China’s bright prospects outnumber the dark spots on various fronts as it takes a more constructive stance to the market’s cyclical area. This is, in a nutshell, the impression of certain Kairos managers after a series of meetings with about thirty local Chinese managers in recent weeks.
The quantitative easing policies currently starring in the strategies of major central banks worldwide have been having, and will continue to have, a determinant impact on financial market performance. Massive liquidity, combined with a situation of substantial financial repression, is giving rise to trends and prospects that are very much on Kairos managers’ radar and which they are carefully considering as they work out the company’s investment fund management strategies.
"We are relatively optimistic on the prospects of American companies and on the overall economic trend in general; the present economic phase is one of growth, but the growth rate is not so fast as to raise strong concerns over interest rates, at least not in the short term." These were the words of Michele Gesualdi of the Kairos management team while discussing the US economic and market outlook.
“We expect to see a lateral movement in terms of the compression of spreads and a marginal drop in rates over the next few months on international financial markets. This is nothing revolutionary on a market that is, all things considered, fairly stable, the result of dynamics that have already played a large part over the past three years”. This is how Kairos manager and bond specialist Rocco Bove sees the current scenario.
Upon his return from a trip to Asia where he met with several local operators, Michele Gesualdi, manager of the Kairos multi-manager team, puts the situation on the continent’s two main economies into focus. He reports, “First, when we talk about China, we must say that there is a need to let go of a dogmatic approach and market indices. Local managers continue to be very pragmatic and are concentrating on the growth areas connected to the new economy.
Livio Dalle, Kairos Partners Senior Portfolio Manager, reports on the performance of the personalized wealth management service showing excellent results in recent months. “We are in line with the returns targets we had set at the start of 2014,” begins Dalle. “These results were achieved despite a difficult June due to the poor performance of markets, characterized by many correlation and sector inefficiencies.
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?