BLUE QUADRANT CAPITAL MANAGEMENT BLOG
US equity markets have rallied strongly since the election of Donald Trump as the 45th president of the United States, with investors largely choosing to focus on the prospective positive aspects of his administration and the scope for large corporate tax cuts, as well as a reduction in regulation. However, as we have detailed in previous articles, given Trump’s apparent protectionist instincts and anti-immigration views, there are also potential negative aspects associated with his presidency- which, broadly speaking, financial markets have chosen to ignore.
The recent rise in US bond yields, coupled with the likelihood of a further 25bps increase in the Federal Reserve’s targeted policy rates in December, has changed the conversations regarding the long-term outlook for US interest rates. The embedded narrative in recent years has been one in which the US economy would never reach a sufficiently sustainable level of economic growth or ‘escape velocity’ in order to warrant an end to the so-called ‘zero interest-rate’ paradigm.
The 2016 US elections, Q&A with Blue Quadrant Capital ManagementDonald Trump has won the presidency of the United States and financial markets in general have not reacted well to this development. What are the implications of this surprise event for investors and specifically, global investors?
US GDP 2Q16
Cyclical Factors weigh on US GDP but the foundation is laid for a powerful acceleration going forward
US GDP grew at a disappointing 1.2% (q/q, annualised) in the second quarter of 2016, well below consensus forecasts of 2.6% (Reuters). The main negative contributors, as has been the case in recent quarters, were a continuing reduction in inventory levels and weak non-residential investment spending. The change in inventory levels during the second quarter, subtracted 1.2% from overall GDP, while non-residential fixed investment subtracted a further 0.3%.
The Italian Banking System and Bad Debt Issuance - Is It Systemic?
There has recently been renewed concern over the high level of non-performing loans (NPLs) in the Italian banking system and the potential for a systemic contagion. This is not a new risk and as the chart shows, the bulk of these NPLs are from loans to made to business enterprises. Most of these loans turned sour in the period between 2009 and 2013.
A Post-Brexit Q&A with Blue Quadrant Capital Management
The month of June saw some extreme volatility in financial markets, particularly following the surprise UK referendum result. How did the funds managed by Blue Quadrant perform?
Our funds are likely to report a drawdown of between 8% and 12% for the month of June in Rand terms. This was in part driven by the relative strength in the Rand, which despite the negative global developments, actually gained ground against most major currency crosses during the month. Our funds have between 50% and 90% invested in offshore markets, mainly in the US.
We also have a large weighting in US financials, which were disproportionately impacted by the Brexit vote and contagion fears stemming from the very large price declines in UK and European financials.
A Brexit Q&A with Blue Quadrant Capital Management
The so-called "Brexit" referendum is fast approaching, scheduled to take place on June 23. Do you have a view which way the vote will go and is it relevant for investors?
We don't have a firm view and we think more than likely the UK bookies probably offer the best indication of which way the vote will go! They suggest the "Remain" camp will prevail. If we had to make a call we would also suggest that Remain will prevail simply because a significant % of likely voters (around 10%) are still undecided and historical precedent suggests that undecided voters tend to opt for the status quo at the last minute. But it is very close.
SA Tourism and Hospitality Sector Show Positive Signs
The latest report from Statistics SA shows that the number of foreign arrivals into the country increased by 11.4% y/y to 1.56mn in January, with 1.441mn of these arrivals being classified as foreign visitors (up 11.1% y/y). Of the total number of foreign visitors, some 1,012,641 were classified as tourists or overnight visitors, increasing by 15.4% y/y in January. A further analysis of the data showed that foreign visitors from non-African destinations (overseas) increased by 16.2% y/y to 214,903 in January. The recent data shows a fairly robust recovery in inbound tourist arrivals following the slump in early 2015. The recovery, not unexpectedly, has likely been driven by the sharp depreciation of the currency in recent months as well as the relaxation of former strict visa rules.
What does the future hold for traditional banks?
The rise of new technologies has allowed for improved mobile connectivity, cloud computing and the 'Bitcoin' phenomenon. This has led to an increasingly negative narrative with regard to the future of existing traditional banks. Newer entrants into the financial services realm such as Paypal and Square are seen as potentially successful 'disruptors' of an industry facing increased scrutiny and regulatory zeal. Venture capital companies are clamoring to invest in new peer-to-peer lending schemes, with many seeing this as the future for lending into the next decade and beyond.
How stressed are South African households at present?
Despite the poor economic backdrop and the recent increase in interest rates, South African households generally still appear to be in reasonably healthy shape, particularly middle to high-income households. Elevated wage and salary growth and waning demand for credit have helped keep nominal growth in disposable incomes above the growth in household indebtedness since the last recession in 2008/9.