Aberdeen Asset Sells Health-Care to Buy Industrial Stocks – Bloomberg 09-09-14

Salient to Investors:

Martin Connaghan at Aberdeen Asset Mgmt said:

  • Buying industrial stocks with stable revenue and selling health-care stocks as uncertainty about the global economy has caused cyclicals to lag pharma and other defensive stocks by a margin that is too wide to ignore. The outlook for cyclical stocks won’t necessarily change in the immediate future, but there is a lot of bad news and low expectations.
  • Some industrials such as elevator and escalator makers have stable income from contracts that make them less sensitive to global growth.
  • Some industrials are not as cyclical as they appear at first glance if you look at their revenues, because there is always a base level of income and revenues coming from areas that are more stable, regardless of the economic environment.

Worldwide industrial shares are trading near the lowest valuation relative to health-care stocks in more than a decade.

The MSCI World Industrials Index trades at 18 x earnings versus 22 x for the global health-care index, the widest margin since October 2002.

US ETFs tracking health-care have attracted $4.3 billion in 2014 versus $530 million for industrial ETFs.

Read the full article at http://www.bloomberg.com/news/2014-09-09/aberdeen-asset-sells-health-care-to-buy-industrial-stocks.html

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Harris Tweed’s Sterling Concern Dismissed by Traders – Bloomberg 08-27-14

Salient to Investors:

  • Currency trading suggests traders are dismissing the prospect of an upset “yes” in the September 18 referendum on  Scottish independence. Strategists say the pound’s peaks and troughs in 2014 reflect the prospect of the BOE becoming one of the first major central banks to raise rates.
  • Geoffrey Yu at UBS said traders believe there is a close to zero chance of the vote passing – so small it becomes hypothetical.
  • Callum Henderson at Standard Chartered said the little market reaction to the prospect of the Scotland referendum reflects an assumption that the result will be a ‘no’ vote.
  • Most polls reveal enough undecided voters to suggest that a large swing toward the nationalists could leave them victorious.
  • Nobel economists Joseph Stiglitz and James Mirrlees say an independent Scotland not being able to use sterling is a bluff by UK’s three main political parties. Mirrlees said a formal currency union would be an excellent arrangement, while Stiglitz recommends Scotland retain the pound.
  • Standard Life said in February it was preparing to shift business elsewhere should Scots vote for independence because of risks surrounding the currency and financial regulation.

Read the full article at http://www.bloomberg.com/news/2014-08-27/harris-tweed-s-sterling-concern-dismissed-by-traders.html

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Equities Reach Record $66 Trillion as S&P 500 Hits 2,000 – Bloomberg 08-27-14

Salient to Investors:

  • The value of equities globally is at a record $66 trillion versus $25 trillion in March 2009 and $63 trillion at the 2007 peak. The US stock rally is approaching the dot-com bubble in terms of speed, but not in valuations – at 16.8x estimated earnings versus 26x at the March 2000 peak.
  • Patrick Spencer at Robert W. Baird said significant geopolitical events are not enough to unsettle the global economic forces, especially in America, while Draghi is ready with further measures to stimulate growth.
  • Andrew Milligan at Standard Life Investments said we are moving from QE to conventional policy, rates moves only because central banks believe growth is sufficiently strong.
  • Oliver Wallin at Octopus Investments said the markets are complacent, given a lot going on in the background that warrants more concern.
  • Guillaume Duchesne at BGL BNP Paribas said rich valuations in the US are not a problem because economic momentum is good and investor sentiment is positive. Duchesne said equities will continue to be the best asset, but investors need to focus on markets with the strongest fundamentals because we have moved from a liquidity-driven market into a fundamental-driven one.

Read the full article at http://www.bloomberg.com/news/2014-08-27/equities-reach-record-66-trillion-as-s-p-500-hits-2-000.html

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Hong Kong Bears Sell Priciest Stocks Since ‘02, Buy China – Bloomberg 07-10-14

Salient to Investors:

