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Newton's oil and gas analyst, Charles Whall, explains what is driving oil prices, considers the role of market speculators, and looks at the likely future direction of prices and their impact on the global economy. | |  |
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Although financial asset inflation has been making
headlines recently, for emerging market ("EM")
nations it is the rate of food inflation that provides
the greatest cause for concern. | | |
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It would be easy to talk ourselves into recession and the most extreme of scenarios. If the papers were to be believed then we are heading for the kind of austerity that we haven't known since the dark days just after the Second World War. | | |
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With Libor rates still elevated and banks still writing off investments, are we in a "what comes first the chicken or the egg" type situation? Libor won't come down until the banks trust each other, they won't do that while the economy is slowing rapidly as they worry that the slower economy means they will have to write off more assets, and the economy will not respond to lower official rates if they can't be passed on to companies and to the consumer. | | |
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Today's announcement that the Bank of England is
to create a £50bn facility to swap bonds on the
books of UK banks for money market Treasury bills
looks like the financial equivalent of Mervyn King
walking the streets of the City of London with a cart
shouting "Bring out your dead". | | |
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As the de-leveraging story unfolds, the market is throwing up some significant opportunities for the patient investor. The credit markets have been dominated by a relatively new type of investor who bought anything with a rating and then stuffed it into structures that could be levered and sold on. | | |
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We were going to write a piece entitled "Why are we here?", reflecting on how credit got into such a mess, and on the raison d'etre of the monolines and rating agencies, so we turned to sometime existentialist, and sometime goalkeeper, Albert Camus for inspiration. | | |
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Volatility levels remained high in February. Oil prices climbed back up to the US$100/barrel level and commodity prices remained high, driven by supply side issues. That said, this month's economic data from the US spelled a recessionary outlook and slowing global growth. | | |
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The month of February saw the Fund perform in line with both its index and the peer group. Equity markets remained volatile in February, ending the month slightly down. Negative newsflow on the US financial sector dominated, with a number of US banks announcing further write-downs. | | |
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Although the Fund performed well in February as the broader global equity market managed to neither rise nor fall but reward index investors with a neat 0% return. Consistent with our expectations, economic data in the US, including those metrics relating to economic activity, sentiment, housing and the labour market look increasingly weak despite the monetary and fiscal policy responses from the relevant authorities. | | |
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Volatility remained the overriding feature of markets in February with individual stocks reacting aggressively to any negative newsflow. UK equity markets had recovered somewhat from the losses seen in January only to fall in the last two days of the month. | | |
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There is no doubting that there is a serious problem in the credit markets which could have very real and very long-term effects on the financial system. You only have to look at how corporate bond spreads are behaving to see the truth of this. | | |
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These are uncertain times for the credit markets. Banks in particular have seen their shares stabilise but their costs of borrowing in the bond market rise. Are credit markets turning into the new Weapons of Mass Destruction? | | |
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I had the strange experience of taking part in a well-known cooking competition recently (it's a hobby of mine) and one of the judges presiding over my "invention" managed to spit out both the food and the words "it's just unpleasant" after tasting it. Never a truer word has been spoken. | | |
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It was a turbulent start to the year as the credit crisis tightened its grip on world equity markets. The downgrades of monoline insurers, followed by the scandalous trading disaster that rocked Societe Generale, did nothing to help sentiment. | | |
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During the month, the Fund performed in line with both its benchmark and peer group. January was an extremely difficult and volatile month for equities - one of the worst starts to the year on record. | | |
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January was a brutal month for equity markets. General concern relating to the US-led global economic slowdown and the specific actions of one French trader at Societe Generale combined to drive equity markets lower before recovering somewhat later in the month in response to a cut in interest rates by the Federal Reserve of the US. | | |
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January witnessed one of the worst starts to the year for global equity markets for quite some time, with the UK markets down 8.7% over the month. Continued fear of defaults in the financial sector, as Monoline insurers became the focus of investors due to rating downgrades in the US, led to heavy market falls mid month.
