Italy’s Industry Minister Carlo Calenda said on Friday that if the country can introduce a new corporate spending strategy they may be able to convince the European Commission (EC) to increase its budget deficit.
The comments came in an interview with la Repubblica daily, where the minister called for a rethink on flexibility rules that reward economic reforms with increased deficit margins only for 12 months.
Italy has previously expanded its 2016 deficit goal by over $10 billion using the EC’s clauses. But due to a major slowdown in this year’s economic growth, mainly because of terrible Q2 figures, the government’s deficit targets are seen to be a high level risk.
Although the nation’s treasury department have said it’s too early to forecast budget effects for next year, it is rumoured that Rome will be petitioning the EC for added budget expansion. This was confirmed by Minister Calenda, who said the country would “almost certainly seek extra flexibility in our budget margins”. The treasury declined to comment on the minister’s remarks.
“What the EC and the euro zone markets need to see is some kind of credible plan from Rome,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in a phone interview. “It’s clear the fiscal authorities of Italy want to develop the scope of the EC’s clauses both in size and duration.”
It may not be easy to get the grants however, as the EC has said publicly in a meeting last month that Italy has already received “more flexibility than any other country in the region”.
The European markets have traditionally kept Italian public finances at arm’s length due to the country’s terminally stagnant economic expansion and enormous level of public debt that are nearly double the domestic output.
Calenda is insistent that demand stimuli are a lost cause in the current climate and tired tax break initiatives simply aren’t working. The government, he says, needs to focus on the supply side of the equation and wants the budget expansion to increase competition and corporate investment.
Wednesday, August 24, 2016
Monday, August 22, 2016
Local authorities may fund Chinese steel bailout
Online economic website Caixin has reported that embattled state owned Bohai Steel Group may be the beneficiary of a local government fund initiative which would allow the company to restructure its debt obligations, which total nearly $30 billion.
The company, which came about through the merger of four smaller firms in 2010, owes over a hundred creditors debt and have only just enough assets to cover it.
The plan is to set up a local asset management company in Tianjin, which can handle the debts. The new firm will also assist other indebted companies in the region.
“The debt restructuring is probably the biggest we’ve seen in China since the 2008 economic meltdown. It’s a big effort by the authorities to clear the heavy governmental slate,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management who is advising the Tianjin government on the plan.
Most of the creditors involved are Beijing-based banks and trust firms, the magazine reported.
China has been attempting to keep in check an increasing state sector debt level for many years.
The main strategy has been to encourage creditors to accept debt-for-equity swap deals through newly formed specialist debt management firms such as China Reform Holdings Co., which is spearheading the debt re-shuffling of many state-owned companies.
The government have accelerated the debt repayment plans for the steel sector in particular as the flagging real estate market causes a decline in the demand for basic construction materials.
The company, which came about through the merger of four smaller firms in 2010, owes over a hundred creditors debt and have only just enough assets to cover it.
The plan is to set up a local asset management company in Tianjin, which can handle the debts. The new firm will also assist other indebted companies in the region.
“The debt restructuring is probably the biggest we’ve seen in China since the 2008 economic meltdown. It’s a big effort by the authorities to clear the heavy governmental slate,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management who is advising the Tianjin government on the plan.
Most of the creditors involved are Beijing-based banks and trust firms, the magazine reported.
China has been attempting to keep in check an increasing state sector debt level for many years.
The main strategy has been to encourage creditors to accept debt-for-equity swap deals through newly formed specialist debt management firms such as China Reform Holdings Co., which is spearheading the debt re-shuffling of many state-owned companies.
The government have accelerated the debt repayment plans for the steel sector in particular as the flagging real estate market causes a decline in the demand for basic construction materials.
Friday, August 19, 2016
Governor of BOJ says rates can go even lower
Although a controversial negative rate policy has so far failed to encourage any real economic expansion or inflation, Bank of Japan (BOJ) Governor, Haruhiko Kuroda, has announced that the central bank could be willing to cut rates even further.
Kuroda was quoted in an interview with Sankei newspaper saying that rates have not reached their basement levels yet.
“If we look at the action by the U.S. Federal Reserve and the ECB [European Central Bank] they have gone much lower than we have with their rates so we cannot rule out expansion of the policy,” he said.
There were more than a few raised eyebrows at the start of the year when the BOJ set a minus 0.1 rate for certain deposits in their vaults in the hope that the move would encourage banks and corporations to increase expenditure and spur inflation, but that has not materialized.
