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Beyond building BRICS A world of opportunity. September 2011. Metamorphosis of risk. Chris Hart Chief Strategist. Ave E CW DSAI. Contrasting paths of BRICS/EM and the Developed World. . . Spending the problem. Consumption vs Production. Source: INet.
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Beyond building BRICSA world of opportunity September 2011 Metamorphosis of risk Chris Hart Chief Strategist Ave E CW DSAI
Spending the problem. Consumption vs Production Source: INet
Fundamental problem: governments have grown too big Source: INet
The systemic Ponzi – dynamicsAt the 11th hour, as government compensates Systemic collapse Credit worthy capacity Systemic instability Debt Debt needed to sustain the system BCA: the debt super cycle Time
From 2010: The debt trap: more debt no solution Source: INet
From 2010: Projected debt burdens: US and UK servicing requirements in a worse position than Greece in 2040. The Argentine disease
The EM contrast: yield, growth, solvency Interest Rates Government Spending 2007 EM Crisis Bubble Resolution Sovereign Debt Difference in economic performance very stark
Crisis and risk Market response and the changes .
Financial Markets and safe-havens: …swinging between risk and reward Source: INet
Debt Distressed Italian Financial Markets – no swing but general exodus. Repeated in … Greece, Ireland, Portugal & Spain!!
Risk and the USD. Source: INet
Euro: convergence and divergence trade. Source: INet
French Spreads over German Bunds. …..France as well!!!!??? Source: INet
EUR vs USD – Range Trading Source: INet
A chart for the generation: USD vs Swiss franc. Source: INet
EUR vs CHF – huge move over the past year. Source: INet
S&P: Bearish? Source: INet
S&P: Long Term Outlook Turning Bearish as well Source: INet
JSE: Bearish! Source: INet
JSE: better long term outlook, but bearish s/t. Contrast with S&P very stark! Source: INet
The rand. Very Volatile. Really???? Source: INet
SA Bonds: yield and solvency!! Source: INet
The EM opportunity: changing nature of risk Growth Yield Investment Opportunities Differentiation Solvency BRICS and EM becoming safe-havens Relative risk diminishing
A Soft Patch…. ….or Double Dip? Slowdown aggravates debt distress .
Quantitative Easing. …1, 2 and maybe 3?? Otherwise better described as printing money Record budget deficits also added to the mix
…and deficit spending As far as the eye can see. Anyone for tea?? Record budget deficits also destabilizes Source: INet
OECD Lead indicator: no recovery; pointing to stagnant 2nd half at best. Source: INet
Risk metamorphosis Historic experience problematic .
Governments - becoming the investor’s enemy…but are friends when emerging from the restructure RisingTax Burden Labour Instability Hostile Regulation Protectionism Concentration US; UK; Japan; PIIGS Blame game Bankruptcy Brazil; Zambia; Turkey, Thailand Low Labour Costs Investment Incentives Pragmatic regulation
Challenge to asset management doctrine and foundationDoes ‘risk free’ rate become redundant? Return “Defensive” “aggressive/growth” Equity Property Bonds Cash Risk
Inflation adjusted and the model falls apartDoes ‘risk free’ rate become redundant? Return Equity “Expensive” “Cheap” Property Bonds Risk Cash Submarine assets
Risk hierarchy. Source: INet
Gold – a safe haven Source: INet
Conclusion EM investors get growth, yield and solvency Market response to risk is changing fundamentally Conventional Investment Wisdom needs a rethink to deal with systemic risk Twitter: chrishartza
Thank You Chris Hart Chief Strategist Twitter: chrishartza Ave E CW DSAI
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