  • Amundi Asset Management, Credit Suisse and Sumitomo Mitsui Trust Bank expect Hong Kong stocks to struggle as reduced Fed stimulus weighs on developers and banks that comprise over 35 percent of the index.
  • Ayaz Ebrahim at Amundi Asset Mgmt says China is too cheap and is selling Hong Kong stocks.
  • Standard Chartered, BNP Paribas and Citigroup have recently downgraded their recommendations on Hong Kong shares.
  • HSBC is underweight Hong Kong citing higher borrowing costs, falling retail sales, the pro-democracy movement and weak corporate earnings. HSBC is and overweight China.
  • Fan Cheuk Wan at Credit Suisse expects China to outperform Hong Kong in Q3 2014 on growth stabilization.
  • Nicholas Yeo at Aberdeen Asset said companies in Hong Kong offer better governance and financial reporting, and higher regulatory requirements, so are more transparent and better run than those in China yet offer similar ways to profit from growth there. Yeo says they cannot find sufficient quality companies in China.
  • BNP Paribas expects property prices to fall 20 percent by the end of 2016. Hong Kong Monetary Authority reports household debt at a record 62% of GDP.
  • Alain Bokobza at Societe Generale cites the higher risk premium on Hong Kong shares, especially in construction and real estate, and prefers Chinese shares because low inflation gives China room to fight falling property prices with looser monetary policy.
  • Andrew Swan at BlackRock is overweight China, citing central bank support, shareholder-friendly reform in the energy industry, and low valuations: he is underweight Hong Kong.
  • Katsumi Takagaki at Sumitomo Mitsui Trust (HK) says Chinese companies will benefit more from economic recovery and looser monetary policy than MSCI Hong Kong companies.
  • The MSCI Hong Kong Index is at 16 times earnings versus 9.8 for the MSCI China index, the widest gap since 2002. Hong Kong is second on the World Bank’s ease of doing business survey, China is 96th.
  • Federal fund futures indicate a 62 percent chance the Fed will raise rates to at least 0.5 percent by July 2015.

Read the full article at  http://www.bloomberg.com/news/2014-07-09/hong-kong-bears-sell-priciest-stocks-since-02-buy-china.html

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Julius Baer Says Thai Markets Retreat to Deepen: Southeast Asia – Bloomberg 12-02-13

Salient to Investors:

Mark Matthews at Julius Baer said the sell-off of Thai assets is not over and the protests will weaken Yingluck’s ability to increase investment in the economy – no one is itching to buy this market.

Joel Kim at BlackRock said the Thai baht is one of our bigger underweights.

Adithep Vanabriksha at Aberdeen Asset Mgmt said the weakening economy is more worrisome than the protests as it will affect earnings.

The SET Index is at 2.1 times net assets, a 39 percent premium versus the MSCI Emerging Markets Index, the smallest gap on a weekly basis since September 2012.

Petcharat Powattanasatien at Kasikorn Asset said the market should rebound strongly as soon as this political deadlock is resolved.

Thailand has had 9 military coups and more than 20 prime ministers since 1946.

Abdul Jalil Abdul Rasheed at Invesco Asset Mgmt said people still use mobile phones, buy the necessities, have banking products, and life goes on – this sort of democracy only happens in Thailand.

Kokusai Asset said the baht will remain weak as protests add to investor concerns about subdued exports and the current-account deficit. Takahide Irimura at Kokusai Asset said the longer this situation lasts, the more impact we will see on the economy – the outlook on the market and on the economy looks poor.

Read the full article at http://www.bloomberg.com/news/2013-12-02/julius-baer-says-thai-markets-retreat-to-deepen-southeast-asia.html

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Oil’s Future Draws Blood and Gore in Investment Portfolios – Bloomberg 11-18-13

Salient to Investors:

Bloomberg New Energy Finance says peak fossil fuels demand could happen in 2030 – the point when humans stop increasing their annual burn, either because the environmental danger makes it too costly or because buildings and cars run more efficiently.

Oil and coal companies worth more than $7 trillion may be sinking billions of dollars today into projects that will never make sense to finish.

Nick Robins at HSBC said carbon-asset risk in 2013 went from a conceptual possibility to a sort of near-and-present reality, and the undertow of demand destruction through technological improvement is not currently fully priced in – Teslas and solar panels are eroding the future value of black gold, and investors are ignoring the risk. Robins said that oil investments could turn risky quickly because cars have room for rapid improvement in fuel efficiency and with continued fuel-efficiency standards, demand for oil could get sucker punched. Robins said companies with reserves that are more expensive to extract are at the greatest risk.

Citigroup declared in March the end is nigh for global oil-demand growth.

S&P said policies that cut demand for fuels could lead to outlook revisions and downgrades in smaller oil-and-gas companies as early as 2014, with a similar shock to the majors in 2016.

Goldman Sachs advises oil companies invest only in medium to high-return projects and in buybacks and focus on per share growth.

Coal was the dominant US energy source through WWII and responsible for more than 40 percent of the CO2 emissions that are heating the planet.

US coal demand has fallen near a 20-year low, squeezed by clean-air regulations and displaced by cheaper, less carbon-heavy natural gas. Coal prices have fallen by more than half since a peak in mid-2008, and the Stowe Global Coal Index is trading at a third of its 2008 high.

Michael Parker and Purdy Ho at Bernstein Research said in June in “The Beginning of the End of Coal” that demand for coal will fall beginning in 2016, Chinese auto fuel-efficiency standards are already tougher than the US, and a newly vocal middle class is pushing back against suffocating smog. Parker and Ho said all industrialized societies eventually decide that environmental damage caused by uncontrolled industry is no longer tolerable, and predicted coal demand in China is about to fall, and the global thermal coal market will never recover – China’s services sector is one-sixth as energy intensive as the industrial sector and accounted for 45 percent of the economy in 2012, versus 39 percent in 2011.