The bank will carry out a full assessment of its annual fiscal policies next month, and only then will they make a decision on whether to adjust their huge asset purchasing plan, which has seen them buy up over 90 trillion yens worth of bonds on a yearly basis.
“Despite all this easing of the monetary base we haven’t seen any solid results,” said Michael Lane - Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in an email to investors.
“It’s been going on now for about 3 years and Prime Minister Abe is starting to get called out on his failed policies. The aim is to get up to 2 percent on inflation but the level hasn’t budged, with the economy as stagnant as ever,” Lane added.
The financial world will know more when the BOJ release their annual report on the same day as their meeting next month.
Kuroda was quoted in an interview with Sankei newspaper saying that rates have not reached their basement levels yet.
“If we look at the action by the U.S. Federal Reserve and the ECB [European Central Bank] they have gone much lower than we have with their rates so we cannot rule out expansion of the policy,” he said.
There were more than a few raised eyebrows at the start of the year when the BOJ set a minus 0.1 rate for certain deposits in their vaults in the hope that the move would encourage banks and corporations to increase expenditure and spur inflation, but that has not materialized.
The bank will carry out a full assessment of its annual fiscal policies next month, and only then will they make a decision on whether to adjust their huge asset purchasing plan, which has seen them buy up over 90 trillion yens worth of bonds on a yearly basis.
“Despite all this easing of the monetary base we haven’t seen any solid results,” said Michael Lane - Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in an email to investors.
“It’s been going on now for about 3 years and Prime Minister Abe is starting to get called out on his failed policies. The aim is to get up to 2 percent on inflation but the level hasn’t budged, with the economy as stagnant as ever,” Lane added.
The financial world will know more when the BOJ release their annual report on the same day as their meeting next month.
Wednesday, August 17, 2016
EXOR favours foreign HQ for easier access
In order to give Italian investment firm EXOR better access to European acquisitions and fund raising, owners the Agnelli family have decided to move their base of operations to Holland.
The move comes hot on the heels of a similar base transfer by a firm that EXOR controls with a 30 percent stake, Fiat Chrysler Automobiles, who recently registered as a Dutch company and planted a new HQ in Amsterdam.
“Although moves like this might not please everyone, companies need to do anything they can to improve growth opportunities,” says Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management, who have a small stake in Chrysler U.S.
In 2014 Fiat completed the full acquisition of their subsidiary in the United States, Chrysler, to create the world’s seventh biggest auto producer. At that point they made the decision to move away from home, sparking some unrest within political circles.
After the move, Fiat registered under both the Milan and New York stock exchanges, and chose the UK as its tax domicile.
In a statement released on Thursday evening, EXOR explained the reasoning for their decision to follow Fiat’s example. “Fiat has been much more successful regarding their new investments and M&A activity after their transfer to the Netherlands. We feel EXOR can also greatly benefit from the advantages that can be gained.”
The move comes hot on the heels of a similar base transfer by a firm that EXOR controls with a 30 percent stake, Fiat Chrysler Automobiles, who recently registered as a Dutch company and planted a new HQ in Amsterdam.
“Although moves like this might not please everyone, companies need to do anything they can to improve growth opportunities,” says Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management, who have a small stake in Chrysler U.S.
In 2014 Fiat completed the full acquisition of their subsidiary in the United States, Chrysler, to create the world’s seventh biggest auto producer. At that point they made the decision to move away from home, sparking some unrest within political circles.
After the move, Fiat registered under both the Milan and New York stock exchanges, and chose the UK as its tax domicile.
In a statement released on Thursday evening, EXOR explained the reasoning for their decision to follow Fiat’s example. “Fiat has been much more successful regarding their new investments and M&A activity after their transfer to the Netherlands. We feel EXOR can also greatly benefit from the advantages that can be gained.”
Monday, August 15, 2016
New York now favourite property target amid Brexit
As sentiment turns negative towards London due to the surprising UK vote to leave the European Union, New York has become the number one location for investors to seek out commercial real estate.
Just before the Brexit referendum there was an indication that investors were starting to feel nervy on London, as fluctuating international property transactions pointed to fears the English capital might lose its appeal as a world economic centre if the British public decided to leave the E.U.
According to investment company Jones Lang LaSalle Inc., compared to the first half of 2015, there was nearly a 50 percent drop in cross-border property transactions. Foreign investors simply didn’t want to risk purchasing property that might be devalued due to a political event beyond their control.
