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IRAN ELECTIONS ON 19TH MAY: WHAT INVESTORS NEED TO KNOW

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IRAN ELECTIONS ON 19TH MAY: WHAT INVESTORS NEED TO KNOW

By Arthur Snell, Managing Director, PGI Intelligence

  • Moderate President Hassan Rouhani is the favourite to win the election on 19 May, although recent criticism on his economic record and foreign policy has increased uncertainty around the outcome.
  • Irrespective of the winner, Iran’s investment climate will continue to experience uncertainty. If Rouhani wins, conservatives in rival political and religious institutions will continue to try and derail his reform agenda while an electoral defeat for the incumbent would empower hardliners in the security establishment to reverse efforts to make the country more attractive for external investors.
  • Remaining US sanctions will also continue to limit foreign investment, especially with relations between Washington and Tehran expected to worsen under President Trump.

Rouhani vulnerable but remains favourite

Although accurate polling remains problematic in Iran, recent surveys have consistently indicated Rouhani remains vulnerable on the economy and the landmark 2015 nuclear deal, or Joint Comprehensive Program of Action (JPCOA). The nuclear deal is inextricably linked to Rouhani, and, according to a poll released in January by the Centre for International and Security Studies at Maryland (CISSM), nearly 73 percent of Iranians agreed that economic conditions had failed to improve after the deal and 51 percent felt the situation was deteriorating. A survey released by Iran Poll in April found similar levels of discontent over the economy and the nuclear deal, with more than 40 percent saying Rouhani was “somewhat likely” to lose the election and a further 14 percent suggesting his defeat was “very likely.”

However, despite increased public scrutiny and criticism, historical precedent and disunity among Rouhani’s rivals suggests that it is still likely he will secure a second term. Since Khamenei’s presidency in 1981, all Iranian presidents have successfully secured two terms in office, and notwithstanding recent pressures, Rouhani appears to remain among the most popular figures in the country. In the 2013 presidential election, conservatives failed to unite around a single candidate, and a similar situation may again bolster Rouhani’s electoral prospects. Jamna has struggled to agree on nominees and a rival principlist faction, the Steadfastness Front, has reiterated its opposition to the conservative umbrella group. In a major challenge to the Supreme Leader, former president Mahmoud Ahmadinejad registered for the race on 12 April after Khamenei had explicitly advised him not to do so months earlier. Ahmadinejad’s entrance could be a tactical move to pressure the Guardian Council, which must approve all candidates, from disqualifying his former vice president Hamid Baghaei, who is reportedly under investigation over corruption. Barring both Baghaei and Ahmadinejad could subject authorities to criticism that they are marginalising their supporters, and separately serves as a further indication of disunity within the conservative camp.

The brief campaign season and lack of clarity around presidential challengers only increases the level of uncertainty around the vote. More than 1,600 people have registered to run in the 19 May election and the supervisory Guardian Council is expected to publish a final list of approved candidates on 24 April. Campaigning will commence three days later and continue until 17 May. Symbolising the uncertainty, Rouhani’s first Vice President EshaqJahangiri has registered to run in the unlikely event that the incumbent himself is disqualified.

Investors challenges irrespective of the outcome

Rouhani’s failure to secure a second term would derail the president’s campaign to reduce the political and economic influence of the IRGC. Rouhani has sought to implement reforms, including modernising Iran’s financial and banking system, to attract more foreign investment and provide greater confidence to investors. Should he lose, the already powerful and conservative military and security establishment could see its influence grow, and Iran may embrace insular and protectionist policies designed to minimise its vulnerability to external events.

Even under the most likely scenario, in which Rouhani remains in office for another four years, investors will continue to face complex political and economic conditions. Conservatives in parliament, the security services, media and other powerful institutions will continue to challenge Rouhani amid long-standing factional competition for influence. Underscoring the consequences of this political manoeuvring, in March, Rouhani accused the judiciary of impeding efforts to attract investment, citing the arrest of an unnamed investor. The president will retain only limited powers to push back against efforts by the courts and security services to protect their own interests by discouraging investors, also evidenced by the repeated arrests of dual Iranian nationals in recent months.

Rouhani will also continue to face resistance to the implementation of necessary economic reforms. In June 2016, the Financial Action Task Force (FATF), an intergovernmental anti-money laundering body, agreed to suspend some restrictions on Iran while the country implemented reforms to address deficiencies in its financial and banking system that serve to deter Western financial institutions. Engagement with the FATF has however triggered heavy criticism from conservatives, including in parliament, who argue working with the body could damage national security and cut off Iranian entities, including those affiliated with the IRGC, from the financial system. The inclusion of IRGC-affiliated entities on a shortlist of Iranian businesses approved for partnerships with foreign oil companies is also indicative of the concessions Rouhani will be forced to make to other powerful factions that could ultimately weaken his administration’s outreach to investors.

