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October 2010 from the desk of Patrick
a tough market and uncertain outlook. However, as for most volatile times,
this market provides great opportunities.
the economy around the world is
expanding, it remains fragile and unfortunately dependent on government
stimulus. Investors have to
remember that the danger of a major set back is still present.
The growth is expected to slow down in 2011. The situation in
the euro zone is far from being over: Ireland, Portugal and
Spain. The geopolitical situation may be in the news again (Iran, Iraq,
levels in many countries and especially among the young in developed
countries (25%-30% in France) is not acceptable and could cause
unrest. The situation in developing countries is not sustainable
debt levels and the level of government deficits will not disappear
Countries less impacted with the financial crisis and benefiting from
increased exports to Asia ,with no deficit or low levels of deficits are in
a much better situation in this time of uncertainty. Despite encouragement,
consumers are not yet spending as much as expected. In most countries,
consumers are concerned with real estate prices (losses), their investments
remains the centre of attention and appears to be on track for 10.5% growth
in 2010, outpacing an estimated 4.5% growth for the global economy
as a whole. India and other emerging countries are also expected to
show significant level of growth.
deficits in many countries such as those in the
US, Japan and most European countries are a major problem for the
future and are in fact real time bombs in the making unless the economy
jumpstart and creditor countries play along with the expected strategies of
the debtors countries. It will be interesting to follow how Germany
and China will handle the situation...
period of positive sentiments, the market reacted violently to the Greek
This not only affected Greece or other European countries with high
debts but also the lenders and stock markets around the world.
US economy is improving, but economic data is not as good as expected,
unemployment remains high, real estate, trade
and consumer spending figures, although improving , are not
as good as expected.
Following a period of growth, investment and capital spending are now
remains a key driver.
Imports demand of raw materials, machinery remains strong.
continue to encourage economic growth.
The government resistance to appreciate the currency remains strong.
remains the growth engine but
the US the requirement for global economic recovery.
are high probabilities that stock markets around the world become more
volatile due to current levels of valuations and current uncertainties. This
should create opportunities, but also potential losses.
countries are or will have to face the consequences of their debt levels. We
should also expect M&A activities, especially in North America, to
confidence could easily be shaken.
Greece debt crisis is a good example. Many
factors could revert current optimism. The
danger of a double-dip
recession rather than the more familiar V shape still persists.
good news have been the GDP growth in China.
For the first Quarter of 2010, China GDP growth and its demand for
goods and services have been beneficial to exporting countries including
Canada, Australia, Japan, Germany and many Asian countries. However, a
change in China’s policies could have a negative impact, especially for
these exporting countries.
economy has been
expanding as a result of increased consumer demand. France is a good
example of what to watch in the US.
Industrial output continues to grow. Reflecting in positive stock market
performance in the first Quarter 2010.
Will US consumer spending grow
without any economic stimulus?
commodity based markets ( ie. Canada, Australia, Russia) and exporters to
China (Japan and other Asian emerging
countries) continue to perform well (using the US dollar as the base
(Brazil and Norway were two exceptions for this first Quarter)
debt level and surprises regarding the actual size of debt have created a
to the crisis.
situation will not go away by itself
early 2010, while the market and investor enthusiasm carried over from 2009,
it soon started to change
in the later part of the month as a result of the tightening of
credits in China and the fiscal situation in the US.
remains an engine of growth but if it continues to tighten credit, this
could send wave of uncertainty in the market. The
US remains the big question mark and continues to remain key to renewed long
with the lowest level of account deficits and debts as a percent of GDP
should be expected to outperform
will be remembered as a year characterized for economic meltdown with
negative world GDP growth.
The year started with a freefall economy
than moved to signs of stability followed by a return to positive GDP
recovery is expected to broaden, but the question still remains its staying
power over the next two to four years.
access to credit and high consumer debt level continue to damper consumption
and housing market recovery especially in the USA.
monetary and fiscal programs around the world are scaled back, developed
countries economies could be vulnerable to setbacks again.
economic and fiscal policies may impact recovery around the world. However,
country debts and account deficit could be the next big crisis unless
economies jump-start again. We are still very worry about the
condition of the US banks and their lending (or should I say lack of
good news, according to Goldman Sachs, companies within the same sectors are
no longer as correlated as in recent months. The selection of
securities should once again have an impact of
November 2009 - From the desk of Patrick Lenouvel
news for the US for the third Quarter 2009...
