Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

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Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Archive | November, 2016

Economic Outlook

Posted on 31 January 2016 by


Mark Carney, governor of the Bank of England

This week’s highlights include the Bank of England’s rate decision, coinciding with the release of the year’s first inflation report on Thursday. Then Friday’s release of US non-farm payrolls will provide an important signal of US economic performance through January.

Also out over the week are a number of activity indicators, including purchasing managers’ indices for China, the UK and, from the US, their equivalents from the Institute of Supply Management.

    Towards the end of January Mark Carney, BoE governor, laid out his personal views on the path of UK interest rates in light of the Fed’s decision to raise rates in December.

    Mr Carney cited the UK’s greater exposure (relative to the US) to the current weakness in the global economy as reason enough to forestall the tightening cycle for now. Assuming that most committee members share Mr Carney’s view, interest rates are almost certain to stay at 0.5 per cent on Thursday.

    The market is speculating that the BoE will keep rates on hold for the entirety of 2016. Howard Archer of IHS says: “The analysis and forecasts contained in the Quarterly Inflation Report, as well as the February MPC minutes, should offer further clues as to whether the Bank of England really is likely to hold off from an interest rate hike until 2017”. His current view is a 0.25 basis point increase in November being the only change this year. Commenting on the forecasts themselves, Mr Archer believes both inflation and growth forecasts will be cut for the near term.

    Friday’s US non-farm payroll release for January is expected to show some softening in US employment growth; payrolls gained 292,000 in December the second highest gain of 2015.

    Payrolls in January are expected to come in at 200,000, the lowest since September last year and the unemployment rate should stay at 5 per cent. The data, while important, are not likely to influence any interest rate decision with the next rate increase expected around the middle of the year.

    US manufacturing activity for January, as measured by the ISM is available on Monday. As manufacturing has been contracting in the US since November, the December ISM reading 48.2, analysts think the contraction will slow in January to 48.5

    US service sector activity in January is thought to have remained unchanged from last month. The ISM non-manufacturing index hit 55.3 in December, well within expansionary territory.

    Corporate Diary

    Posted on 31 January 2016 by

    An oil tanker passes near DCOR LLC's Edith offshore oil and gas platform in the Beta Field off the coast of Long Beach, California, U.S., on Tuesday, May 18, 2010. Senators from California, Oregon and Washington introduced legislation last week to ban offshore oil drilling off the West Coast amid mounting concern about the BP Deepwater Horizon rig spill spreading in the Gulf of Mexico. Photographer: Tim Rue/Bloomberg©Bloomberg

    Diary commentary from FT reporters; data and company announcements, unless otherwise stated, from Thomson Reuters. Company announcements are of information publicly available before last week.

    Monday – February 1

    Dialling up numbers

    will reveal more of plans to integrate EE, the mobile operator acquired for £12.5bn from Deutsche Telekom and Orange, at its third-quarter results.

      The telecom company is expected to provide additional details about its plans for EE, changes to senior management, as well as further information about how staff will be brought into the group.

      Analysts expect BT to post good results even before EE’s acquisition, although BT will be quizzed on the outcome of a number of regulatory issues such as its expectations of a sector review by Ofcom next month.

      Revenues for BT are expected to be flat compared with same quarter in the year before, but with a slight increase in earnings before interest, tax, depreciation and amortisation (ebitda). Free cash flow is forecast to drop 9 per cent to £827m owing to higher tax payments.

      Earnings at BT’s consumer business are expected to rise by about 2 per cent as customers continue to be attracted by its TV channels that show exclusive Champions and Europa league games, with a 4 per cent growth predicted at its Openreach arm, which controls the broadband network. Daniel Thomas


      BT Group Q3 7.80p (7.90p)

      Tuesday – February 2

      Earnings to slide at oil majors

      Investors will see the full impact of collapsing crude prices on oil majors’ results this week, with earnings expected to reflect the hit to revenues.

      Internationally traded Brent crude prices were 43 per cent lower during the fourth quarter of 2015 from a year ago, and have continued to fall since, to 12-year lows of less than $30 a barrel.

      For BP, the first of the European majors to report, Oswald Clint at Bernstein Research is forecasting a 66 per cent annual fall in earnings for the three-month period to $760m, with an increase in production — excluding Rosneft — of about 3 per cent more than offset by the effects of lower prices.

      The industry is expected to unveil deeper targets for cost-cutting in the wake of the new year plunge in crude, with few, if any, large projects likely to be approved in coming months. Shareholders will be looking for reassurance on dividend payouts.

      Société Générale’s Irene Himona believes dividends will remain flat for the big majors, arguing that their balance sheets “are strong enough to absorb the hard times in 2015-16”.

      But, if Brent crude remains at $30 a year from now, it would be “irresponsible of company boards not to address the issue of adjusting distributions”.