Sanctions risk and hostile US relations

Uncertainty around sanctions and Iran’s foreign relations will remain a major challenge for the investment climate. The IMF noted in a February report that although Iran had made an “impressive” economic recovery in the past year, anxiety over the nuclear deal and the country’s foreign relations, especially with the US, had created “renewed uncertainty” that threatened the “anticipated recovery”. In November 2016 France’s Total became the first major Western investor in Iran with a USD 2 bn deal for the giant South Pars gas field. However, to avoid US sanctions and minimise exposure to Iran’s financial system, Total said it would use its own euro-denominated cash for the project and receive payment in the form of condensates that it would sell on international markets. Total also appointed a full-time official to monitor sanctions compliance and said that a final decision on the project was dependent on an extension of US waivers of sanctions on Iran. The renewal of the waivers is due to take place in mid-2017, though in April Secretary of State Rex Tillerson announced a planned review whether lifting sanctions on Iran was in US interests despite acknowledging Iran was complying with the nuclear deal.

The increasingly hostile international climate facing Iran since late 2016 is likely to impact the country’s investment prospects. The presidency of Donald Trump has the potential to result in a significant escalation of already heightened tensions between Iran and its rivals. Trump has previously stated his opposition to the nuclear deal and key advisors, including Defence Secretary James Mattis, have urged a tougher stance on Iran. It is unlikely Trump will unilaterally withdraw from the 2015 nuclear agreement JCPOA given the legal, diplomatic and political fallout that would follow. However, his administration could seriously undermine the nuclear deal by pressuring Western companies not to do business in Iran, withholding official compliance guidance around the enforcement of Iran-related sanctions, or creating uncertainty around sanctions waivers.

Washington could increase tensions further by imposing additional unilateral sanctions, as it did in February in response to a ballistic missile test. Both the administration and US Congress are considering designating the IRGC as a Foreign Terrorist Organisation, a provocative move that would increase the complexity of doing business in Iran given the organisation’s vast economic interests. Such a decision would likely elicit a hostile response from the IRGC or its proxies, including possibly Shi’a militias in Iraq who could threaten US soldiers in the country. Trump has also said his administration will step up cooperation with Israel and Saudi Arabia, Iran’s primary rivals in the region, including against Iran-backed Houthi rebels in Yemen.

There is also a growing threat of a direct confrontation between the US and Iran, or Iran-backed forces, in maritime flashpoints in Strait of Hormuz and Bab el-Mandeb strait. In January 2016, Iranian forces captured 10 US sailors, and it took the intervention of then US secretary of state John Kerry, and his Iranian counterpart Mohammad JavadZarif – two diplomats who forged a working relationship during the nuclear talks – to secure their release hours later. However, the change in the US administration is likely to complicate diplomatic efforts to prevent or contain the escalation of any future crises in proxy battlefields such as Iraq or disputes over implementation of the nuclear deal.

END

By Arthur Snell, Managing Director, PGI Intelligence. Arthur is a former intelligence officer and diplomat. Operationally he has served in most of the world’s troubled and conflicted areas including Iraq, Afghanistan and Yemen, as well as Nigeria and Zimbabwe. From 2011 – 2014 he was Britain’s High Commissioner to the Republic of Trinidad and Tobago, based in Port of Spain. Since 2014 he has worked in the business intelligence and risk management industry and has wide experience supporting major companies and national governments on managing their policy, regulatory and security risks.

http://pgitl.com/

Investing

Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations

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Northern Trust: Outsourcing Accelerates Through Pandemic as Investment Managers Seek to Improve Margins, Enhance Business Resilience, and Future-Proof Operations 1

White Paper Sees Increase in Managers Outsourcing Middle and Front Office Functions to Achieve Optimal Business Structures

According to a white paper published today by Northern Trust (Nasdaq: NTRS), investment managers of all sizes and strategies have been prompted to undertake a comprehensive review of their operating models as a result of the Covid-19 pandemic which has accelerated existing trends that are compounding cost pressures. This has led increasing numbers of managers to outsource in-house dealing and other functions, such as foreign exchange and transition management, hitherto seen as core.

While cost savings remain a core driver, and indeed are one outcome of outsourcing, costs are no longer the only focus. Far from being solely a defensive reaction to increased pressure on margins, the white paper (‘From Niche to Norm’) describes outsourcing as part of the target operating model, or moving toward the ‘Optimal State’ for many investment managers, and  explains how the focus “has expanded to the variety of other potential benefits offered – enhanced capabilities, improved governance and operational resilience.”

