nottheaverageactuary

Actuarial news and views from Cape Town and beyond


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Influences on financial markets.

Hi

Here is the Article link :

http://finance.zacks.com/influences-stock-market-1546.html

Influences on financial markets.

There are various factors that affect the financial markets, however some of the factors that are overlooked. These factors may affect an entire industry or market if not considered carefully.

The articles speaks about the influences on the financial markets and gives examples of how the factors affect the financial markets.

The influences considered are : Earnings of companies, news reports (good or bad), Economic data and timing of trades.

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Asset classes: Global high yield bonds

Equities or bonds?
We all have considered the factors that influence the decision between these two asset classes, and they both possess desirable characteristics that we hope to be present in our portfolios.
So why not an asset classes somewhere in the middle of the two.
The article (http:// http://www.thinkadvisor.com/2015/08/20/a-new-breed-of-asset-class) introduces the idea of global high yield bonds as a class which seems to be more correlated with equities than bonds.
It also describes the income characteristics and duration of such a bond, together with the worries one has with global high yield bonds.

On a completely different note, the following article nicely sums up why we should consider investing while we are “young” http:// http://www.moneyweb.co.za/investing/unit-trusts/investing-in-your-20s-the-earlier-the-better/


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Equity returns and GDP growth

Equity is an important component in investment portfolios and is often considered as being a winning asset class. A well known characteristic of equities is that its growth closely linked to the growth in GDP (or so it seems). Thus, we expect better investment returns from countries with higher economic growth. This is an important indicator for investors as it means that decisions can be made based on economic growth.

However, an analysis done by the London Business School in collaboration with credit Suisse suggests otherwise. The data suggests that the correlation between the growth in GDP per capita and the country’s stock market has been negative since 1900. This might seem to be odd as it goes against our expectation but the negative relation can be attributed to several reasons which is discussed by Matthew Boesler. One major explanation was that stock prices captures anticipated business conditions.

One should also bear in mind that GDP per capita is affected by population movements and thus changes cannot be solely linked to economic activities. The economist takes Ireland as an example where the growth in GDP per capita can be explained due to emigration which is slowing down the population growth rate. Linking performance of equity asset class to population growth, the article suggests that investments perform better in an environment where the population is rising and pushing up GDP than when growth alone is pushing up GDP.


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Forget traditional asset classes – alternative is where it’s at?

The returns of traditional asset classes have become seemingly common knowledge: equities are expected to remain close to GDP, returns on cash are expected to generally exceed inflation and fixed-interest stocks provide their gross redemption yield.

As of late, however, there is evidence to suggest that insurers are moving away from these traditional asset classes and looking into alternatives such as exposure to both infrastructure and mortgage loans.

(read further at http://www.theactuary.com/news/2013/04/insurers-are-increasing-focus-on-new-asset-classes-says-ing-im/).

It is clear that this shift into “alternative” asset classes to diversify returns is happening across the market with recent research showing that four out of five institutional investors now invest in at least one alternative asset class. In addition to diversification, high absolute returns, reduced volatility, inflation hedging characteristics and reliable income streams that are seen in certain alternative classes are some of the reasons for why these assets are gaining popularity.

This article (http://www.valuewalk.com/2015/08/79-of-institutional-investors-globally-invest-in-at-least-one-alternative-asset-class/ ) discusses this trend of investing in alternative asset classes and the returns to be expected for these different classes. It reveals that investors not only have high expectations of returns for alternative asset classes but additionally have confidence that these expectations will be met.


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The Social Media Age and Investment Markets

AFP 538770041 A CIT USA NYIt is no secret that social media has taken the world by storm. One of the things social media has opened the world up to is instantaneous receipt and delivery of information. With a large number of people always checking their Facebook or Twitter timeline, social media is the easiest way to get information to people as well as get an idea of their preferences.

Social media’s reach even stretches into the investment world. In a report released in April by Greenwich Associates titled Institutional Investing in the Digital Age: How Social Media Informs and Shapes the Investing Process it was noted that “Almost 80% of institutional investors use social media as part of their regular work flow, and approximately 30% say the information consumed via social media has directly influenced an investment decision.”

This falls into the investors’ preferences category of the “Other influences on investment market” in Chapter 21, in particular social media alters investors’ preferences through investor education, marketing and may alter any sentiments of the investor.

With more institutions increasing their use of social media we could potentially see this as a section of the next version of the ActEd notes 🙂

The full article, with some other findings from the Greenwich Associates report can be found at:

http://americasmarkets.usatoday.com/2015/04/16/big-investors-says-social-media-influences-investment-picks/

Another article on this topic: http://www.ipe.com/news/asset-managers/social-media-influences-investment-decisions-shows-research/10007592.fullarticle


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Does Greece debt need a haircut?

Three years after Reuters offered some insight on how much of the Greek debt would have to be cut in order to ensure sustainability, and after the latest Greece default on an interest payment, the IMF reiterated this need much to the disagreement of many Euro countries including the great and mighty Germany.

Germany has been vocal about their disagreement with any kind of restructuring proposed as this will potentially affect the value of the Euro in one way or another. As Angela Merkel, chancellor of Germany puts it: “If the Euro falls, Europe falls”.

The link to the Reuters’ Vincenzo Albano doing a quick analysis of the figures:
https://www.youtube.com/watch?v=0rjIJK95Oig
Link to the latest article on IMF and debt crisis:
http://www.cnbc.com/2015/08/19/why-the-imf-is-wrong-on-a-greek-debt-haircut.html


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Big corporations and overseas markets

A number of large corporations in the US use overseas markets as tax havens. Apple has 90% of it’s cash offshore. Under current US tax laws corporations pay 35% tax on money brought in from overseas markets. Similarly Wal-mart has $76bn in assets overseas. Companies are looking for ways to make use of the money and assets they hold in overseas markets.

This presents asset managers in overseas markets an opportunity to manage large amounts of assets. However for the US this is not a situation to be happy about. Can asset managers in these overseas markets do more to benefit from this ?

Links to articles relating to Apple and Wal-marts overseas holdings are below

Apple’s cah held overseas

Wal-mart overseas tax havens