      Royal Dutch Shell, whose planned takeover of BG Group
      was approved by both companies’ shareholders last week and will become effective on February 15, is not expected to spring major surprises, having already said in a trading statement it expects profits to fall at least 40 per cent year-on-year.

      The group’s earnings, on a current cost of supplies basis, excluding exceptionals, will fall to between $1.6bn and $1.9bn. No material impairments are foreseen and executives will reiterate plans for the enlarged company to curtail capital spending sharply, shed thousands of jobs and dispose of $30bn in assets.

      BG will also report and, like Shell, updated the market in January. Its output is ahead of expectations, reflecting strong production increases from its liqufied natural gas operations in Australia and deepwater oilfields in Brazil. Full-year earnings are expected to be around $1.7bn, ahead of consensus, with BG taking impairments on North Sea and Tunisian assets. Christopher Adams


      BP Q4 $0.04 ($0.12)

      Dow Chemical Q4 $0.70 ($0.85)

      Pfizer Q4 $0.52 ($0.54)

      Wednesday – February 3

      Breathing life into GSK

      will be aiming to supply further evidence of a turnround when it announces fourth-quarter results.

      The company’s last set of numbers in October beat market expectations and Sir Andrew Witty, chief executive, needs to keep the momentum going if he is to win time from investors — and GSK’s board — to complete the job.

      All eyes will be on the struggling respiratory business, which Sir Andrew has promised to return to growth this year. This is crucial if GSK is to meet his wider goal to increase earnings by a double-digit percentage rate in 2016.

      However, this growth would be from a much diminished base after two years of falling profits — a trend analysts expect to have continued in the last three months of 2015 with earnings per share projected to be down 14 per cent from last year at 18.34p. Sales are forecast to be almost flat at £6.1bn.

      Growth in HIV drugs is expected to be a bright spot and if this is combined with stabilisation in the respiratory business and progress in delivering promised cost savings, investors may become more willing to believe in better times ahead. Andrew Ward

      GlaxoSmithKline Q4 19.01p (21.50p)

      Thursday – February 4

      Thiam’s progress examined

      Credit Suisse sets out how it has fared in a rough global environment for banks. In October, Tidjane Thiam, who had joined as chief executive in July, launched a capital raising plan and strategic overhaul, which will focus the Swiss bank around its wealth management operations, a push into Asia and expand domestic operations in its home market of Switzerland.

      After surging on his appointment, Credit Suisse’s shares have since fallen sharply, partly on investors’ disappointment that Mr Thiam has not gone further in scaling back Credit Suisse’s investment bank operations.

      The 2015 financial results are unlikely to show many benefits of the overhaul feeding through so far; insiders see the restructuring as a multiyear turnround. But the figures will show how Credit Suisse has weathered turbulent market conditions and the relative strength of its different business divisions.

      Pre-tax profits are expected to have fallen by 36 per cent to SFr568m in the fourth quarter of 2015 compared with the same period a year earlier, according to the consensus of forecasts compiled by Bloomberg. Pre-tax profits for the full year are expected to have risen to SFr4.16bn from SFr3.63bn in 2014.

      Mr Thiam hopes his strategy will reduce the volatility of the bank’s earnings. However, he warned at January’s world economic summit in Davos that changing the business model was a “two or three-year journey”.

      He told Bloomberg: “So we’re still being hit by volatility and that worries the market.” Credit Suisse has arguably been more exposed than some of its rivals because of its relative strength in difficult high-yield bond issuance and leveraged finance markets. Ralph Atkins

      Drive into Iran

      European car sales were strong in the last three months of 2015, while China also recovered towards the end of the year. When Daimler
      reports its full- year numbers, investors will be hoping for an indication of how these two key markets are likely to fare in 2016.

      Analysts suspect that the European Central Bank’s quantitative easing programme will help keep credit conditions easy enough for Europeans to keep buying cars, but the outlook for China is more uncertain. A third of Daimler’s sales were in Europe last year, while around 10 per cent were in China in 2014.

      Investors may also receive more information about Daimler’s plans for Iran. The German group traded in Iran for more than 60 years before leaving in 2010. And it was one of the first companies to say that it would return to the country after economic sanctions were lifted earlier, signing letters of intent with Iran Khodro Diesel to sell commercial vehicles in the republic.

