Economic & Political Roundup

Kindly sponsored by Polar Capital and Allianz

A collation of recent insights on markets and economies taken from the comments made by chairmen and investment managers of investment companies – have a read and make your own minds up. Please remember that nothing in this note is designed to encourage you to buy or sell any of the companies mentioned.


Sentiment improved to a degree over September, as equity markets nudged higher. Gold gave back some gains after a bumper summer while long-term government bond yields increased in the UK and US, as capital was taken away, pushing prices lower.


wdt_ID Exchange Rate 30/09/19 Change on month %
4 GBP / USD 1.2289 +1.1
5 USD / EUR 0.9176 +0.8
6 USD / JPY 108.08 +1.7
7 USD / CHF 0.9977 +0.7
8 USD / CNY 7.1483 (0.1)

wdt_ID Indicator 30/09/19 Change on month %
1 Oil (Brent) 60.78 +0.6
2 Gold 1472.49 (3.1)
3 US Tsy 10 yr yield 1.6646 +11.3
6 UK Gilt 10 yr yield 0.488 +1.9
7 Bund 10 yr yield -0.573 (18.4)


Managers are increasingly cautious as manufacturing slips and trade tensions add weight to weakening sentiment.

Zehrid Osman, manager of Martin Currie Global, believes that the outcome of trade tensions between the US and several countries are harder to gauge than initially predicted. On the economic front, Zehrid adds that based on looking at leading indicators generally, trends remain mixed with an uncertain direction of travel. The manager of Livermore Investments discusses weakening manufacturing output and subdued investment spending, while the managers of Mid-Wynd International, hold the view that the best growth opportunities in equities will generally be broadly spread and the best value-for-money investments equally widely dispersed. They note that UK 10-year bond yields below 1% represent poor value, incentivising savers to hold equities even when valuations look stretched.



Looking for green shoots from Sterling weakness

In these uncertain times, Michael Hughes, chairman of JPMorgan Mid Cap, believes that now, in particular, is the time when a fundamental stock-picking approach should benefit shareholders. Elsewhere, M. Foster, J. Harrison & J. Dieppe, managers of Investment company, say that, overall, the UK market remains very attractively priced. They believe that, unless a global recession takes hold, historically low yields on government bonds offer little scope for capital appreciation. A resolution to Brexit would remove some uncertainty and in doing so provide international investors with more reason to invest in UK assets. Philip Remnant CBE, chairman of City of London, discusses an upside from sterling’s weakness, saying this would be a positive for City of London’s portfolio given the predominance of international companies where profits and dividends will increase when translated from overseas currencies into sterling.

The manager of Crystal Amber says that sterling’s weakness has created several activist opportunities that are particularly attractive to overseas buyers. David Seligman, chairman of British & American notes that the determination of markets to ignore the growing political and economic headwinds and uncertainties seems to have faltered. Unless several issues globally are resolved, markets are likely to remain below the peaks achieved in 2018, which followed years of stimulus.



Promising signs that corporate Japan is becoming more shareholder friendly

Baillie Gifford Shin Nippon’s manager thinks that broad-based uncertainty globally, with Japan no exception, creates an exciting landscape as there are a growing number of fundamentally sound companies with durable strategies that are getting dragged into sell-offs. The manager discusses some of the fund’s main theme exposures, including payments, as Japanese society continues the structural shift away from cash. We also hear from Joe Bauernfreund, manager of AVI Japan Opportunity, who believes that Japan’s commitment to corporate governance reform is real. AVI discuss the high cash levels corporates hold (payout ratios are low) while providing anecdotes from their form of shareholder activism. Joe believes Japanese companies will start to focus on their balance sheet efficiency and returns on equity and that ultimately running companies in a more shareholder friendly manner will mean that investors have been too pessimistic in the valuations they ascribed to Japanese stocks.



BJP election win provides footing for growth to accelerate

The manager of Ashoka India Equity sees upside following the re-election of the BJP led NDA government for a second term. The result is business-positive as it removes uncertainty associated with a weak coalition government. The manager thinks there is increased likelihood of further structural reforms over the coming years. With the current electoral numbers, it is expected that in a couple of years, NDA is likely to win a majority in the upper house of the Parliament as well, which should enable the government to pursue the more difficult and long awaited reforms. India Capital Growth’s manager makes the point that the BJP’s election win represented the first time a party has returned to power with a majority since 1971. There is now a stable footing for an economy that is poised to see an acceleration in growth.


