19 results found.
On Starting Out
Judging from the headlines, it would seem an inauspicious time to start a company. The national rate of unemployment is high; the economy might have recovered from crisis, but growth is tepid, and confidence is low; myriad regulations and taxes supposedly stifle entrepreneurship; and our nation is deeply indebted. Many argue the country lacks the capacityand perhaps the willto invest properly in its own future. Whatever the case, it would not seem a particularly hospitable climate in which to launch a venture.
On Money and Confidence
At this moment, the worlds central banks have undertaken what appear to be coordinated efforts at relief, easing liquidity by boosting money supply. This is a welcome move, as liquidity has been strained. My concern is that while this monetary stimulus is necessary, it is not sufficient to achieve financial stability. Unless confidence is restored specifically, by repairing balance sheet solvency growth will remain tepid, and markets range-bound.
On Teflon and Emerging Market Currencies
Investors can distinguish between the fundamental health of EM credit which is, as some have suggested, strong and the still fragile currencies of those markets. Rapid unwinding of capital flows may do quick damage to local currency EM bonds, wiping out fixed income investors expectations for current income. EM credit denominated in U.S. dollars may be a viable alternative. EM currencies may offer desirable diversification, and they may even be a good investment but they remain speculative, and should not be considered a safe haven.
On Flexibility, and Why the World Needs More of It
I hold no illusions about the gravity of the current sovereign crisis. The intractable nature of such large debts has sapped confidence. Most of Europe is saddled with unsustainable obligations, and a decade of fiscal profligacy has put the U.S. on a trajectory to match Europes worst. The West must put its fiscal house in order. All that stated, I want to be clear about what I view as our central problem today: the world is not growing fast enough. The challenge we face is, first and foremost, one of growth, and not necessarily one of debt.
On Brazilian Investment
In my last commentary, I presented some basic evidence that suggested that Brazil?s long-term record of capital investment is not particularly impressive. Specifically, Brazil?s rate of ?fixed capital formation? was cumulatively 16.9% of GDP over the past two decades. This is the lowest rate among the vaunted ?BRIICS? emerging markets; it also falls below that of the U.S. at 18.2%. In my view, this figure is both surprising and disappointing. It?s surprising because a developing country such as Brazil should have great scope for productive investment.
On The Importance of Sustained Capital Investment Part 2
This commentary revisits the topic. It presents basic evidence to support the idea that sustained capital investment is critical in the context of developing markets. The data presented below is gathered from several countries, so as to allow for comparison across emerging markets. Admittedly, the workings of macro economies are highly complex, and drawing detailed conclusions about them is tricky. Nonetheless, national statistics do reveal the general outline of an economy and its underpinnings. That?s how I intend to use the data here ? to make broad inferences only.
On the Importance of Sustained Capital Investment, Part 1
I have placed greater emphasis on identifying companies that maintain steady investment programs. I prefer companies that are committed to the careful but consistent development of the markets in which they operate. My premise is that such companies are more likely to generate sustained, long-term growth.
On the Uses and Abuses of Discount Rates
When investors search the world for opportunity, do they value a dollar of profit from Indonesia six times more than a dollar from South Korea? I doubt they do. Yet large and misleading discrepancies can arise when investors rely heavily on discount rates in valuation models to determine the relative attractiveness of foreign assets. Discount rates are useful when determining the intrinsic value of a single asset, but in my opinion, they should not be a primary determinant in the allocation between multiple assets.
On China's Provincial Finances, and the Prospect of Their Reform
Interesting and potentially important news has emerged from China over the past few days. Reuters has reported on two different stories: first, it announced that the Chinese government plans to shift 3 trillion yuan ($463 billion) in bank borrowings away from provincial governments that are struggling to repay their debts. It appears that the central government will assume some of those debts, and pay some off; and it may force commercial banks to write off the remainder. Second, after a long delay, the government will finally lift a ban on the issuance of municipal bonds.
Hedging In an Inflationary World
by Andrew Foster,
These days, given the complex web of global financial transactions in which companies are enmeshed, it is unrealistic to expect management to avoid hedging. When I invest, however, I search for companies that follow simple, consistent, and short-term hedging policies ? and whose business models are strong enough to adapt to the inherent volatility and uncertainty of the marketplace.
On Stockpiling and the Commodity Cycle
Commodity prices have been in a secular bull market for the better part of a decade?subject only to temporary, albeit violent corrections. Three main explanations have been offered for the trend. The first is that demand from emerging markets is fueling price increases, as the developing countries consume tremendous amounts of raw materials in pursuit of growth. The second is that the dollar is being debased, which in turn is stoking inflation in hard assets. The third argument is that the world is facing a crisis of limits: commodity prices are surging as finite resources are being depleted.
Double-Invoicing and the Yuan
It?s widely held that the Chinese yuan is a ?cheap? currency, and that it is undervalued relative to the U.S. dollar. I agree, especially in light of how expensive some foreign currencies appear to be. However, I would quickly caveat my opinion by clarifying that it applies only to a long-term horizon. If you are looking for pessimism regarding the yuan, there is no shortage of popular arguments against it, but I will leave that aside for now. By examining a little-known practice called ?double-invoicing,? we can observe commercial traders? preference for the yuan versus other currencies.
Decoupling, Further Defined
Emerging market equities? particularly those sectors most associated with decoupling themes?are now subject to elevated valuations. It appears that some investors have grown overly convinced that decoupling is a one-way, short-term bet. Don?t bet on it. Instead, take your time, and set any expectations for decoupling over the longest horizons.
Indonesia--Rubber Must Hit the Road
For a decade now, corporate capital expenditure in Indonesia has grown at a rate much faster than that of the overall economy, but from a woefully small base. Even today, such expenditure hovers near 2% of GDP. By contrast, India?another county that has suffered from chronic underinvestment in the past?has managed to expand its investment to 7% to 8% of GDP. If Indonesia is to meet its potential and live up to the lofty expectations of investors, there is no time to lose: rubber must hit the road.
Postcard from Japan: Before the Dawn
Matthews Asia portfolio manager Andrew Foster recently returned from Japan, where he met with companies from a variety of industries. As in past trips, many of these companies seemed to be resting on their laurels, even as present growth was flagging. During this most recent visit, however, a subset of companies in different industries seemed to share a realistic outlook, combined with a sense of urgency to improve performance. Each of these companies cited the strength of the yen as a key factor that would allow them to execute overseas acquisitions, especially in the U.S.
Postcard from the Shanghai Expo
Two weeks ago, Matthews Asia portfolio manager Andrew Foster attended the 2010 World Expo underway in Shanghai. The theme of the expo, 'Better City, Better Life,' is intended to demonstrate the benefits of better urban planning, smart growth and a stronger emphasis on the environment. Its message was juxtaposed, however, against the reality that much of the country's growth has been fueled by construction and heavy investment. And while the expo does illustrate China's first steps toward openness, fewer than 2 percent of event participants came from abroad.
A Lengthening Shadow
The Reserve Bank of Australia announced February 2 that it would leave its key policy rate unchanged following an announcement by Chinese authorities that they would reduce stimulus to their economy. Analysts expected a rate increase based on domestic conditions. The RBA?s announcement suggests that the countries of the Asia Pacific region are moving tacitly toward harmonized currencies and interest rate cycles, dictated by the business cycles of the largest economies of the region.
19 results found.