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It was a turbulent start to the year as the credit crisis tightened its grip on world equity markets. The downgrades of monoline insurers, followed by the scandalous trading disaster that rocked Societe Generale, did nothing to help sentiment. | | |
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For the first time in three years there is value once again in the corporate bond markets. After a very difficult 2007 it looks like 2008 is shaping up to be a much more interesting year. The positive outlook for corporate bonds will be supported by the following: | | |
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UK equity markets finished 2008 by posting marginally positive gains for December however, the factors affecting money markets are far from reaching normality. | | |
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Equity markets continue to attempt to quantify the impact of the problems in the credit markets that plagued the latter part of 2007. This has led to, and will continue to lead to much volatility in markets generally but also to significant underperformance in some sectors. | | |
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During the month, the Fund outperformed both its benchmark and peer group. The Fund benefited from having a zero weighting in the worst performing sectors, such as retailers, real estate and autos, even though at present the latter two sectors have plenty of stocks that yield 15% more than the market. | | |
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It was a volatile end to the year for global equity markets. After November’s sharp correction, markets recovered slightly as renewed expectations of a Fed rate cut injected optimism into the markets. Nevertheless, sentiment soon turned sour despite better than expected employment figures, with concerns about inflation and prospects for further rate cuts. | | |
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The US is in real trouble. No, I mean real trouble. There is turmoil and panic. It’s just that nobody has noticed it yet. What I’m talking about is the ability for the US to continue to keep the attention of the world and fund itself. | | |
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Investors turned cautious in November, as the fragility of the US economy remained at the forefront of their minds after the US Federal Reserve cut its growth forecast due to credit and housing market concerns. | | |
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During the month, the Fund outperformed both its benchmark and peer group. The US Federal Reserve’s indication at the end of October that interest rate cuts may be on hold, as it tries to assess the relative risks to growth and inflation, set European markets up to regain some ground in November. | | |
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November was a very poor month for equities as the crisis in the financial sector and risk aversion among investors once again came to the fore. | | |
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November was a very poor month for global equities as investors began to fret about the underlying reasons for the Federal Reserve rate cuts in October, rather then the beneficial effects of the interest rate reduction. | | |
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Back in March we wrote a piece highlighting the similarities with the ‘Savings and Loans’ (S&L) crisis, which was then updated in August. The basic message was that a fall in US house prices would cause a protracted reduction in US economic growth momentum. | | |
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This is a picture of Dubai last week taken from my hotel room on the 31st floor. That long streak pointing up like a finger into the sky is the Burj building. The two wisps extending from the top are cranes. | | |
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Those expecting the usual Asian correction in October would have been disappointed after the further leg-up that Asian equity markets received in the month. Record highs were reached once more, fuelled by expectations of an interest rate cut from the US Federal Reserve, despite the persistent gains in oil prices. | | |
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During the month, the Fund outperformed both its benchmark and peer group. The market continued to climb a wall of worry with the market regaining old highs over the month. | | |
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October proved to be a strong month for the Fund. The powerful uptrend in equity markets has continued at the same time as news from the banking sector has deteriorated. | | |
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Those expecting the usual Asian correction in October would have been disappointed after the further leg-up that Asian equity markets received in the month. | | |
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Equities performed strongly in October, extending the gains made since mid August. On a global basis, UK equities took the lead over other major markets, driven by strong performance in the heavily weighted oil and gas sector, which was boosted by the upward trajectory of the oil price. | | |
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I have lost count of the number of times that colleagues at various investment management companies have attempted to build their careers on the destruction or collapse of the US economy. | | |
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Our view has long been that rapid growth in the developing world together with increases in per capita usage will add to the pressure on the world’s energy resources, particularly oil. | | |
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Many emerging market (EM) countries are facing a new dilemma. The policy change by the US Federal Reserve has come at an inappropriate time for them. | | |
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The current outlook for credit markets seems to hang on one central decision: is the recent financial crisis going to significantly add to the negative effects of the US housing slowdown and de-rail the global economy? | | |
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Strong gains were posted in Asian markets over the month of September following the global financial turmoil in August. Markets in the Asia Pacific region recovered to close firmly above the previous highs reached in July. | | |
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Strong gains were posted in Asian markets over the month of September following the global financial turmoil in August. Markets in the Asia Pacific region recovered to close firmly above the previous highs reached in July. | | |