GDP growth mainly results from government stimulus. Unemployment
remain high and continue to increase. We need continued consumer and
business confidence and spending, increased export, reduction of the trade
deficits, governmental spending control to ensure substainable growth.
remains the good story, but as in the case of he USA, China continued growth
is heavily dependent on government stimulus. however, the situation is
somewhat different as China is in a better financial position with its
both Europe and North America, business activities (mergers and
acquisitions) while still at lower levels (both values and numbers) are
increasing. Valuations in some sectors are high based on historical
2009 - From the desk of Patrick Lenouvel
global economy continues to be pulled up by the strong performance of Asian
recent rebound in commodity prices and supportive policies are helping many
emerging and developing countries.
other economies, there is a danger that the economic stimulus that have been
driving the current rebound could gradually loose strength if confidence
levels were to decrease.
global economic outlook continues to be driven by the impact of the
financial crisis and the plunge in global trade at the turn of the
year. Most economists estimate that global growth is expected to be
slowly gaining momentum. However, global growth is projected to remain
is leading the pack and is contributing to the recovery in other Asian
countries. It is interesting to note that Korea, Taiwan and Thailand
now ship nearly three times the exports to China that they ship to the
the market due for a correction?
industrial companies have been reorganizing and cutting costs, high
unemployment and low consumer spending prevent revenue growth and impact
improved gross margins.
stock market has increased significantly since March 2009 and has reached
levels that indicates strong economic recovery and investors' confidence.
for commodities in China and the impact of economic stimulus around the
world remain keys for economic outlook
A different game for the next few years. ..
Politics in China
and other BRIC countries, should have a major impact on stock market return
performance around the world.
We no longer can depend on US consumer spending and increased
demand in the USA
as a catalyst to valuate corporations.
and other BRIC countries need to develop their infrastructure and increase
consumer demand. Commodities are
expected to drive stock market return.
A game that few Portfolio managers are familiar with.
Country debts, corporation default potentials will need to be
addressed both at the political and corporation levels in order to reduce
the danger of an other crisis.
History will repeat itself.
It is just a question of time.
June 2009 -
exchanges around the world have reacted sharply upwards from the March
to the IMF, all of the advanced economies wre expected to be in a recession
in 2009. The IMF forecasts a turnaround in 2010.
US and China remain key to a global economic recovery. The
fundamentals have not been fixed yet despite perception that the worst is
May 2009 -
default outllook for 2009...
default risk remains high. Standard and Poor expects that in the US
corporate speculative-grade default rate to increase within the next 12
months exceeding prior record-high levels.
to S&P, 297 corporate entities are rated B- or lower (almost 3 times the
number from a year ago) for a combined rated debt worth over $520
billion. Out of the 297 corporate entities, 225 are from the
March 2009 -
A Trader’s Paradise...
It sounds that the world is ending. Most companies are valued as very low
prices. Shopping centers are valued lower
than the construction cost of cheap housings from the 80s. However, uncertainty still persists. Company revenues drop like no tomorrow.
How far down can the economic situation go?
Volatility is crazy.
While screening companies around the world from Asia to Europe to America, we
note that a company stock price can increase 14% one day and drop 10% the
Because of the large drop in valuation, portfolio managers from
around the world will need to increase equity positions or renegotiate
asset allocation ranges with investment committees. This should put pressure upwards.
It is almost impossible to remain rational as too much
uncertainty exist regarding future revenues, earnings, capital budgeting
and bank lending policies. This
market is a trader paradise.
However, as a good trader, take your profit and run.
Cash is king. ..
great returns in selected countries are available on cash.
spreads reached levels that should be scary. The extra yield
over government bonds in the U.S. is in average 6.39
percentage points, the highest since Merrill started collecting the data in
1999. Spreads on European bonds are at a record 4.13 percentage. It
is of no surprise that in the UK, some analysts predict one
in every 10 high-quality firms may go bust. Although portfolio
managers are taught not to try to time the market, 2009
continues to be discouraging for most. However, there is also great
opportunities for the strong at heart.
asset allocation no longer works. Extreme correlations
among countries stock market indexes makes it almost useless to allocate
funds systematically among countries. Further research is required before
role of your investment counsel or portfolio manager is to identify
the battlefields, to identify securities that will generate cash
flows or are valued below their intrinsic values or are turnaround
funds continue to increase their investments in alternative investments
including private equities. However, many pension funds seem to hold
on and are slow to make decisions.