Gary Paulin, global head of Integrated Trading Solutions at Northern Trust Capital Markets said: “The pandemic has challenged a range of operational assumptions. Working from home has, for example, questioned the need for a portfolio manager to be in close proximity with the dealing desk. Previously considered essential, the pandemic has effectively forced firms to ‘outsource‘ their trading desks to remote working setups and the effectiveness of this process has disproved the requirement for proximity, in turn, easing the path to third-party outsourcing. Many investment managers are actively considering outsourcing to a hyper-scale, expert provider as a potential, cost efficient solution – one that maintains service quality and, hopefully, improves it whilst adding resiliency.”

Northern Trust’s white paper compares outsourced trading to software-as-a-service stating: “instead of carrying the cost and complexity of running an in-house solution, firms move to an outsourced one, free up capital to invest in strategic growth and move costs from a fixed to a variable basis in line with the direction of travel for revenues.” 

Guy Gibson, global head of Institutional Brokerage at Northern Trust Capital Markets said: “The opportunity to deploy capital to build new fund structures, develop new offerings, focus on distribution and enhance in-house research has been taken up by several of our clients to the benefit of their investment approach, and to the benefit of their investors.  Additionally, in the last two months alone, many firms have recognized that outsourcing to a well-capitalized, global platform has enabled them to take advantage of cost-contained growth opportunities in new markets.”

A further development, which has echoes of the journey the technology industry has already undertaken, is the move towards ‘whole office’ solutions, which represent the next potential wave in outsourcing.

According to Paulin; “recently we have observed a growing number of managers wanting to outsource to a single, hyper-scale professional service provider who can do everything, everywhere. This aligns with Northern Trust’s strategy to deliver platform solutions for the whole office, serving our clients’ needs across the entire investment lifecycle.”

The white paper can be downloaded here.

Integrated Trading Solutions is Northern Trust’s outsourced trading capability that combines worldwide locations and trading expertise in equities and fixed income and derivatives with access to global markets, high-quality liquidity and an integrated middle and back office service as well as other services, such as FX. It helps asset owners and asset managers to meaningfully lower costs, reduce risk, manage regulatory compliance and enhance transparency and operational efficiency.

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How are investors traversing the UK’s transition out of lockdown?

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How are investors traversing the UK’s transition out of lockdown? 2

By Giles Coghlan, Chief Currency Analyst, HYCM

Just when we thought we had overcome the initial health challenges posed by COVID-19, the UK Government has once again introduced lockdown measures in certain regions to curb a rise in new cases. This is happening at a time when the government is trying to bring about the country’s post-pandemic recovery and prevent a prolonged economic downturn.

This is the reality of the “new normal” – a constant battle to both contain the spread of the virus but also avoid extended economic stagnation.

Of course, no matter how many policies are introduced to spur on investment, traders and investors are likely to act with caution for the foreseeable future. There are simply too many unknowns to content with at the moment.

To try and measure investor sentiment towards different asset classes at present, HYCM recently commissioned research to uncover which assets investors are planning to invest in over the coming 12 months. After surveying over 900 UK-based investors, our figures show just how COVID-19 has affected different investor portfolios. I have analysed the key findings below.

Cash retreat

At present, it seems that by far the most common asset class for investors is cash savings, with 78% of investors identifying as having some form of savings in a bank account. Other popular assets were stocks and shares (48%) and property (38%). While not surprising, when viewed in the context of investor’s future plans for investment, it becomes evident that security, above all else, is what investors are currently seeking.

A third of those surveyed (32%) said that they intended to put more of their wealth into their savings account, the most common strategy by far among those surveyed. This was followed by stocks and shares (21%), property (17%), and fixed interest securities (17%).

When asked about what impact COVID-19 has had on their portfolios throughout 2020, 43% stated that their portfolio had decreased in value as a consequence of the pandemic. This has evidently had an effect on investors’ mindsets, with 73% stating that they were not planning on making any major investment decisions for the rest of the year.

Looking at the road ahead

So, it seems that many investors are adopting a wait-and-see approach; hoping that the promise of a V-shaped recovery comes to fruition. The issue, however, is that this exact type of hesitancy when it comes to investing may well slow the pace of economic recovery. Financial markets need stimulus in order to help facilitate a post-pandemic economic resurgence, but if said financial stimulation only arrives once the recovery has already begun, the economy risks extended stagnation.