Indeed, one of the UK’s largest foreign investors, Norway's sovereign wealth fund, said it needed to wipe 10 percent off its British portfolio due to the Brexit.
“There’s no escaping the fact that London has got the sharp end of the Brexit stick,” Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in a note to clients. “The attraction of London has always been as a world economic hub with a wide base of financial service employment opportunities. Obviously there is concern that London’s profile will be eroded.”
Data from Mr. Lane’s firm, Shizuoka, shows New York nearly doubled London’s total for cross-border real estate investments between January and June this year at $10 billion. In the same period last year London raked in $12 billion compared to this year’s $6 billion.
The UK has traditionally been viewed as friendlier than the U.S. towards real estate investors due to beneficial property tax structures, so the trend towards America will weaken one of Britain’s strongest investment areas.
“Many of America’s ‘gateway cities’ like Boston, Chicago, L.A. and of course New York are going to see a surge in capital investment towards property,” says Cushman & Wakefield senior VP Ken McCarthy. “Investors are looking to redeploy their capital away from the UK and, in a broader sense, Europe. It’s not just the shock of the Brexit but negative interest rates are a factor too.”
A World Bank report is expected in the coming months which will present data on the effects of the UK exit from the European Union. It will be released on the same day as a central bankers meeting in the U.S.
Just before the Brexit referendum there was an indication that investors were starting to feel nervy on London, as fluctuating international property transactions pointed to fears the English capital might lose its appeal as a world economic centre if the British public decided to leave the E.U.
According to investment company Jones Lang LaSalle Inc., compared to the first half of 2015, there was nearly a 50 percent drop in cross-border property transactions. Foreign investors simply didn’t want to risk purchasing property that might be devalued due to a political event beyond their control.
Indeed, one of the UK’s largest foreign investors, Norway's sovereign wealth fund, said it needed to wipe 10 percent off its British portfolio due to the Brexit.
“There’s no escaping the fact that London has got the sharp end of the Brexit stick,” Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management in a note to clients. “The attraction of London has always been as a world economic hub with a wide base of financial service employment opportunities. Obviously there is concern that London’s profile will be eroded.”
Data from Mr. Lane’s firm, Shizuoka, shows New York nearly doubled London’s total for cross-border real estate investments between January and June this year at $10 billion. In the same period last year London raked in $12 billion compared to this year’s $6 billion.
The UK has traditionally been viewed as friendlier than the U.S. towards real estate investors due to beneficial property tax structures, so the trend towards America will weaken one of Britain’s strongest investment areas.
“Many of America’s ‘gateway cities’ like Boston, Chicago, L.A. and of course New York are going to see a surge in capital investment towards property,” says Cushman & Wakefield senior VP Ken McCarthy. “Investors are looking to redeploy their capital away from the UK and, in a broader sense, Europe. It’s not just the shock of the Brexit but negative interest rates are a factor too.”
A World Bank report is expected in the coming months which will present data on the effects of the UK exit from the European Union. It will be released on the same day as a central bankers meeting in the U.S.
Tuesday, August 9, 2016
Japan leads global bond sell off
This summer’s bond rally is finally unravelling.
Japan has led the global sell off and yields are increasing across every continent. Bank of America Corp.’s G-7 Government Index bond average jumped over half a percentage point, which is its biggest climb in over a month.
While the UK was in the grip of its referendum vote on the E.U. this June, the general sentiment in the financial world was that world economic growth would slow enough to convince the Federal Reserve to leave interest rates unchanged.
It may well be the case that those same analysts are now wondering if yields dipped too far. Presidential candidate Donald Trump said that current interest rates are “at a false low”.
Bill Gross, a prominent financial manager and author, said that bets on the ultra-low yields are too risky. The company Gross founded, Pacific Investment Management Co., said the Japanese government bond rally is most likely at an end.
With the G-7 index now falling, many of the gains in early 2016 are now turning into costly losses. This year’s returns are now at a lowly 5 percent.
Bonds in Japan have declined the largest amount since 2013, according to data released by the Japan Bond Trading Co.
10-year yields gained to minus 0.096 percent from the low set in the summer and Gross said the rally “has most definitely fizzled out” due to the Fed reaching the end of the road with its fiscal stimulus plan.
Another telling indicator was the lack of action from the Bank of Japan, who opted to leave their negative interest rates unchanged, and did not expand the bond purchasing plan they already had in place since their last board meeting in July.
“It’s extremely difficult, even for central banks, to get a handle on the situation with bonds,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management.