Climate scientists say that global temperatures cannot rise more than 2 degrees without causing irreparable damage – the IEA said two-thirds of proven fossil-fuel resources must remain buried to meet that goal. Carbon Tracker said the top 100 coal and top 100 oil-and-gas companies had a combined value in 2011 of $7.42 trillion, much of which ws based on reserves that can never be used.

Hal Quinn at the National Mining Assn said that even in the US, coal use will continue unabated through 2020 as larger, more efficient plants supplant older ones.

Global population will rise 30 percent by 2050. The US Energy Information Administration’s low oil price analysis sees crude oil around $75 a barrel for the foreseeable future.

Craig Mackenzie at Scottish Widows said investors have grown numb with the idea that energy demand will continue to grow for the next 4 decades, but some are beginning to call the consensus view for future demand into doubt – things have changed a lot in the last year. Mackenzie said the biggest uncertainty in projections is how soon China’s economy will shift to a service economy, and most investors mistakenly think this is still decades off. Scottish Widows sold its stocks and bonds in coal on purely financial reasons.

Read the full article at http://www.bloomberg.com/news/2013-11-18/oil-s-future-draws-blood-and-gore-in-investment-portfolios.html

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How 37-Year-Old Teacher Imperils Pimco’s Bond Bet: Mexico Credit – Bloomberg 09-03-13

Salient to Investors:

Marco Oviedo at Barclays said teacher protests are a sign that President Nieto may struggle to push through his energy and tax-law plans without modification. Oviedo said education reform shows that it won’t be easy to pass other reforms that hurt certain political groups or interests.

Opposition to Nieto’s pledges is undermining confidence in Mexico’s economy that led foreign investors such as Pimco increase bond holdings to a record in 2013.

Barclays said in July that the proposal to break the state oil company’s 75-year monopoly on drilling would attract investment, potentially adding 1.5 percent to growth.

Araceli Espinosa at Scotiabank said it is very important that the new government show it really has authority and sufficient power to pass all of these reforms.

Edwin Gutierrez at Aberdeen Asset Mgmt says the education protests are little more than a sideshow, while the whole focus remains very much on what’s going on energy reform, and as long as they push forward with their schedule, the market is happy.

Read the full article at  http://www.bloomberg.com/news/2013-09-03/how-37-year-old-teacher-imperils-pimco-s-bond-bet-mexico-credit.html

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European Stocks Are Cheaper Than During Last Recovery – Bloomberg 08-12-13

Salient to Investors:

The Euro Stoxx 50 Index is at 12.5 times projected earnings, versus 15.3 times projected earnings for the S&P 500 and 14.2 times income for the Topix.

Bulls say European stocks are cheap as the first expansion for euro-area manufacturing in 2 years helps drive forecasts for profit growth of more than 10 percent in 2013 and 2014. Bears cite concern that next month’s German election may lead to tougher austerity measures in Europe’s weakest economies.

Kerry Craig at JPMorgan Asset Mgmt said stocks are relatively cheaper than the last time the euro zone was improving. In 2009, the Euro Stoxx 50 was at 13.4 times projected profit versus the S&P 500 at 17.5 times estimated income in Q4 2009, and the Topix at 35.1 times forecast earnings.

The average strategist expects European stocks to rise another 3.5 percent by year-end versus a 0.9 percent fall in the S&P 500 according to a separate poll.

Nader Naeimi at AMP Capital Investors said European equities offer better value than other developed markets: a lot of good news is already priced into US stocks, whereas in Europe we’re restarting a recovery and should see tangible results coming in by year-end or early 2014.

The median economist expects the euro-area economy to grow 0.2 percent oin Q4 2013 growth in the final three months of 2013.

Pierre Lapointe at Pavilion Global Markets said European fiscal austerity is receding, and most European countries will see a significant reduction of fiscal tightening in 2014, removing a large headwind to aggregate demand.

Andreas Hoefert at UBS Wealth Mgmt prefers the US to Europe, saying they are still not out of the woods with the coming German election, while anti-Europe rhetoric may come back into play.

Andrew Milligan at Standard Life Investments said economic reports indicate Europe will return to growth, but the recovery may be too weak to boost earnings – fewer negatives for European equities than in the past, but not many positives. Milligan said valuations are very supportive, but it is difficult to see any knock-out figures to justify overweighting European equities.

Henk Potts at Barclays Wealth & Investment Mgmt said the worst days of the fiscal crisis are over and investors should allocate more to European equities since the risks involving the euro zone have been reduced.

Analysts project profits will climb 29 percent for Euro Stoxx 50 companies in 2013 and 13 percent in 2014. The Euro Stoxx 50 is at 1.31 times book value versus 2.49 for the S&P 500.