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During the month, the Fund outperformed both its benchmark and peer group. The Fund performed strongly as the market continued to be more discerning and rewarded those companies that represent real value, with strong and growing cash flows. | | |
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The recovery in equity markets triggered by the cut in the US discount rate (followed by a cut in the interest rate proper) has continued with vigour, and this can be seen from the one month performance of the Fund. | | |
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The dislocation in credit markets continued in September as the uncertainty surrounding credit exposure to US sub-prime losses continued. Short-term credit markets remained closed and for those reliant on the wholesale credit market to fund their businesses, there were severe consequences. | | |
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On the basis that “Talent borrows; geniuses steal”1, I am going to declare myself a genius. We had Andy Lees from UBS round here last week talking about demographics and its effects going forward. | | |
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The past month or so has been a veritable roller coaster ride for investors. Continuing problems surrounding the defaults in the US sub-prime mortgage market have become more widespread than many commentators first expected. | | |
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After the outbreak of the subprime crisis and all the contagion and concern that has gone with it, financial markets’ focus has moved to the next key point: will the financial crisis lead to an economic crisis? | | |
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August was an extremely volatile month for equity markets across the globe. The Asia Pacific region registered
negative returns over the period. The sell-off, sparked by sub-prime mortgage fears towards the end of July was
extended well into the middle of August. | | |
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After the sell-off in July the market became a little more discerning in August as concerns over the wider potential impact of the sub-prime mortgage crisis was some what mitigated by optimism that central banks will step in to protect the real economy. | | |
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August proved to be a difficult month. The problems in the credit markets about which we wrote last month continued to put downward pressure on equities and upward pressure on volatility. | | |
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Equity market weakness continued into early August as heightened credit market uncertainty and worries about exposure to sub-prime debt dominated sentiment. The eventual performance outcome from equity markets masked some significant volatility during the month. | | |
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Recent months have seen many European markets achieve new multi-year or all time highs. Corporate earnings have comfortably exceeded the levels achieved in 2000/2001, so valuations have remained quite reasonable. | | |
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Back in March we wrote a piece highlighting the similarities with the savings and loans crisis of the late 80s and early 90s. Since March, the gradual unwinding of the financial engineering has continued, and now it looks like it is about to affect the broader economy. | | |
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The Indian economist and philosopher Amartya Kumar Sen, in his analysis of the rice famine in Bengal in 1943, concluded that the catastrophic food shortage was not because of a literal absence of rice, but was down to the human propensity to hoard in the face of a perceived future shortage. | | |
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If you have it in your heart, spare a thought for the poor old Japanese carry trader; that nervous and exotic creature who for a long time has been borrowing Japanese yen, investing it in any old thing, and then making lots of money out of it. | | |
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Despite the sell-off in global equities towards the end of the month, Asian markets finished in positive territory for July. The best performing markets were the domestic Chinese markets by far, however, Korea, Thailand and Indonesia also performed strongly. | | |
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Over the month, the Fund continued to struggle against a backdrop of low yielding industrials, and technology stocks outperforming the market. | | |
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The key market event of the month (and continuing into August) has been the dramatic fall in the credit markets. Global equities, which had been up by around 4% mid-month, dropped away by 6% during the second half of the month. | | |
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Equity markets suffered a significant pull back towards the end of July, as concerns about the credit market finally affected investor confidence in the equity markets. | | |
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Despite the sell-off in global equities towards the end of the month, Asian markets finished in positive territory for July. The best performing markets were the domestic Chinese markets by far, however, Korea, Thailand and Indonesia also performed strongly. | | |
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In the midst of a serious bout of indigestion in the credit markets, the private equity masters of the universe have announced another mega-deal. | | |
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Having negotiated the change in short rate expectations over the last six weeks, the credit markets are now re-focussed on the fall-out from the US sub-prime meltdown. | | |
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Now that we have had some stability in the global bond markets, it is right to ask if there is any value there for investors. The answer to that question really depends upon your agenda. | | |
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Two of our graduate trainees were recently given a project of looking at the unusual strength of the Canadian dollar. What follows are their words and work. | | |
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It's been difficult to put pen to paper over the past couple of weeks because just at the moment, when the markets seems to be settling down, another leg up in yields occurs (fall in prices) which makes piercing perspectives instantaneously redundant. | | |
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Over the period, Asia Pacific markets remained buoyant, with most reaching record highs. This was initially driven by firm economic data from key regions such as the US and Europe at the beginning of the month. | | |
