamonds and oil have the best potential for
price recovery in the medium term. Bulk commodities like iron
ore, coal and steel are likely to remain in over supply longer.
Seek out robust businesses that can weather the storm and
prosper when economic conditions improve. Company valuations
look attractive but a premium is justified for quality. As the
outlook improves, equities usually rally before commodity
prices, responding to improved demand forecasts.
Dr Joanne Warner, Head of Global Resources, Colonial First State
Global Asset Management (Sydney)
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Resources |
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Multi-Asset
There's nowhere to run, nowhere
to hide... but plenty of risks
It might feel like deja-vu all over again - and in some ways, it
is. But in a fundamentally important way, it's not. Today, there
are no clearly diversifying mainstream assets. In 2007/8, we had
foreign currency and long nominal bonds. Today, the policies of
central banks have spilled over into all asset classes and too
many investors are crowding into the same trades. Confident
sounding stories about the future are more entertainment than
insight. Forecasts of the future are always unreliable. Given
that, how should portfolios be positioned? Today, all assets are
expensive and what seems safe may hold the greatest risk. To
avoid disappointing investors, we need to both set realistic
expectations and invest only of the basis of genuine insight.
Dr Susan Gosling, Head of Investments, MLC (Sydney) |
Resources |
Insight |
Investment lessons from
Japan
Often in markets, you do get the feeling that
somehow we've been here before. But things are never
quite the same. Looking at some examples from the
past, particularly Japan, we can see what can we
learn and apply to our investment decisions going
forward.
Tim Farrelly, Principal, farrelly's (Sydney)
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Insight
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Critical Issues Forum
3 |
It’s the end of EU-rope as
we know it
The European Union has been in crisis for many
years. Simultaneous sovereign debt, banking and
monetary crises have tested the European
institutions to the limit. But if you thought it
could not get worse for Europe, you ain't seen
nothing yet! The continent is grappling with an
uncontrolled influx of migrants, Eastern European
countries are moving towards authoritarian
structures, while the United Kingdom will hold a
referendum on exiting the EU. 2016 will change the
nature of the European Union – and it might well
signify deja-vu - the end of Europe's process of
political and economic integration.
Dr Oliver Hartwich, Executive Director, The New Zealand
Initiative (Wellington)
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Resources
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Old fears in emerging markets are
masking new opportunities
If you think you've heard all there is to hear about emerging
markets, think again. It's true that the past few years have
been challenging for this part of the world as a whole. But not
all emerging economies are equal, and uneven prospects are
driving compelling return differences. Several countries
including India are not wasting a good crisis and have pushed
through game-changing reforms. Both equities and bonds offer
tremendous opportunities to benefit from these diverging
conditions. For investors concerned about volatility, a flexible
multi-asset approach is a solution. As emerging markets begin to
shake off the indiscriminate gloom surrounding them, investors
should have them back on their radars.
David Holstein, Portfolio Manager, Capital Group (New York) |
Resources
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Get ready for a record-length US
recovery
This is not deja-vu all over again. The Global Financial Crisis
was unparalleled in post-war history and so will be the
recovery. Some believe it will die of old age. They are wrong.
This recovery is still middle aged and has years to go before it
fades into memory. Despite China's stumbles and only the
beginnings of forward momentum in Europe, the US recovery
transition in the next one to two years will be a broader-based,
more normal growth cycle driven by job market strength, lower
fuel prices, a belated housing recovery and strengthened
consumer demand. While the easy money of the multi-year equity
market rally may be behind us, there will be increased
dispersion in securities markets and improved opportunities for
non-beta reliant returns. Equity markets continue to be
attractive on their own merits and especially relative to fixed
income.
Ron Temple, MD, Co-Head of Multi Asset & Head of US Equity,
Lazard Asset Management LLC (New York) |
Resources
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Critical Issues Forum
4 |
Don't pile into resources
this year
The Australian equity market is trading near
long-term average valuation, with large dispersion
in underlying segments. Like 2014 and 2015,
resources in 2016 may look cheap. But buying into
them now requires a belief that economic
fundamentals are improving – but they are not. While
they may well be nearing the bottom, there is no
imminent catalyst for improvement in return drivers.
Given their high volatility and poor earnings
outlook, this is not an attractive trade. More
reliable returns in 2016 will be delivered by high
quality companies with stable earnings, cash
generation and moderate growth, well beyond the
familiar territory of the 20 Leaders. You may have
to pay up for this quality, but it is worth taking
this risk.
Olivia Engel, Head of Active Quantitative Equity (APAC), State
Street Global Advisors (Sydney)
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Resources
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The chickens are coming home to roost
For the past six years, the US Federal Reserve has operated
(along with other major central banks) a 'cheap money' policy.
As a result, we have had a 'cheap money' recovery - debt
ballooning in parts of the world, commodities bubbly (up until
2011/12) and EM and commodity DM economies the key recipients of
the excess global liquidity. With the Fed now two years into its
tightening (having started with its tapering in 2014), the
chickens are coming home to roost. In this environment,
investors need to be nimble and, more importantly, cautious for
the next six to 12 months or so. Beyond that, opportunities
should re-present themselves once again. In so many ways, in the
words of Yogi Berra, "it's deja-vu all over again". The equity
bear market is underway.
Chris Watling, CEO & Chief Market Strategist, Longview Economics
(London) |
Resources
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The Great Debate
In this simulated investment board meeting, our day's DDF
Faculty debates and votes on critical issues related to the
theme - is it deja-vu (all over again) - and the implications
for portfolios. Delegates vote on the issues too, before and
after considering the Investment Board's views (as well as use
the meeting as a role model for their own investment
committees).
Markets Summit 2016 Investment Advisory
Board
Dr Robert Gay, Managing Partner, Fenwick Advisers
(New York)
Dr Oliver Hartwich, Executive Director, The New Zealand
Initiative (Wellington
Chris Watling, CEO & Chief Market Strategist, Longview
Economics (London)
Rob Mead, MD & Head of Portfolio Management, PIMCO
(Sydney)
Jacob Mitchell, MD, CIO & PM, Antipodes Global
Investment Partners (Sydney)
Aneta Wynimko, Co-Portfolio Manager, Fidelity
International (London)
Joe Bracken, Principal, Tempo Asset Management (Sydney)
Matthew Sherwood, Head Inv Strat Multi-Asset,
Perpetual Investments (Sydney)
Vimal Gor, Head of Income & Fixed Int, BT
Investment Management (Sydney)
Bruce Campbell, Strategic Investment Advisor, Pyrford
International (London)
Madeleine Beaumont, Senior Portfolio Manager, BlackRock
(Sydney)
Dr
Joanne Warner, Head Gl Rsces, Colonial First
State Gl Asset Mgmt (Sydney)
Dr Susan Gosling, Head of Investments, MLC (Sydney) |
Resources
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