David Herro at Oakmark Intl Fund said European stocks are more undervalued than US or Japanese equities, and is seeing signs of stabilization.

Andrew Garthwaite at Credit Suisse upgraded continental European equities to overweight and said financial firms and companies most reliant on economic growth have the biggest potential for gains, and recommends media, airline, banks and software companies.

The S&P 500 has recovered all of the losses from the global financial crisis, while the Euro Stoxx 50 is 38 percent below its July 2007 peak, the IBEX 35 is 45 percent below its November 2007 high, and Italy’s gauge is 61 percent lower May 2007.

Francois Savary at Reyl & Cie said Europe may surprise within the global economic recovery and the stabilization is coming earlier than expected, so there is good potential for equities in the next six to 12 months.

Read the full article at  http://www.bloomberg.com/news/2013-08-11/europe-stocks-cheaper-than-last-recovery-as-profit-rebound-seen.html

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China Wealth Eluding Foreigners as Equities Earn 1% for 20 Years – Bloomberg 07-14-13

Salient to Investors:

The MSCI China Index has gained 14 percent, including dividends, since July 1993 versus 452 percent for the S&P 500 Index, 322 percent for the MSCI Emerging Markets Index and 86 percent from US Treasuries. Only the MSCI Japan Index had a weaker performance among the 10 largest markets, losing 1 percent. China per-capita income grew to $6,076 as of 2012 from $517 in 1993. However, the MSCI China index gained 680 percent from Nov. 10, 2001 through the index’s peak during the stock-market bubble on Oct. 30, 2007.

Nicholas Yeo at Aberdeen Asset Mgmt proves that great GDP does not mean a great stock market, and says valuations must fall further before it buys. Yeo says the lack of quality of corporate governance is one reason why companies don’t perform well over the long-term, and profits in China are weaker in part because there’s too much competition – many players enter any sector that look interesting, resulting in profits being competed away. Earnings in the 137-stock MSCI China index have climbed about 5 percent during the past two years, versus 15 percent for the S&P 500.

Goldman Sachs and China Intl Capital Corp predicts GDP will expand 7.4 percent in 2013, which would be the weakest annual rate since 1990.

Gary Dugan at Coutts & Co. said China is sacrificing short-term economic growth as it seeks to make the nation’s long-term expansion more sustainable, in part by curbing credit – a cloud over stocks.

The MSCI China Index is at 9.3 times reported earnings, versus 16 times for the S&P 500 , the biggest discount since September 2003, and versus 11 times for the MSCI Emerging Markets index.

Marco Li at Manulife Asset Mgmt said sentiment is quite fragile on China.

Nader Naeimi at AMP Capital Investors said with the transition of growth towards consumers you would want companies that leverage consumer spending.

David Gaud at Edmond de Rothschild said China is one market if you buy a tracker or ETF, and you are very much at risk, but buying funds that are selective in their stock picking offers very solid returns. Gaud favors health-care, consumer and alternative energy stocks.

Tony Hsu at Dalton Investments said Chinese equity indexes have been weighed down with large positions in state-owned companies that tend to put political interests ahead of shareholder returns. The World Banks said in February 2012 that over 25 percent of China’s state-owned enterprises are unprofitable and their productivity growth has trailed that of private firms the past 3 decades. Hsu said SOEs primarily serve the interests of the government, frequently making decisions with little regard for return on investment. Hsu prefers Chinese companies run by entrepreneurs with large ownership stakes, and sells short shares of state-owned companies.

CLSA Asia Pacific Markets and the Asian Corporate Governance Assn said China was ranked 9th out of 11 Asian countries for corporate governance as of September 2012 and had the biggest deterioration in the region since 2010.

Mauro Ratto at Pioneer Investments said this period of uncertainty can last longer than expected, and it is difficult to see a catalyst for the Chinese market.

Read the full article at http://www.bloomberg.com/news/2013-07-14/china-wealth-eluding-foreigners-as-equities-earn-1-for-20-years.html

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Dollar Slides on Bernanke’s Outlook for Stimulus; Yen Advances – Bloomberg 07-12-13

Salient to Investors:

Marc Chandler at Brown Brothers Harriman said there is one big story and that is, of course, Bernanke, and given that his comments rattled the market a couple of times now in a short period of time, many traders will be loath to take significant positions ahead of his address to Congress next week. Chandler said markets have been too aggressive in pricing in tapering  because US economic weakness will continue through Q3, lower inflationary data may persist and reducing monetary stimulus may be left to another Fed chairman.

Brian Daingerfield at RBS Securities said people still want to be long dollar and want to own dollars.

Read the full article at  http://www.bloomberg.com/news/2013-07-13/dollar-slides-on-bernanke-s-outlook-for-stimulus-yen-advances.html

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