Navigating your way in tumultuous waters

Defined as highly unpredictable, black swan events come as a shock and usually lead to massive portfolio value destruction due to investors panic .

While some will retroactively argue that these events were actually predictable, the fact is that history in stock markets shows that such events happened…and will happen again and again whatever the safeguards you put in place.

These so called “black swan events” make me think that current market conditions are literraly paralysing investors decisions and raising questions such as:

  • How and where to get yield?
  • Is it safe to stay in the market?
  • Shall we invest in emerging markets?
  • What could be the dominos consequences of a Fed rate hike?
  • …And what about China?

Over the last 12 months, we’ve seen incredible excitement about India and China, then came the rush towards Europe’s stock market and massive desertion from emerging markets. Now comes the time when everybody’s talking about different kind of strategies supposed to be the best in time : “multi-assets”, ETF’s, “merger arbitrage” and so on.

Well the truth is that there’s no safe road. Whatever the paths, there will always have some bumps. While nothing can ever be granted, some basic rules can help minimising the bumps and remain in course.

  1. Irrationality can sometimes overtake the most solid economic fundamentals..

 As Howard Marks, Okatree Capital Management CEO rightly emphasised at the last Bloomberg talk I attended in Singapore on October 27th : market shocks are totally random and can happen anytime, anywhere with more or less magnitude. As such, investment portfolio shouldn’t be construed solely on macro forecasts as massive market downturns can happen anytime due to unexpected events (commodity prices tumble, 2008 financial crisis, etc.).

Not undermining the importance of economic and financial considerations, a mix of flair and luck are therefore essential.

Irrational movements will actually keep growing in size and magnitude due to the growth in retail investors direct trading (emerging markets) and speed of information diffusion.

  1. Don’t wait for the crowd

A basic principle in investment: “Sell when people are ignoring risks and Buy when people are over considering risks”.

This concept that could be applied to any other situation in life actually relies in the capacity of maintaining an helicopter view of the situation and assess the “right time” to become more aggressive or reversely more cautious.

  1. Don’t put all your eggs in the same bucket

A very old say but rarely followed when enthusiasm outweighs rationality. Depending on the context and investment, diversification can take any angle (asset class, sectorial, regional) but has to remain a line of conduct in order to mitigate volatility.

  1. Consider branding but focus on performance consistency

While it sounds pretty fair to prefer low fees and large branding fund houses, this is not necessary a guarantee of steady and rewarding performance. Beyond branding and investment strategies, here are some specific factors to keep an eye on:

  • Portfolio manager’s experience in managing the fund (is the performance related to his own management or did he just started to manage it?);
  • Historical performance: while history cannot be indicative of future performance, it nonetheless gives an idea of the fund’s resistance in market downturn periods;
  • Level of risk: is the performance related to the sole portfolio management or supported by derivatives instruments?
  • Track record: a minimum of 5 years sounds pretty fair to assess historical performance;
  • Management fees : they should be considered related to the performance of the funds and not as an “isolated” factor of differentiation.

All in all , there is no exact science about investment strategies. Whatever the marketing packaged around, any investor should forget about the noise and remain diversified as well as steady with its objectives.

As used to say Warren Buffet “ predicting rain doesn’t count…. building arks does”.

EUROPE’S RETURN TO GRACE CONFIRMED

Despite numerous factors of global instability, the release of french stock’s first semester results confirmed Europe’s return to grace. Expectations were high and corporates provided what the market was desperately looking after: revenues growth but most importantly operating margin’s improvement.

Optimism at its highest

According to a french financial press report (Les Echos – July 31st), more than a dozen of french corporates reported double digit revenues growth, providing the market with a rare optimisim : growth expectations have been confirmed if not increased for most of them.

The whole story is obviously not “spotless” as many factors of unstability remain: domestic consumption is still lagging behind and China’s economic slowdown has been seriously affecting firms exposed to the land of rising sun (Schneider, Danone, etc.).

Notwithstanding the above, European markets benefit from a triple package that should definitely pull ahead firm’s results over the next months: low interest rates, Euro and Crude prices. The backdrop couldn’t be better for french corporates which, according to analysts make 61% of revenues in Europe 9 (CAC40), limiting therefore potential drawbacks from an over-exposition to China (estimated to 7% only by analysts).

Professional Management proved to be more rewarding in volatile conditions

Playing the European market through much loved passive investments such as ETFs might not be the most rewarding strategy though. While ETFs provide for a cheap and diversified exposure to european markets, the current market conditions (high volatility) impose investors to be selective.

