After years of difficulties, macroeconomic figures in Japan are showing definite improvement: GDP grew at an annualized rate of 6,7% in the first three months of the year, the YoY inflation rate in April came to 3,4% and the labor market is robust. Indeed, unemployment is now at 3,6%, various companies are hiring part-time workers with open-ended contracts and bonuses have risen by 5-10% even for small to medium-size companies.
“The new monetary policy measures promise to lead us into unexplored territory. While we certainly consider the ECB’s plans to take a new approach important, we need not assume that equities - whose current prices, among other things, only partially reflect the Italian economic scenario - will benefit from the overall macroeconomic context”.
While, in the medium term, the hike in interest rates in the United States could lead to additional volatility, in the short term, the outlook is fairly positive given the spread in interest rates between developed and emerging markets, which grew following the increases in Brazil, Turkey, South Africa, with Japan and Europe destined to remain close to zero for years and with the negative flows to emerging countries recorded over the full second half of 2013.
After a long and frenetic campaign season, the world’s largest democracy (814 million Indians are eligible to vote and 540 million voted in the elections) handed a clear victory to the Bharatiya Janata Party led by Narendra Modi, the party’s greatest success yet (the BJP won 283 seats out of 543). For the first time since 1984, the winning party took the majority of seats in Parliament and will not need to form a coalition to govern the country. The outcome exceeds even Indian fund managers’ greatest expectations. What does this victory mean?
While prices in the United States may have grown, investors’ interest is still focused there. Indeed, many opportunities remain, justifying investment levels that are still high and generally fully in place. As a result of the 2013 rallies, the market is becoming less thematic as well: accordingly, hedge funds are no longer excessively concentrated in individual sectors.
“Finance is not and should not be a leading player. Finance has an indispensable duty to support the management of capital and guide it towards productive activities, but the leading players are the wealth creators, not us. We must have certain fundamental characteristics to better do our job and the most important of these is an independent ownership structure. This leads to a long series of consequences that differentiate sound and useful finance from the distorted, pathological finance that we have often seen in the past few years”.
South America, for more attentive investors, is much more than just Brazil. For example, Mexico is faring particularly well as it enjoys a few favorable trends, including the start of a credit cycle and the slow penetration of financial services, growing salaries, energy sector reforms and the rebirth of production. Furthermore, Mexico is one of the few countries on the continent implementing fairly orthodox policies to balance the GDP growth model, taking no notice of currency depreciation and rising raw material prices.
Travelling to take advantage of the opportunities that arise through meetings with local managers, the Kairos multi-manager team recently had occasion to explore the situation in China. Most of the contacts with whom they met emphasized that the new administration’s attempts at economic reform to the detriment of growth will continue to fuel uncertainty in the short term. Weakening macroeconomic data could persist in the near future, but no one expects there to be a hard-landing, since the government seems willing to prevent it through ad hoc stimulus measures.