      For 2014, the company managed net profits of €7.3bn from revenues of €129.9bn. James Shotter


      Credit Suisse Q4 $0.403 ($0.52)

      Daimler Q4 $0.747 ($1.67)

      Royal Dutch Shell Q4 $0.403 ($0.52)

      Friday – February 5


      BG Group Q4 $0.05 ($0.27)

      Results forecasts, from Thomson Reuters, are for fully diluted, post-tax EPS in local currency for the stated fiscal period. The comparable period of the previous year is bracketed. Non-UK reporting periods are broken by quarter: Q1, Q2, Q3, Q4. UK periods are designated: Q1, H1 (first half), Q3 and FY (full year). Thomson Reuters calculates mean earnings estimates based on a majority policy where the accounting basis used for each company estimate is that used by the majority of contributing analysts

      Endowments face reality of low returns

      Posted on 31 January 2016 by

      The Baker Library of the Harvard Business School stands on Harvard University campus in Cambridge, Massachusetts, U.S., on Tuesday, June 30, 2015. Harvard University, established in 1636, is the United States' oldest institution of higher learning. Photographer: Victor J. Blue/Bloomberg©Bloomberg

      The median university endowment has $115m in assets, versus the $36bn of a Harvard or the $26bn of a Yale

      There are plenty of people with their fingers and toes tightly crossed, hoping for a resumption in the long equity market bull run, but few are willing it as furiously as the investment managers of America’s university endowments.

      Without it soon, many US colleges and universities will have to scrap their ambitious investment goals and make hard choices about whether to scale back their spending. This is the reality of an era of low returns: the risk of cuts to financial aid for students, teaching budgets and campus building projects.

        Not even the “endowment model” of diverse portfolios stuffed with alternative assets, pioneered at Yale and copied across the university sector and beyond, can deliver what is needed, it seems.

        The latest snapshot of investment returns, from the annual study by the National Association of College and University Business Officers (Nacubo) and Commonfund released last week, the asset manager, painted a sorry picture: the average endowment returned just 2.4 per cent in the most recent fiscal year.

        If your response to that is, “hey, that’s not so bad when the US stock market returned 1.4 per cent including dividends” in 2015, then be aware that endowments tend not to go by the calendar year and Nacubo is counting annual returns only up to June 30. That is before the China meltdown and fears for global growth knocked still more off the equity markets. Endowments’ current fiscal year could look even more gruesome.

        The 10-year return of the average endowment has fallen to 6.3 per cent, far below the typical target of 7.5 per cent they say they need to maintain purchasing power after spending, inflation and investment management costs.

        This falling short is no aberration. The trailing 10-year return peaked at 7.1 per cent in 2013 and 2014, having clawed its way to that level as the world economy recovered from the financial crisis. The last time the trailing 10-year return was above 7.5 per cent was back in 2007 at the peak of the last bull market. For the average endowment to get above this, markets will not only have to stage a rebound from their current malaise but will also have to avoid a recession until after the devastation wreaked by the crisis in 2008 falls out of the 10-year number.

        Chart - University endowment returns

        “Fiscal year 2015’s lower average 10-year return is a great concern,” said John Walda, chief executive of Nacubo. “On average, institutions derive nearly 10 per cent of their operating funds from endowments. Lower returns may make it even tougher for colleges and universities to adequately fund financial aid, research and other programmes that are vital to institutions’ missions.”

        The difficulties are mounting quickest at the universities least able to deal with them, those with smaller endowments. For Ivy League schools and others with funds that have $1bn or more in assets, 10-year returns averaged 7.2 per cent as of last June, while funds of $100m or less averaged less than 6 per cent. Smaller schools have less ability to diversify into expensive and hard-to-access private equity and venture capital funds, which performed better than public equities, at least recently. The $1bn-plus set devote 52 per cent of their assets to alternative strategies, such as hedge funds, private equity and property — more than twice the amount of the smallest endowments.

        These poorer universities are also less likely to be able to negotiate fee breaks from asset managers.

        If investment returns are not going to allow endowments to maintain their purchasing power, the only alternative to budget cuts is a new emphasis on fundraising. On that front, there was some encouraging news last week. The Council for Aid to Education found that US colleges and universities attracted a record $40.3bn in charitable donations in calendar year 2015, driven by a surge in individuals donating, either directly or through family foundations.

        The trouble is that those donations flowed mainly to the largest and already richest institutions. While this money is going to fund cutting-edge research and pay for youngsters from all backgrounds to attend these elite schools, it further squeezes the broader swath of US higher education.

        Netting costs and spending from fundraising income and investment returns, Nacubo found that the median university endowment — which has $115m in assets, versus the $36bn of a Harvard or the $26bn of a Yale — shrank 0.7 per cent in the year to June 2015. Away from the lavish ceremonies celebrating record philanthropic gifts to Ivy League schools, this is the reality for most US endowments, and it is why their investment staff, their faculty and their students will all be hoping for another equity bull run.

        Stephen Foley is the FT’s US investment correspondent

        JPMorgan and Masters in blockchain trial

        Posted on 31 January 2016 by

        Blythe Masters, chief executive officer of Digital Asset Holdings LLC, gestures as she speaks at the Bank of England Open Forum at the Guildhall in London©Bloomberg

        Blythe Masters

        JPMorgan Chase has begun a trial project using blockchain as it seeks to lead banking-industry efforts to cut the cost and hassle of trading.