It seems, then, that there are two possible set outcomes on the path ahead. The first is a steady decline in COVID-19 cases, then an economic downturn as the markets correct themselves, followed by a return to relative economic stability. The second potential outcome is a second spike of COVID-19 cases which incurs a second nationwide lockdown – delaying an economic revival for the foreseeable future. At present, the former of these two scenarios is seemingly playing out with economic growth and GDP steadily increasing; but recent COVID-19 case upticks show that it’s still too soon to be certain of either scenario.

A cautious approach, therefore, will evidently remain the most common investment strategy looking ahead. But investors must remember that, even in the most uncertain times, there are always opportunities for returns on investment. Merely transforming a varied portfolio into cash savings risks a long-term decline in value.

High Risk Investment Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. For more information please refer to HYCM’s Risk Disclosure.

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Hatton Gardens 5 top tips for investing in Diamonds

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Hatton Gardens 5 top tips for investing in Diamonds 3

By Ben Stinson, Head of eCommerce at Diamonds Factory

Investing in diamonds can be extremely rewarding, but only if you know what to look for. For investors who lack experience, finding your diamond in the rough can be quite daunting.

For even the most beginner of diamond investors, the essentials are fairly obvious. For instance, you need to ask yourself will the diamond hold its value over time? What’s the overall condition of the stone and the jewellery? Is there history behind the item in question?

Although common sense plays a big part in investing, people often need insider tips and tricks to go from beginner to expert. Tony French, the in-house Diamond Consultant, at Diamonds Factory shares his professional knowledge on the 5 most important things to look for when investing in diamonds.

1: Using cut, weight and colour to determine value

Firstly, consider the shape, colour, and weight of your diamond, as this can play a pivotal role in guaranteeing growth in the value of your item. Granted, investing trends change with time, but a round cut of your diamond will almost always be the most sought after. The cut of your diamond is incredibly important, as it can influence the sparkle and therefore, the overall value. It’s a similar story for the intensity of some colours, such as Pink, Red, Blue, Green etc. Concerning weight, the heavier (bigger) stones will generally increase in value by a bigger percentage. Collectively these factors also contribute to the supply and demand aspect, which will determine their high price, and will ensure your item is re-sellable.

2: Provenance

Looking for significant value? Well, aim to own jewellery or diamonds that come from an important public figure. If you’re lucky enough to own a piece that has significant history, or was owned by a celebrity or person of interest, it’s an absolute must to have concrete evidence of this. Immediately, this proof will increase an item’s overall value, and there’s a good chance the stardom of your item might drum up interest amongst diehard fans, increasing the value even further…

Equally, it’s possible to proactively bring provenance to unique diamonds of yours. For instance, you can offer to loan bespoke, or unusual pieces for film, theatre, or TV performances – then it can be advertised as worn by xyz.

3: Find the source

Ben Stinson

Ben Stinson

Establishing your diamond’s source is one of the most important things you can do when investing in diamonds. If you’re starting out, try to purchase diamonds that have NOT been owned by too many people, as the overall value of the diamond will reflect multiple ownership. Alternatively, I’d always recommend buying from suppliers like ourselves or other suppliers and retailers, who buy directly from the people who have had them certified.

Primarily, this will allow you to have a greater degree of transparency, which is crucial when buying such a valuable item. Next, you should immediately see an increase in value of your diamonds, as identifying a source will allow traceability and therefore, market context.

4: Certification

Linked closely with my previous point, is the requirement to ensure that your diamonds are certified by a credible lab, and you have the evidence to prove so (a written document with specific grading details about your diamonds) – this will remove any doubts of impropriety.

It’s essential to remember that not all labs are the same, and many labs are better than others. Both the AGS (American Gem Society) and GIA (Gemological Institute of America) have great reputations and are world renowned. I’d recommend doing your own research into the labs, and when you’ve found the pieces that you’d like to invest in, then make an informed decision based upon your findings. Ultimately, proving certification will make your stones easier to insure, and deep down, you can have peace of mind knowing you have got what you have paid for.

Don’t forget to keep this paperwork in a safe location as well – you’d be surprised how many people we’ve met who have lost, or forget where they’ve placed it.

5:  Patience is a virtue…

If the market is strong, it might be tempting to look for an immediate sale once you’ve purchased a high value item. However, I suggest holding onto your diamonds for some time before even thinking about selling. More often than not, an item is more likely to increase in value over a few years than a few days – try and wait a little longer!

Equally, I would encourage having your diamonds, or jewellery professionally valued regularly. If you don’t have the knowledge to make a rough judgement on how much your pieces are worth, a consultant or expert can provide both a valuation, and contextualise that amount in the wider market. From there, you should be empowered with the knowledge to decide whether to keep or sell.

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