“Policy-makers simply don’t know what the right response is to the turbulent events of this year. Similarly market participants are not confident with the current state of play. Many have jumped on the gravy train and suddenly there has been a call for the end of the line,” Lane added.
The bond situation may not be settled for a while. With the fallout from Brexit still having a ripple effect and the upcoming presidential election in the U.S., not to mention the continued slide of crude prices, investors would be wise to stay passive in the market for the near future.
Japan has led the global sell off and yields are increasing across every continent. Bank of America Corp.’s G-7 Government Index bond average jumped over half a percentage point, which is its biggest climb in over a month.
While the UK was in the grip of its referendum vote on the E.U. this June, the general sentiment in the financial world was that world economic growth would slow enough to convince the Federal Reserve to leave interest rates unchanged.
It may well be the case that those same analysts are now wondering if yields dipped too far. Presidential candidate Donald Trump said that current interest rates are “at a false low”.
Bill Gross, a prominent financial manager and author, said that bets on the ultra-low yields are too risky. The company Gross founded, Pacific Investment Management Co., said the Japanese government bond rally is most likely at an end.
With the G-7 index now falling, many of the gains in early 2016 are now turning into costly losses. This year’s returns are now at a lowly 5 percent.
Bonds in Japan have declined the largest amount since 2013, according to data released by the Japan Bond Trading Co.
10-year yields gained to minus 0.096 percent from the low set in the summer and Gross said the rally “has most definitely fizzled out” due to the Fed reaching the end of the road with its fiscal stimulus plan.
Another telling indicator was the lack of action from the Bank of Japan, who opted to leave their negative interest rates unchanged, and did not expand the bond purchasing plan they already had in place since their last board meeting in July.
“It’s extremely difficult, even for central banks, to get a handle on the situation with bonds,” said Michael Lane, Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management.
“Policy-makers simply don’t know what the right response is to the turbulent events of this year. Similarly market participants are not confident with the current state of play. Many have jumped on the gravy train and suddenly there has been a call for the end of the line,” Lane added.
The bond situation may not be settled for a while. With the fallout from Brexit still having a ripple effect and the upcoming presidential election in the U.S., not to mention the continued slide of crude prices, investors would be wise to stay passive in the market for the near future.
Monday, August 8, 2016
Weaker ruble and potential stimulus raise Russian stocks
As the trend of central banks around the world proposing massive stimulus to their economies continues, Russian stocks leaped to record highs as investors took advantage of a much weaker ruble, purchasing equities cheaper than any of their developing nation competitors.
As the ruble dipped 0.8 percent to 66.49 per dollar in Moscow’s late afternoon session, the Mices Index, dominated by the Russian currency, gained 0.3 percent as part of a six day advance and neared its record peak reached 3 months ago. The ruble has declined the third worst out of 25 basket peers, according to Bloomberg.
Weaker-than-projected U.S. data has encouraged many investors to back bets the Fed will leave interest rates unchanged, resulting in capital inflow to developing markets which promise higher returns. Therefore, cash has flowed in abundance towards Russian equities, and firms on the Micex are trading at 7 times their forecast 1 year earnings, compared to half that for the MSCI index.
“There’s a feeling to bet long on a lot of Russian risk at the moment,” said Michael Lane - Global Co-Head of the Investment Management Division at Shizuoka Capital Wealth Management who handle $10 billion worth of capital in the region.
“As long as regulators do what the market expects, those bets will yield heavy returns. It’s a very good time to be involved with developing markets, especially the Russian stock market. We are seeing a prolonged correction on crude and the ruble so there’s plenty of opportunity there for those wagering on a big oil recovery,” he said.
Many prominent analysts are recommending an overweight stance on Russian stocks. David Aserkoff, JPMorgan Chase & Co. Head of Asian Investments said Russia’s equities are “significantly undervalued” and offer “a lucrative return ratio and the best long term dividends out of any developing market globally.”
The ruble dip followed in step with the decline in crude, Russia’s biggest export business. In the U.S., drilling firms increased output putting crude stockpiles at a record high. The market reacted with a 1.8 percent drop in Brent shares to $2.79 per barrel.
The ruble’s decline, however, has been at a very slow rate, a testament to the Russian currency’s resilience, and due in part to the Bank of Russia’s decision to freeze interest rates in their meeting last Monday. Trader attraction to ruble-heavy securities is understandable, as they will always gravitate to currencies offering basement rates.
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