        The move by JPMorgan, the biggest US bank by assets, is among the clearest statements yet of banks’ determination to explore the potential of blockchain, the computer network on which bitcoin sits.

          The bank is collaborating with Digital Asset Holdings, the New York-based start-up run by Blythe Masters, the bank’s former head of commodities. The pair are looking at several applications for the technology, including addressing liquidity mismatches in JPMorgan’s loan funds, which normally let investors take out their money at short notice — even though the underlying assets can require much more time to sell.

          “To sell a loan is a very cumbersome, time-consuming process; settlement can take weeks,” said Daniel Pinto, head of JPMorgan’s investment bank. Exploring alternatives through blockchain “makes all the sense in the world; it’s easier and faster operationally, and you get fewer mistakes”.

          Blockchain has caught the imagination of the financial services industry within the past year, with a host of companies vowing to find ways to use it to reshape many of their daily operations, from upgrading old back-office systems to automatic execution of contracts.

          The technology is essentially a digital public database of events that is continuously maintained and verified in “blocks” of records and shared among various parties. This means payment ledgers can be instantly updated in multiple locations without a single, centralised authority.

          JPMorgan appears to be taking a lead in encouraging broader, industry-wide adoption of blockchain technology — in a similar way to how Goldman Sachs has led a consortium developing Symphony, a communications tool.

          Officials at JPMorgan point to the bank’s involvement with the Linux Foundation’s Open Ledger Project, which said last month that it was aiming to create standards that the entire financial services industry could adopt.

          Mr Pinto said loans were a good place to start trialing blockchain technology, because “the settlement process is complex with lots of manual intervention and multiple parties”.

          A couple of months into the trial, the 52-year-old executive — among the leading candidates to succeed chief executive Jamie Dimon should he step down in the near-term — is pleased with progress.

          “Blockchain will be big in everything related to settlement, and not just loans. While it is still early days, the technology looks very good,” he said.

          Blythe Masters’ blockchain start-up raises $50m and inks ASX deal

          Blythe Masters, chief executive officer of Digital Asset Holdings LLC, gestures as she speaks at the Bank of England Open Forum at the Guildhall in London

          Digital Asset Holdings to upgrade Australian exchange’s systems

          Ms Masters noted that efforts to improve the speed of settlement led to “reduced capital requirements, lower operational costs and an improved client experience”. Previously, she had described reducing the costs of financial transactions as “one of the greatest challenges of our time”.

          Last week Digital Asset Holdings announced it had raised more than $50m from a group of 13 financial companies including JPMorgan, Citigroup, Deutsche Börse and the Depository Trust & Clearing Corporation.

          Goldman Sachs is now in discussions to join that latest round of funding, according to people familiar with the situation.

          Autonomous Research, a New York-based financial services boutique, estimates that the global investment banks now spend about $50bn a year on post-trade processes, a figure that could be cut by about one-third with greater use of blockchain-type technologies.

          “There has been endless innovation in the pre-trade world. But in the post-trade world, your trades are still going to a reconciliation clerk and they’re faxing it back and forth and three days later,” said Brian Foran, a partner at Autonomous.

          British regulators help Iranian banks

          Posted on 31 January 2016 by

          FILE - In this Saturday, April 4, 2015 file photo, Iranians use ATM machines of Bank Melli Iran in downtown Tehran, Iran. Iran said Tuesday, Jan. 19, 2016 it successfully transferred some of the billions of dollars' worth of frozen overseas assets following the implementation of the nuclear deal with world powers. But ordinary Iranians are still waiting to see how their daily lives will improve and how fast Iranian companies will gain access to financial markets worldwide. Posters at right, placed by a vendor, show Iranian singers Daryoush, top and bottom left, Shadmehr Aghili bottom right, and British film director Alfred Hitchcock at center. (AP Photo/Vahid Salemi, File)©AP

          Melli Bank is one of three UK-based Iranian lenders to have its licence reactivated by the Bank of England

          Top UK regulators are trying to help three Iranian-owned banks reintegrate into the financial system after years of international sanctions — by deploying a unit designed to aid start-ups.

          The UK-based Iranian lenders would be among the first beneficiaries of the just-launched unit, which allows participating banks access to services such as a helpline and case officers.

            The Bank of England officially reactivated the licences of the three banks — Persia International Bank, Melli Bank and Bank Sepah International — two weeks ago. The move was part of the international deal reining in Tehran’s nuclear programme in return for sanctions relief.

            But the three banks — which together have about €1bn of combined assets — remain unable to carry out most financial transactions according to people familiar with the matter. This is because they have yet to catch up with several years of rules introduced since they were hit by sanctions.

