Archive for November, 2011

Black India Ink

November 23, 2011 Comments off

Given the lack of attention by a media obsessed with U.S. recession fears, an EU debt meltdown and the possibility of a Chinese “bubble,” investors can’t be blamed if they missed some good news courtesy of India. Speaking in a November 9 interview, Asian Equity CIO Sukumar Rajah says he thinks this emerging markets powerhouse is poised to be a steadfast source of robust long-term growth opportunities:

“India’s economy over the past decade has gathered speed in step with growth of the middle class, which currently comprises about 20 percent of the population and is expanding by about 15 percent every year.[1] This is due in part to expansion of the working age population, which accounts for rapid growth of the professional sector and powers infrastructure and manufacturing. Approximately 500 million working age people are expected to join the global labor pool over the next 10 years and one in three or four of those people will likely come from India.[2] This massive increase of Indian labor has the potential to create a lot of employment and further increase the size of the middle class.”       Read more…

Categories: Perspectives

Growing Growth

November 18, 2011 Comments off

With the stock market seemingly mimicking any number of disaster movie scenarios, many investors can hardly be blamed for letting their emotions get the better of them. Calm, cool, detached rationality seems to have been left by the wayside as the Dow plummets hundreds of points one day, recovers the next, then dives yet again. Against this ostensibly permanent backdrop of economic gloom, portfolio manager Serena Perin Vinton is optimistic regarding large-cap U.S.growth prospects: 

“Large-cap companies are performing relatively well compared with the overall U.S. economy despite concerns about the European debt crisis, broader issues regarding fiscal tightening in Asia and China, and the possibility of slowing GDP and inflation for the U.S. These issues are fundamentally very different from the liquidity crisis of 2008 and our view is that a recession in the near term, while possible, is unlikely based on these conditions.” Read more…

Screening for Reduced Volatility

November 7, 2011 Comments off

As the European debt crisis continues to batter investor confidence and portfolios, French President Nicholas Sarkozy and German Chancellor Andrea Merkel had hoped to have a finalized Eurozone bailout package in place at the start of the Cannes G20 summit in November. The announced proposal derailed when the Greek government called for a referendum, now cancelled, not to approve or reject the plan, but to determine Greece’s future status in the EU and 17-nation Eurozone. While efforts at crafting effective policy continue to misfire, a guarantee that private sector investors will not face losses on their debt investments in troubled banks could boost investor confidence and stem the sell-now-and-ask-questions-later sentiment.        Read more…

Michael Hasenstab – Economic Outlook

November 3, 2011 Comments off

Euphoria over the most recent proposal to ease Europe’s debt crisis has been short lived, as Greek Prime Minister George Papandreou flip-flopped around a referendum for early December. Europe had hoped to go into the November 3 G-20 Cannes summit with a solid and finalized Eurozone bailout package for Greece and be able to move on to broader issues about exchange rates and financial regulation. But now European leaders need to account for this development that has created additional uncertainty in the markets

Back in the U.S., investors are witnessing more triple digit market gains and losses. While it’s tempting to react quickly to daily market fluctuations for tactical advantage, this is precisely the type of environment in which a disciplined, big picture point of view can help investors stay focused over the long term. Dr. Michael Hasenstab, SVP and Co- Director, International Bond Department, Franklin Templeton Fixed Income Group®, addresses current volatility and why the overall environment may not be as grim as it appears on the surface.

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Categories: Perspectives

Chris Molumphy: Frank Talk on Fundamentals

November 1, 2011 Comments off

A listless economy, volatile markets and the continuing European debt crisis have many investors worried that the on the precipice of the long-feared double dip recession. Could it happen? Possibly. But before getting caught up in extreme scenarios, investors should consider that the market could be eradicating economic excesses that may help pave the way for reacceleration and growth. Chris Molumphy, CIO of Franklin Templeton Fixed Income Group®, notes how current conditions exhibit some distinct differences from those of 2007-2008, and where he sees opportunity in the bond market:

“There’s no question that it’s been an exceptionally volatile period marked by a flight to quality. Risk aversion has also been a key theme and many assets—including credit—have traded off, in many cases indiscriminately, regardless of fundamentals. That said, the fundamentals simply have not changed that dramatically over the past several months and, overall, are reasonably positive.”

Although European leaders finally reached an agreement to reduce Greece’s debts, shore up the region’s banks and reinforce its bailout fund to prevent the crisis from spreading and to protect its currency from unraveling, their plans’ effectiveness will depend on executing the details, which may take several weeks or months. This scenario may continue to affect short- and longer-term yields in the U.S.Although European markets may present some good opportunities because of the dislocation occurring there, the primary challenge facing investors seeking income is the overall low-yield environment:

“It’s probably not an environment to be greedy when it comes to yield or income.  Our view is that over the longer term, given the fundamentals, yields most likely have to go a fair amount higher.  That said, whenever the market experiences a good deal of volatility, it may also present opportunities.”

Although the U.S. Treasuries downgrade certainly contributed to market volatility, Molumphy considers them one of the better-performing asset classes over the past several months. He also cites corporate credit as an example where he believes fundamentals do not justify some of the cheaper valuations of late:

“We think current valuations relative to fundamentals present opportunities in the corporate market and looking outside the U.S., we see a number of opportunities in the global bond market.”  

Addressing the likelihood of a double dip, Molumphy cites the marked differences between current economic conditions and those of 2007-2008. Despite sluggish and uneven growth and subdued consumer spending, macroeconomic data shows none of the excesses typically associated with the onset of a recession:

“While recession is certainly a possibility, we think it’s fairly unlikely in the near term. Housing prices are 30-35 percent lower than they were before the bubble burst in 2007. Consumers are in much better shape, averaging 5 percent savings. Corporations have deleveraged and have cash on their balance sheets. Financial institutions don’t have the bad assets that we saw in 2007-2008. This is a different environment from the one we saw leading up to the last recession.”

Until next time, Beyond Bulls & Bears leaves you with this quote from Sir John Templeton:

“Investors are the people who buy for fundamental values. Speculators are those who buy in the hope of selling later to someone else at high prices.”