 Private equity

Private equity awash with dry power

Lorne Abony, CEO of FastForward Innovations, discusses concerns around the block-chain and cryptocurrency space. The fund remains bullish about the opportunities in wellness, longevity and medicinal cannabis investments. Elsewhere, Caroline Foulger, chair of Oakley Capital Investments, focuses on concerns around the abundance of ‘dry powder’ in the sector. She also adds that the pool of investable private companies is growing.



Credit quality has started to decline in the US

The manager of M&G Credit Income walks us through the performance of several credit asset classes over the year. Looking ahead, the manager says that rather than chasing yield, in an environment where corporate bond yields have been falling, the fund is likely to take a more defensive approach while maintaining a high level of liquidity in the portfolio (in the form of AAA-rated asset-backed securities) to opportunistically make investments, in the event of a market sell-off. The manager’s report for Pollen Street Secured Lending (formerly P2P Global Investments) notes that in the current more competitive mainstream lending environment, it is particularly important to maintain prudence and discipline. In addition, with household borrowing at high levels, and the regulatory framework remaining an ever present factor as consumer credit regulation continues to develop, it is necessary to proceed with caution. We also hear from the manager of Fair Oaks Income, who is cautious about credit quality in the loan market. It is pointed out that average leverage from US large corporates, defined as corporates with EBITDA of more than US$50m, increased from 5.2x at the end of 2018 to 5.4x in Q2 2019 12 while interest coverage fell from 3.6x to 3.1x. We also have comments from Honeycomb, GCP Asset Backed Income and Biopharma Credit.



We have also included comments on North America from North American Income; Japan from Baillie Gifford Shin Nippon and AVI Japan Opportunity; Vietnam from Vietnam Enterprise Investments; Korea from Weiss Korea Opportunity; global emerging markets from Genesis Emerging Markets; Latin America from BlackRock Latin American; the Gulf region from Gulf Investment fund; global frontier markets from Aberdeen Frontier; Africa from Africa Opportunity Fund; the hedge fund sector from Highbridge Multi-Strategy and EPE Special Opportunities; the leasing sector from Tufton Oceanic and SQN Asset Finance Income; Infrastructure from Infrastructure India, BBGI SICAV S.A. and International Public Partnerships; environmental from Menhaden; European property from Phoenix Spree Deutschland, Aberdeen Standard European Logistics Income, Globalworth Real Estate Investments and Yew Grove; rest of the world property from Ceiba Investments, Aseana Properties and Dolphin Capital Investors; the property debt sector from ICG-Longbow Senior Secured UK Property Debt and Starwood European Real Estate Finance; the renewables sector from Bluefield Solar Income, US Solar Fund and Greencoat Renewables and the commodities sector from Baker Steel Resources.


 Full version

Click the link on the right to read the full report.

Kindly sponsored by Polar Capital and Allianz


 The legal bit

This note was prepared by Marten & Co (which is authorised and regulated by the Financial Conduct Authority).

This note is for information purposes only and is not intended to encourage the reader to deal in the security or securities mentioned within it.

Marten & Co is not authorised to give advice to retail clients. The note does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it.

This note has been compiled from publicly available information. This note is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of this note is prohibited.

Accuracy of Content: Whilst Marten & Co uses reasonable efforts to obtain information from sources which we believe to be reliable and to ensure that the information in this note is up to date and accurate, we make no representation or warranty that the information contained in this note is accurate, reliable or complete. The information contained in this note is provided by Marten & Co for personal use and information purposes generally. You are solely liable for any use you may make of this information. The information is inherently subject to change without notice and may become outdated. You, therefore, should verify any information obtained from this note before you use it.

No Advice: Nothing contained in this note constitutes or should be construed to constitute investment, legal, tax or other advice.

No Representation or Warranty: No representation, warranty or guarantee of any kind, express or implied is given by Marten & Co in respect of any information contained on this note.

Exclusion of Liability: To the fullest extent allowed by law, Marten & Co shall not be liable for any direct or indirect losses, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note. In no circumstance shall Marten & Co and its employees have any liability for consequential or special damages.

Governing Law and Jurisdiction: These terms and conditions and all matters connected with them, are governed by the laws of England and Wales and shall be subject to the exclusive jurisdiction of the English courts. If you access this note from outside the UK, you are responsible for ensuring compliance with any local laws relating to access.

No information contained in this note shall form the basis of, or be relied upon in connection with, any offer or commitment whatsoever in any jurisdiction.

Investment Performance Information: Please remember that past performance is not necessarily a guide to the future and that the value of shares and the income from them can go down as well as up. Exchange rates may also cause the value of underlying overseas investments to go down as well as up. Marten & Co may write on companies that use gearing in a number of forms that can increase volatility and, in some cases, to a complete loss of an investment.