            “They cannot start trading straight away, not because there are any more formal approvals, but because they would not meet the various thresholds and fundamental rules on areas like risk-management, capital and governance,” one person familiar with the situation said.

            The problems facing the banks highlight the difficulty of reconnecting Iranian-owned entities with the global financial system even after sanctions have been lifted.

            The new bank start-up unit was launched this year by the Bank of England’s Prudential Regulation Authority and its sister regulator the Financial Conduct Authority.

            The unit is designed to encourage start-up banks to gain regulatory approval and start operations by allocating specific resources to them. The Iranian banks were judged to need similar levels of assistance.

            It is not clear how long it will take the three banks to update their systems and controls to meet current requirements. But regulators had already been working with them for months to prepare for sanctions being lifted and it could take several more before they are operational.

            In total Iran expects to regain access to about $32bn of more than $100bn of financial assets frozen across the world, as sanctions unwind.

            Iran’s ‘outdated’ banks hamper efforts to rejoin global economy

            Stock market employees work at Tehran's Stock Exchange in Tehran, Iran, January 17, 2016. REUTERS/Raheb Homavandi/TIMA/FilesATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. FOR EDITORIAL USE ONLY.

            Sanctions concealed weak regulation and inadequate capitalisation

            Bank Sepah, which has €369m of assets mostly in cash deposits and bank loans, had been under sanctions since 2007. Melli Bank, which was hit by sanctions in 2008, has €382m of assets, most of it with financial institutions and central banks.

            Persia International Bank, which has €221m of assets mostly in sovereign bonds and central bank deposits, is owned by Bank Mellat and Bank Tejarat in Iran. It specialises in trade finance for Iranian clients and was subjected to sanctions in 2010.

            Banks based in Iran face similar challenges to improve their systems, controls and governance, according to a report by Mazars, an accountancy firm.

            The report found that years of sanctions had “left deep scars in the banking sector” and called for Tehran to revise capital and solvency requirements.

            “The Iranian banking sector has not yet adopted Basel I or II, let alone Basel III,” Mazars added, in a reference to the global regulations for capital adequacy.

            Four out of nine Iranian banks had not yet published annual reports for the year to March 2015, while only five out of nine Iranian banks provided an audit report as part of their annual financial statements.

            Vanguard, Fidelity face proxy access row

            Posted on 31 January 2016 by

            BlackRock Inc. Headquarters Ahead of Earnings...The BlackRock Inc. logo is displayed at the company's offices in New York, U.S., on Monday, Oct. 14, 2013. BlackRock Inc. is expected to announce earnings tomorrow. Photographer: Craig Warga/Bloomberg©Bloomberg

            BlackRock supported proxy access proposals 93% of the time in 2015

            Vanguard, JPMorgan and Fidelity Investments have repeatedly rejected attempts to give shareholders the right to propose board members at the companies they are invested in.

            Their stance has angered other large investors who believe shareholders should have the right to put forward board directors to improve how companies are run.

              JPMorgan and Fidelity, both ranked among the world’s 10 largest asset managers, rejected every shareholder proposal to gain this right, known as proxy access, last year.

              Vanguard, the world’s second-largest fund house by assets, supported just under a fifth of such proposals, while Northern Trust Asset Management voted in favour of just 2 per cent, according to the Proxy Access Scorecard, which lists how asset managers vote at annual meetings in the US.

              Laura Campos, director of shareholder activities at the Nathan Cummings Foundation, a $450m US endowment fund, said: “We are concerned that these [companies] do not vote in support of proxy access proposals.

              “There is a growing consensus among institutional investors that proxy access is a key driver of enhanced shareholder value. Board accountability has important implications for long-term shareholder value as well as a host of environmental, social and governance issues.”

              Shareholders’ inability to nominate board directors came into the spotlight last year after the New York City comptroller and the New York City pension funds submitted proxy access proposals at 75 companies across the US.

              The schemes called for investors who held at least 3 per cent of a company’s shares for at least three years to be able to suggest a director.

              Most corporate management teams opposed the plans, but the proposals gained the support of at least half of shareholders in 41 cases, according to Proxy Insight, which collects data on how investors vote at company meetings.

              More than 100 of the largest companies in the US have since introduced measures to allow shareholders to nominate board members, including technology giants Apple and Microsoft.

              A spokesperson for BlackRock, which supported proxy access proposals 93 per cent of the time in 2015, said: “Boards should be focused on long-term shareholders’ interests, and proxy access provides long-term and substantial shareholders [with] a tool to address occasional failures in this regard.”

              T Rowe Price, BNY Mellon Investment Management and Legal and General all voted in favour of proxy access proposals at least 90 per cent of the time.

              Nick Dawson, managing director of Proxy Insight, said: “Rarely does a governance issue cause such differences of opinion as proxy access has.”

