The Italian Banking System – Bad Debts & Systemic Risk

Blue Quadrant Research Team
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Market Commentary

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.

 

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Post-Brexit Q&A

Blue Quadrant Research Team
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Market Commentary

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.

 

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Brexit Q&A

Blue Quadrant Research Team
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Market Commentary

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.

 

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SA Tourism and Hospitality Sector Show Positive Signs

Blue Quadrant Research Team
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Market Commentary

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.   

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Are traditional banks dead?

Blue Quadrant Research Team
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Market Insights

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.

 

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How stressed are South African households?

Blue Quadrant Research Team
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Market Commentary, Market Insights

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.

Household Sector Disposable Income vs Debt Growth

Household Sector Disposable Income vs Debt Growth

 

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Oil Market Recovery

Blue Quadrant Research Team
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Market Commentary

Oil Market Recovery In Site

 

The International Energy Association (IEA) has reported in its most recent monthly Oil Market Report (OMR) for February, that global oil supply declined by 180,000 barrels per day (b/d) in February to 96.5mn b/d. More notably, the IEA also said that preliminary data for February suggested that OECD commercial inventories had declined during the month, marking the first such decline in just over a year.  Furthermore, the IEA said it expected total non-OPEC supply to decline by 750,000 b/d in 2016, mainly driven by a decline of 530,000 b/d in the US market, as marginal shale producers cut back  heavily on capital investment in new drilling programs.

 

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Emerging Market Corporate Bond Market

Blue Quadrant Research Team
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Market Commentary

Emerging Market Corporate Bond Market

Where do the risks lie?
The recent rise in corporate bond yields (widening in corporate bond spreads) has been one of the factors driving some of the recent negative sentiment towards global equity markets. The recent rise in bond yields, in part driven by a tightening in USD liquidity, has mainly been the result of the deteriorating global growth expectations and specifically earnings expectations in the energy and broader commodity sectors. As such, default risk or the perceived risk of default has risen markedly over the past six months and, in turn, leading to a general re-pricing of risk in the corporate bond market.  

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Acceleration in Chinese Private Sector Credit Growth

Blue Quadrant Research Team
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Market Insights

Chinese Private Sector Credit Growth

Chinese private sector credit growth or loans extended by the Chinese financial system to businesses and households accelerated to 15.3% y/y in January from 14.3% y/y in December.  This is the highest rate of credit growth recorded since early 2013 and provides another indication that a “hard landing” in the Chinese economy is an unlikely scenario for 2016.  

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The VW Scandal: SA Platinum Impact

Blue Quadrant Research Team
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Market Commentary

The VW scandal

What does it mean for diesel vehicles, platinum and South Africa? There exists the potential for modestly reduced platinum demand over 1-3 years if fewer small diesel vehicles are sold as platinum is a key component of the catalytic converter found in diesel vehicles.  

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