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Equity markets displayed some volatility in June as the effects of the sharp movement in interest rate expectations were digested by the equity market. | | |
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Global equities were down in June, with Germany and Japan's strength countered by US weakness. The appetite for emerging market equities continued to be strong, with the MSCI Emerging Markets Index delivering a +4.3% return, this compares with a -1.1% return for MSCI developed markets. | | |
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Markets endured a volatile time in June, ending the month in negative territory. We continued to see merger and acquisition activity, but the potential for interest rates to continue rising caused nervousness amongst investors. | | |
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Over the period, Asia Pacific markets remained buoyant, with most reaching record highs. This was initially driven by firm economic data from key regions such as the US and Europe at the beginning of the month. | | |
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It is typical of the credit market to be looking the wrong way when something happens. Many investors in credit this year (and perhaps for the last three years), have been reluctant bulls invested in increasingly risky assets but with a careful eye on the state of the US economy. | | |
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European markets continued their upward trend in May, driven by merger and acquisition activity, high levels of liquidity and strong corporate earnings being reported for the first quarter of 2007. | | |
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May was yet another strong month for global equity markets (the familiarity of that phrase alone begins to make investors nervous) with the FTSE World Index posting a 4.3% rise (in sterling terms). | | |
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Economic data in the UK continued to be robust with GDP growing at an annualised rate of 2.8% in the first quarter. Inflation moderated somewhat from the elevated levels seen in April, however CPI remained at 2.8% and RPI at 4.5% both high enough to cause continuing concern at the Bank of England. | | |
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Asian equity markets remained buoyant over May, despite a correction in the domestic Chinese stock markets after several tightening policies were announced by the PBOC, and after the stamp duty on share transactions was raised from +0.1% to +0.3% as an effort to cool the booming domestic stock market. | | |
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Asian equity markets remained buoyant over May, despite a correction in the domestic Chinese stock markets after several tightening policies were announced by the PBOC, and after the stamp duty on share transactions was raised from +0.1% to +0.3% as an effort to cool the booming domestic stock market. | | |
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All that I have really learned in my fund management career
is that an Englishman’s brain is almost exclusively
preoccupied with:
1: The value of his house
2: How much holiday money he will have this year. | | |
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Asia is increasingly offering investors an attractive income stream in the form of dividends. With economic growth powering ahead in Asia, dividend yield growth is far outstripping that of developed markets. | | |
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One of our cherished notions here at Newton over the past six years has been that there will always be a buyer of last resort to bail out the bond markets when the economics go against them for a while. | | |
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In April, financial markets continued to build on March’s positive performance. Despite their positive performance, from a UK perspective overseas markets were held back to some extent by US dollar weakness, which broke through the US$2 level relative to the pound. | | |
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European markets were very strong over the month, with merger and acquisition activity yet again proving to be a big driver. In particular, speculation surrounded the banking sector with Barclays bidding for ABN Amro. | | |
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April was another strong month for global equity markets with the FTSE World Index posting a 2.5% rise (in sterling terms). This was the strongest month since January 2006. Amongst the major equity markets, Germany was one of the strongest over the month with the DAX 30 up some 7.1%. | | |
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Despite periods of volatility, the Asia ex Japan region returned around +5% in April alone. The best performing
markets were the domestic Chinese markets, Indonesia, Korea, India and Malaysia. The worst performers were
Taiwan and the Philippines. | | |
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Over the first quarter of 2007, the Fund generated a return of +3.5%*, outperforming the average return of +2.8% for the IMA Global Growth sector and the +2.3% generated by the FTSE World Index, all in sterling terms. | | |
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The independence of South America came after the victory of an emerging continent against a dominant foreign force (Spain), and the hard work of the likes of independence leader Simon Bolivar (El Libertador). | | |
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The markets aren’t actually like a roller coaster, it’s just if you let your emotions get the better of you (which is fatal), they can just seem exactly like it. | | |
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There have been some pretty significant currency and interest rate movements in the past year. To be honest, it’s slightly difficult keeping track of the combinations; higher currencies with stable interest rates, higher currencies with lower interest rates, stable currencies with falling currencies etc. | | |
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The last 12 months have been challenging for the Newton International Growth Fund, and this was reflected in its underperformance against both its index and peer group. | | |
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A lot has been written about the credit markets, and specifically bank lending. The relationship between the US, the vast reserves that control the bond markets (and the US dollar), and the budget deficit in recent years have also been in the headlines
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In the four years since global markets first began a secular bull run (barring the | | | | |