              Fidelity said it “will generally vote against management and shareholder proposals to adopt proxy access”, but did not say why it takes this approach.

              JPMorgan said it does support proxy access, but believes it should only apply to shareholders who hold at least 5 per cent of a company’s shares, while Northern Trust said it votes on this matter on a case-by-case basis.

              A spokesperson for Vanguard said: “We believe that long-term investors may benefit from proxy access and we have been supportive of specific proposals where we thought it was appropriate.”

              Movers & shakers: February 1

              Posted on 31 January 2016 by

              • Guillermo Ossés has joined Man Group, the world’s largest publicly traded hedge fund, with $76.8bn in assets under management, as head of emerging market debt strategies. Mr Ossés, who will be based in New York, joins from HSBC.

              • Susan Nash, a veteran US regulator, is moving to the
              Financial Stability Board, the body that co-ordinates financial regulators worldwide.

                Ms Nash served 26 years at the Securities and Exchange Commission, most recently as associate director in the division of investment management, where she was an architect of US disclosure policy for mutual funds and other investment companies.

                The European Securities and Markets Authority, Europe’s top markets regulator, has appointed Anneli Tuominen as vice-chairwoman. Ms Tuominen, the director-general of Finland’s financial regulator, replaces Carlos Tavares, former chairman of the Portuguese Securities Market Commission, who has completed his term in office.

                • Joseph Schull has been promoted to the role of chairman of Warburg Pincus International. Daniel Zilberman has succeeded Mr Schull as head of the European business of the global private equity manager.

                • Unigestion, the $17.7bn Swiss asset manager, has hired Stefanie Mollin-Elliott as an equities analyst covering global small and mid-cap stocks. Ms Mollin-Elliott, who will be based in London, joins from Allianz Global Investors.

                • Morgan Stanley has hired Naureen Hassan as chief digital officer for wealth management, fuelling talk that the bank is preparing to launch a robo-advisory service. Ms Hassan joins from Charles Schwab, where she led the development of its robo-advisory programme.

                • Tom Ding has replaced Nathan Lin as chief executive of GF International Investment Management, the Hong Kong subsidiary of Guangzhou-based GF Fund Management. Mr Ding will also retain his current role as chief investment officer, while Mr Lin has joined Jiuheng Financial Services, an affiliate of the Chinese asset manager JD Capital, as its chief executive.

                The Private Equity Growth Capital Council, the US trade body representing private equity managers, has hired the political veteran Mike Sommers as its new chief executive. Mr Sommers previously served as chief of staff to John Boehner, a former speaker of the US House of Representatives. He replaces Steve Judge who stepped down in August.

                • Acadian, the $66bn Boston-based quantitative investment manager, has hired Ilya Figelman as a senior researcher. Mr Figelman previously worked for AllianceBernstein.

                We are the QE generation

                Posted on 31 January 2016 by

                FTFM cartoon

                Will quantitative easing ever properly end? To put it another way, will quantitative tightening ever start?

                As some investors worry that the US Federal Reserve may have made a big policy mistake by raising rates in December, others warn that unconventional loosening of monetary policy is in effect with us for life.

                  It is almost like having an illness that is not life threatening but can never be cured. It will not kill us, but we will have to live with it until we die. We are the QE generation — and it is quite a burden.

                  In the US and UK, the authorities have stopped buying assets but they still hold them, and some investors say they are unlikely to sell in a move to bring about quantitative tightening, or QT, because of the problems it might create for markets. This means QE will only properly end when all the bonds purchased mature. This is July 2068 in the case of the UK, when most of the current batch of market participants have retired or moved to the great trading room in the sky.

                  For fund managers, it means government bonds may have a more lasting appeal as yields remain lower for longer because of an underlying demand for safe assets in a world where the debt overhang holds growth back for years.

                  Some investors, particularly those who run money in the emerging markets, are even starting to question the Fed’s decision to stop their asset-buying programme.

                  “It is entirely possible that the Fed has miscalculated the impact on markets of taking away the punchbowl of quantitative easing,” says James Barrineau, an emerging market debt fund manager at Schroders, the fund house.

                  He adds more ominously: “If the Fed is bent on a hiking cycle predicated on indicators of full employment while ignoring the feedback from the markets, it is hard to see the emerging markets improving.”

                  Others warn that central bankers may be close to policy paralysis, where they are powerless to contain the feverish animal spirits in the markets, whatever they do.

                  “Quantitative easing may have helped avert a global recession following the financial crisis, but it has not succeeded in boosting inflation expectations,” says Steven Major, global head of fixed income research at HSBC, the bank. US five-year forward rates, a measure of inflation expectations, have dropped to their lowest level since March 2009, when markets feared the financial world was about to implode and lead to a full-blown depression.