Having a look at the best rated Europe exposed ETFs, returns are more than decent but can’t compare with some of the Best European SICAV recently selected by Le Figaro- French Financial newspaper (YTD returns exceeding 20%). While these returns were supported by the improved economic conditions, the difference in performance is definitely linked to the “case by case” management of professional, experts in the european market.

Markets will remain volatile and therefore portfolio diversification is necessary if not paramount. Regardless the allocation that will be chosen by investors, Europe may definitely represent a good share of it – The best should be ahead of us.

RENEWABLE ENERGIES: A STRATEGIC MOVE FOR SOUTHEAST ASIA

An “all-green” strategy to preserve resources security and independence

Known as the “City in a Garden”, Singapore built international reputation for its strong commitment to a green and sustainable city. Loved by some or decried by others who claim that the city has lost its original soul, the result is anyway quite astonishing when compared to other international bubbling financial hubs.

Such an obsessive approach couldn’t come however without a clear subtended interest. Given Singapore’s geographical location, soaring population and industrial booming sector, a huge amount of power generation capacity is needed. Likewise, water supply poses a long-term challenge that desalination and water catchment solutions (NEWater program) have not yet completely solved (50% of the city’s water still comes from Malaysia).

Singapore’s support for green oriented projects set-up

Thanks to attractive connections with the rest of South East Asia, Singapore is strategically positioned to play a leading role in supporting the development of cleantech industries in South-East Asia. Among some of Singapore key strengths, let’s name a few:

  • Strong logistic capabilities supported by world-class infrastructure facilitating regional distribution.
  • Strong R&D capabilities thanks to significant government funding for energy, water and green building sectors.
  • A cleantech incubator & accelerator aimed at: 1/ providing cleantech companies with business support in Singapore and 2/ help international enterprises expand their technology and business to the region, using Singapore as a springboard.

South East Asia urgent need for renewable energy resources

Be it strategic or purely philanthropic, green issues are a growing matter in emerging markets particularly in Asia where the expected urban population boom and related energy needs pose massive challenges: infrastructures, access to water and electricity are among the most important ones that the region will have to tackle over the next decades.

On top of environmental issues (water supply, pollution), an exacerbated reliance on imported fossil fuel energies represent a tremendous economical and geopolitical risk that governments have to tackle so as to support the expected economical growth prospects of the region.

According to a report published by the IEA (International Energy Agency), the region’s energy demand has expanded two and a half times since 1990 and it should keep increasing dramatically over the next decade as per capita use of energy in the region is still very low (half of global average). IEA estimated that about USD1.7trillion of cumulative investments in energy-supply infrastructure are required by 2035 in order to match South East Asia needs. Renewable energy sources are abundant in South East Asia: the potential of bioenergy (agricultural and animal feedstocks) is large while hydro already plays an important role in the region. Geothermal is under used relative  to its potential while Wind and Solar PV remain small but deployment is growing. According to Armstrong – clean energy Asset Management, the installed capacity of solar power systems in South East Asia was close to 400MW in 2012 and should exceed 2400MW by the end of 2014.

Much to be done still but initiatives and financial supports are gaining ground

Although the renewable energy sector is still encountering some difficulties (financings, oil subsidies, grid issues administrative hurdles), governments have been clearly encouraging initiatives and gradually improving energy policies in favour of renewables. In the meantime, development banks such as IFC or ADB are playing leading roles, actively participating to the financing of the sector. Specialized investment funds have also joined the effort, providing the sector with additional financing support.

All in all, South East Asia offers incredible potential for renewable energy investment projects. International equipment providers have already settled in the region, utilizing Singapore as a regional hub. Additional players keep investing in the region. Non-outstanding the fact that fossil fuels will still be needed in the future, a rebalancing of the energy mix is one of the top priorities on which Asian governments are working on. Much needs to be done yet but a gradual shift is on track.  The soon to be launched regional economic integration (AEC) should also further enhance common energy policies and regulations in the region, therefore facilitating the development of the sector.

Athenia-Link under the spotlight

This week, Athenia-Link appeared in Singapore French Chamber of Commerce (FCCS) newsletter.

Click here to read the full story.


 

With a business platform of about 600 company and additional individual members, the FCCS is a very active chamber.

Acting as a business and social pillar for any executive working in the region, the chamber offers a vast area of business services and organises many events all over the year. At Athenia-Link, we appreciate their efforts in supporting entrepreneurs initiatives!

WHY SINGAPORE HAS BEEN SHARPENING ITS TASTE FOR TEQUILA..

