Investment Firm Concentrating On Nine Themes

February 15, 2016

[Written by Kensley McDowall]

The hectic start to the year has led many to question their sanity. Speaking recently with Moz Afzal, CIO of EFG Asset Management, he stated that in a bid to keep his head while others might be losing it, the investment firm is concentrating on nine themes:

  • Global growth levelling out: “We predict that economic growth for developed markets is set to level out at around 2.0% p.a. In the 2007 / 2008 global financial crisis, monetary easing and extraordinary measures prevented a sharp drop in output by delaying the deleveraging process. As a consequence, the recovery has been more muted.”
  •  The Fed Funds rate remaining under 1.0%: “ We expect the Fed to raise interest rates very slowly next year such that rates will remain below 1.0% by the end of 2016. This is because although the Fed wants to ‘normalise’ rates and provide leeway for future interest rate reductions in the event of a growth slowdown, inflation will likely remain well below target. “
  • Commodity prices stabilising: “Currently, average commodity prices are around half of their peak level of April 2011. Although some believe that commodities are in the midst of a very long “super cycle”, we observe that the length of the latest bull market was broadly the same as its predecessor [nine years] and hence we believe that the worst of the decline may now be over. Therefore, we expect the commodity sector to go through a round of consolidations, cost cutting and defaults. Although we think the worst is over, we see the recovery as being a long and drawn out process. “
  • Modest US dollar gains: “We believe that the US dollar can only make modest gains in 2016. In the short-term, the dollar will be affected by divergent monetary policy across the central banks. However, in the slightly longer term, the US dollar is currently overvalued. “
  • Emerging market equities rebounding: “ After lagging world equities for five years and posting close to zero returns from 2010 through 2015, we believe that emerging equities will rebound in 2016. Although some emerging economies are substantial commodity exporters and have therefore been harmed by the commodity bear market; others like India, Indonesia and China are net importers of energy and so gain from weaker commodity prices. Valuation measures are also supportive as valuations of emerging equity markets are lower than those of developed markets.”
  • Heightening political risks: “We see three areas where 2016 could have higher political risk than in 2015. Firstly, different countries across the world seem to be undergoing changes in the overall make-up of their traditional political parties, Secondly, immigration is set to become a decisive factor in both the US and Europe. Thirdly, sudden changes in policy will be more prevalent and could have a disproportionate effect on different sectors. “
  • Opportunities in high yield debt: “In a world of low government bond yields, the extra yield pick-up which the US high-yield market offers over US Treasuries is appealing. The current pricing already presents an attractive entry point; however, issue selection will be extremely important.”
  • Oil… the new tobacco: “There are a number of similarities between the current state of the oil & gas industry and how the tobacco industry was positioned several decades ago. Both industries have issues surrounding the long-run demand for their products and both are subject to tight regulatory pressures. However, the oil & gas sector have been poor managers at capital discipline, unlike the tobacco companies. We see selected mid-cap oil & gas companies starting to scale back on wasteful capital expenditure and shift their focus towards maximising shareholder returns.”
  • Technology impacting even more areas of life: “The new technological revolution is different to its predecessors. One aspect of new technology is to drive a process of re-shoring – bringing jobs that had been ‘offshored’ back to the developed economies. In essence, more can be produced with fewer workers. For 2016, we will be looking for significant further advances in driverless cars and 3D printing; and for technological advances to impact ever more aspects of the economy.”

- Kensley McDowall is a Bermudian Attorney and Compliance Specialist, MD and Consultant of Caribbean Compliance Consultants [Bermuda] 

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