                  In a research note entitled “Quantitative Exhaustion”, Mr Major warned that the world could be threatened by a deflationary spiral as policy actions fail to raise aggregate demand and debt burdens continue to rise.

                  The problems of high debt were also referred to by Gertjan Vlieghe, an external member of the Bank of England’s Monetary Policy Committee, in a speech last month.

                  “A high-debt economy faces headwinds and needs lower interest rates. A high-debt economy with adverse demographic trends needs even lower interest rates,” he said.

                  In the UK, QT is definitely off the agenda.

                  One manager of government debt says: “The governments will have to let the bonds they have bought run off, which means holding some of them for years until they mature.”

                  He adds: “The problem is that no one thought about the exit strategy for QE. And the more bonds you buy, the more difficult it is to exit.”

                  This is something Mario Draghi, president of the European Central Bank, should consider as he prepares to expand QE in the eurozone. It may lift markets — but the more QE he does, the more potential problems he is storing up for the future and the debt-burdened QE generation.

                  David Oakley is the FT’s corporate affairs correspondent

                  China tightens money market regulation

                  Posted on 31 January 2016 by

                  The website for Yu'E Bao, an online financial product offered through Alibaba Group Holding Ltd.'s online payment affiliate Co., is displayed on an Apple Inc. iPad in an arranged photograph in Hong Kong, China, on Tuesday, April 22, 2014. As Internet financial products gather momentum, China’s state-controlled banks are losing share of the nation’s 44.8 trillion yuan in household deposits, which for decades have helped keep their profits high as rates fixed by the government created a 3 percent spread between what they collect on loans and what they pay on one-year time deposits. Photographer: Brent Lewin/Bloomberg©Bloomberg

                  Growth in China’s money market fund industry has been driven by high retail demand for online funds managed by internet companies such as Alibaba

                  Regulators in China are planning to impose tighter rules on the rapidly expanding money market fund industry — an industry that has transformed the way millions of Chinese invest their savings.

                  But there are serious doubts over whether the new rules, which are expected to be in place by February, will protect investors adequately.

                    Observers say more should be done to bring standards for China’s money funds in line with those in the US and Europe.

                    “The reforms are moving in the right direction, but we would also like to see further improvements in the industry’s ability [to manage] risk and more alignment with international best practice,” says Steve Lee, head of China and Taiwan for HSBC Global Asset Management.

                    China’s money market fund industry is only a decade old but its rise has been fast, driven by high retail demand for online funds managed by large domestic internet companies such as Alibaba, Tencent and Baidu.

                    Assets under management hit Rmb4.4tn (around $710bn) at the end of 2015, more than half of the Chinese fund industry’s total assets, according to HSBC.

                    Fitch, the rating agency, says the new regulations will strengthen industry practices, foster greater investor protection and lower risk.

                    But Charlotte Quiniou, a director at Fitch in Paris, adds a note of caution. She says: “The regulations still permit Chinese money funds more latitude in taking investment risk than European or US money funds.”

                    Although regulators have reduced the permissible leverage ratio of Chinese money market funds from 40 per cent to 20 per cent, leverage is not allowed in the US and is limited to 10 per cent in Europe, according to Ms Quiniou.

                    The liquidity requirements for assets held by Chinese money market funds are also less stringent than in the US or Europe.

                    The range of instruments that Chinese money funds can use has been broadened under the new rules, potentially exposing them to greater risks.

                    Investments in negotiable certificates of deposit, a tradeable security based on savings accounts at banks and other institutions, have been permitted for the first time. But there are questions over the suitability of these instruments for money funds.

                    “The [negotiable certificates of deposit] market is relatively new and the ability of managers to effectively trade these securities, notably during periods of stress, remains untested,” says Ms Quiniou.

                    The new rules also allow money funds to invest in lower-quality corporate bonds, with the minimum eligible rating level reduced to AA+ from AAA.

                    This has raised questions about the rigorousness of Chinese rating agencies when evaluating assets held by money funds.

                    “A triple A rating by a local rating agency is not the same as that issued by an international rating agency,” says Alex Wolf, emerging markets economist at Standard Life Investments, the UK fund house.

                    Although millions of ordinary Chinese have been drawn to money funds because they pay higher interest rates than bank deposits, Mr Wolf says many retail investors only look at the yields on offer and do not fully understand the risks.

                    “It is vital for China’s regulators to strengthen the risk controls [further],” he says.

                    The push for reform is being driven not only by the rapid growth of China’s money fund industry, but also because liquidity strains are evident.

                    In 2013, several Chinese money funds temporarily “broke the buck”, meaning they could no longer guarantee that investors would get $1 back for every $1 invested.

                    Observers worry that a repeat of such an event might disrupt the provision of short-term financing to China’s corporate sector, at a time when the country’s financial system is already showing signs of stress.