Latin America and Asia : two different worlds, two different cultures but common interests in embracing their role as new world economic locomotives. Both regions are increasingly important in each other’s economy and face the same challenges, including among others the need for investments and productivity growth.

Still an unstable region but isn’t it the case of most emerging markets?

Truly, countries such as Venezuela, Bolivia and Argentina still carry the hazard of asset expropriation, Brazil is experiencing a serious slowdown and violence issues remain key issues in Mexico and Colombia. But isn’t it it common disparities in any emerging regional market? When looking at Asia, Africa or Middle East the same puzzled situation appears. The whole regional picture is unstable but “picking” opportunities exist as long as you dare buckling up your belt and experience long term growth interspersed by punctual downsides.

As a visionary and pragmatic nation, Singapore has been gradually moving towards Latin America

  • GIC, prominent Singapore sovereign wealth fund opened an office in Brazil in June 2014 in order to benefit from Latin American potential.
  • For the first time, Singapore was officially represented at the 9th Pacific Alliance Summit, held in Mexico in June 2014.
  • Singapore is currently Mexico’s second largest investor from the Asia Pacific after Japan with total direct investments amounting to USD1,2bn between 1999 and 2012.
  • Reversely , more and more Latin American companies are using singapore as a base from which they can manage their investments in South East Asia

But..Caramba! what is all this fuss about Mexico?

Although risks and uncertainties remain, let’s summarize below some of the main positive drivers of Mexico’s potential:

  • Free market engagement is reflected in the network of 12 FTAs that Mexico has signed. This clearly grants Mexican products preferential access to 45 coutries. Apart from these bilateral agreements, Mexico’s participation in other international agreements demonstrate Mexico’s willingness to assert its trade liberalisation.
  • According to cost index Alix Partners, Mexico ranks among the most competitive manufacturing destination globally.
  • Since inception of the NAFTA agreements, the US, Mexico and Canada have formed the world’s largest free trade area, creating along the way a true integrated supply chain between these countries.
  • Thanks to Mexico’s deep integration with US, the country will definitely benefit from US economic rebound.
  • The structural and energetic reforms launched and already approved gave a serious sign of seriousness to international investors, providing the country with soaring investments and economic growth.

All in all, no one can assert about Latin America and more particularly Mexico’s steady growth. However, investments in social welfare and economical structures are definitely solid pilars that can further support strong economic growth and help for softer and sustainable landing. This has been the bet taken by Singapore and Mexico and it proved to be a winning one so far.

HONG KONG -SINGAPORE: TWO GIANTS FOR A HUGE POTENTIAL – ARE YOU READY?

 

Singapore: a well “grown-up” & attractive centre…

Historically ranked 1st, Hong Kong is home to the highest concentration of banking institutions in the world (over 71 of the largest international institutions have operations in the territory). As a bubbling and active city, Hong Kong remains a solid reference for any investor willing to develop to Asia. But things have been changing significantly over the last years. Without undermining Hong Kong’s obvious business oriented environment, Singapore has been very active and quite nimble in its way to impose itself as a safe and stable heaven for business: tax friendly policies, excellent infrastructure, low corruption, strategic location are some of the main factors why Singapore keeps attracting so many businesses.

….complimentary to Hong Kong’s historical supremacy

Are Singapore and Hong Kong battling for the 1st rank? Not at all or let’s say it is not so straightforward as Hong Kong and Singapore have common interests in preserving each other’s influence over the whole Asian region. There is no clear black and white distinction between these two giants. The two are and will definitely remain main international business centers but shall gradually gain regional competencies instead: Hong Kong as a gateway to Chinese markets and Singapore as the perfect hub for accessing South East Asia growing pool of wealth.

Emerging markets, and more particularly Asia, will definitely lead global wealth growth over the next 10 years

In fact, according to most recent data provided by PWC, global current assets under management (AUM) amount to about USD68 trillion and are expected to increase to about USD101 trillion by 2020, with the Asian Pacific region playing a leading role in such growth. Determined to benefit from this huge potential, Asian governments have been at work to provide the region with an effective and sustainable investment platform. The Hong Kong Stock Connect and the Asean Fund passport schemes are clearly the materialization of such ambition. Large Wealth Management institutions are already reorganizing their resources across Asia, strengthening their pool of employees between Hong Kong and Singapore, ready to benefit from Asia’s sophistication trend.

Are you ready?

But what about smaller institutions, be it financial or not? Do you have enough time or resource to explore your potential? Without any local presence, how do you envision your expansion to Asia? If you’re already thinking about it, without any idea of how to manage it, fill out the contact page and we’ll be more than happy to discuss business development options with you!