                    Robert Pozen, senior lecturer at the Massachusetts Institute of Technology’s Sloan School of Management, says the real test will come when money funds start to make losses as a result of bond defaults.

                    “Until now the Chinese government has allowed only a small number of companies to default, but that is likely to rise in the future. That will be the test as to whether the bond ratings by China’s local rating agencies were any good,” he says.

                    Although the new rules should theoretically reduce yields and hamper demand for money funds, observers believe problems in China’s stock market mean investors are likely to view money funds as a safer place to put their money.

                    This is despite the fact that the yields on offer have already diminished, falling over the past two years to a range of between 1.8 and 6 per cent, partly due to rising competition between providers.

                    Alibaba’s Yu’e Bao, the biggest Chinese money market fund, now offers an annualised seven-day yield of 2.7 per cent, down from a peak of more than 6 per cent.

                    Mr Pozen says: “The volatility in Chinese equity markets could spur growth in the near-term as investors look for a safer home for their money.”

                    Mr Wolf agrees: “Any time there is a sell-off in the equity market, we see massive inflows into money funds.”

                    Stewart Aldcroft, Asia chief executive of CitiTrust, the securities and fund services arm of Citigroup, questions the notion that the money market reforms are a precursor to stricter rules for other parts of China’s asset management industry.

                    This is because policymakers’ main objective at present seems to be restricting capital outflows in the face of the renminbi’s rapid depreciation against the dollar.

                    “China’s regulators have many other concerns to focus on,” he says.

                    Yu’e Bao: Alibaba’s success story

                    Jack Ma©Reuters

                    Yu’e Bao, which translates as “leftover treasure”, has grown into China’s largest money market fund in under three years. It is also the world’s fastest growing mutual fund.

                    It was set up in June 2013 as a joint venture between Tianhong Asset Management and the world’s most popular destination for online shopping, Alibaba, the brainchild of Jack Ma (pictured).

                    Technology has played a vital role in the growth of Yu’e Bao. Millions of customers use Alibaba’s online and mobile payment app, Alipay, to convert the idle cash they have in their accounts into units of a money market fund.

                    Yu’e Bao currently has more than 260m users, an increase of 42 per cent over the past 12 months, and its assets stand at around Rmb620.7bn ($94.4bn). According to Alibaba’s blog, Alizila, the vast majority of Yu’e Bao users are under the age of 30.

                    One in seven Yu’e Bao customers are from rural China, where low-income families use the fund as a low-cost wealth management tool.

                    Investment consulting figures revealed

                    Posted on 31 January 2016 by

                    Willis Towers Watson, the consultancy, has published for the first time the performance figures for the controversial fiduciary management mandates it runs on behalf of its UK pension fund clients.

                    Fiduciary management — a lucrative business for consultants that involves more “hand holding” with pension fund clients and consequently higher fees — has come under attack. It drew the attention of the UK regulator after research showed three-quarters of contracts were awarded without a competitive tender.

                      Critics have accused investment consultants of promoting the concept of fiduciary management and then directing clients to their own services, implying that pension funds are signing deals with potentially unsuitable or underperforming providers.

                      The performance figures provided by Willis Towers Watson, however, show those pension funds that signed fiduciary management contracts with the consultant improved their funding levels by more than 15 per cent over the past six years, compared with a 3.7 per cent improvement for the average UK pension scheme.

                      Chris Ford, global head of investment at Willis Towers Watson, said: “I am not here to defend the whole industry, but I can tell you that 95 per cent of the fiduciary management mandates we won were the result of a competitive tender process.Mr Ford says: “I do not disagree at all that transparency needs to improve but fiduciary management is clearly better than the current model even with those issues, and that has to be the most important thing for our clients.”

                      “But that is a second-order problem in any case. The current model does not work for investors and our figures show that fiduciary management clearly does.”

                      Ed Francis, European head of investment at the consultancy, added: “This record is an indication of what is possible when professional portfolio management, a strong focus on specific client needs and excellent governance are combined.

                      “It is what these clients signed up for and we are delighted to have delivered these results for them, during a challenging time for pension funds.”

                      Last year the UK financial watchdog said it will review the influence of investment consultants and the potential damage they cause as part of a wider investigation of the asset management market.

                      The biggest concern is that consultants, who traditionally advised pension schemes on their investment decisions, are increasingly pitching their own asset management services to clients.

                      One investment executive, speaking on condition of anonymity, told FTfm at the time: “There are absolutely inherent conflicts of interest within the growth of fiduciary management. Trusted advisers end up pushing their own products on clients.”

                      The Willis Towers Watson figures show that the 15 per cent increase in funding levels also took place with a third of the volatility.

                      Pieter Steyn, UK head of delegated business at Willis Towers Watson, said: “We have seen that fiduciary management can give funds an edge in a variety of market conditions. This clearly benefits the trustee, sponsor and, very importantly, the members.”