- Equities to outperform bonds as the economic recovery continues across the world
- UK economic data has now improved significantly with growth forecasts for next year revised upwards
- First months of 2014 will be crucial for Japan – though Barings confident government policy heading in right direction
Strong economic momentum in the UK and successful government reforms in Japan will drive equity growth in both markets in 2014, according to Baring Asset Management (Barings), the international investment firm. The firm maintains a preference for UK and Japanese equities within the Baring Multi Asset Fund, and has increased its overall weighting in equities in the Fund due to bullish global economic developments.
Barings believes that economic prospects for the UK are well supported while earnings expectations have not been subject to the same degree of over-enthusiasm that some parts of the world have experienced. For Japan, 2013 has witnessed an excellent performance from Japanese equities as the government’s policy of renewed asset purchases has taken hold.
Andrew Cole, Investment Manager, Baring Multi Asset Fund, comments: “While the ongoing strengthening of Sterling as a result of better economic data and the prospect of rising concerns about a change in government ahead of the 2015 election could make us reassess our view on the sector, we believe UK fundamentals remain strong. We also remain positive on Japanese equities though the government now faces the delicate task of dealing with politically sensitive structural issues, such as the reform of the labour market. We are confident that government policy is heading in the right direction and that the necessary adjustments will be made. However, the first months of 2014 will be crucial for Japan and we remain vigilant.”
Overall, Barings is positive on global economic prospects for 2014, observing that US economic data continues to improve with the recent government shutdown only stalling upward growth. The changeover in leadership at the Federal Reserve, with Janet Yellen assuming the role of chairman in February 2014, also suggests that monetary policy will remain in its current accommodative state. In terms of Europe, although the Eurozone has not shown the same growth overall, the German economy is still expanding and should help drive a regional recovery.
Andrew Cole adds: “Looking into next year, we expect the global economic recovery to remain on track, with inflation remaining benign. Central banks will look to become less active in their attempts to support the global economy, gradually reducing their asset purchase programmes over time. This suggests that bond yields will slowly rise, as investors look to reduce their exposure to this asset class, in the absence of any major negative shock to economic growth.”
In the equity sphere, Barings believes that current share price valuations are reasonable, and can tolerate a small rise in government bond yields without overly damaging their potential for further growth. As a result, Barings remains positioned for further outperformance in equities over bonds, although it recognises that equities are no longer quite as attractively valued as they were previously. With a higher weighting in equities in the Fund than at the same time last year, Barings has looked to provide some protection through the use of put options in case bonds witness a more dramatic rise in yields or if corporate earnings suffer greater downgrades than expected.
Andrew Cole concludes: “Over the summer we increased our exposure to interest rate risk as expectations of a change in Federal Reserve policy faded. We are now looking to take profits on this position and also to reduce the interest rate sensitivity in the portfolio. We continue to expect equities to outperform bonds as the economic recovery continues around the world. However, markets are likely to be more volatile and we will continue to monitor for any significant changes in policy by central banks or developments in earnings expectations.”
Why the future of VC investment will be more about ‘venture building’ than equity share
By Shawn Tan, CEO of Skymind
We all know that historically the VC industry has been based on the belief that if one portfolio company goes bust, it doesn’t really matter. The bigger bet is that another portfolio company’s breakout success will override the losses of the rest. It isn’t surprising then that there are plenty of VC horror stories, which are not difficult to find.
Whether it’s the M&A bait and switch or sacrificing future profitability, the old ways of doing VC can be famously detrimental to entrepreneurs. For example, a founder who sells their startup for $1 billion could end up with less money in their account than someone who sold for $100 million.
It can take multiple funding rounds to reach the billion-dollar valuation, with each round chipping away at the founder’s stake in the company. Ultimately founders can end up with a tinier slice of a larger pie when the truth is that the bigger portion of the smaller pie could have been much more valuable.
Yet over the last decade, the VC market has exploded: Crunchbase shows more than $1.5 trillion invested into venture capital deals globally over the past decade. VC isn’t going anywhere, but I believe it is evolving, and in the future, VC investment will place more emphasis on venture building rather than equity share.
Forward-thinking VCs will seek out innovations that are good for society and not just their business value, mirroring a rise in environmental, social, and governance (ESG) focused investing. Last year, 38% of financial professionals were using or recommending ESG funds, with nearly a third of financial professionals planning to expand their use or recommendation of ESG funds over the coming year.
This symbolises a paradigm shift into a more socially responsible form of capitalism, where there is an emphasis on serving “stakeholders” like customers, employees and communities as opposed to only shareholders. Beyond genuine environmental concern, ESG investing can also be seen as a risk-management strategy. There is more long-term viability for companies that are run sustainably, from both consumer and regulatory standpoints.
As a result, VCs will be looking for disruptive and tenacious founders. They will actively seek out entrepreneurs set on creating technology with the most significant social impact, who have plans to get their ideas to market as quickly as possible. The future of VC investment will be about creating true partnerships with the companies they support, which is the heart of venture building.
Venture capital has historically been about placing a certain amount of money in a company and hoping for a certain return. On the other hand, venture building requires much more from the investor: time, energy, services and expertise, alongside capital. Venture building is about selecting business ideas, creating teams, sourcing funds, supporting the ventures and supplying shared services.
It is about working closely with the entrepreneurs to supply them with an entire suite of service support, from financial backing to corporate client introductions and talent acquisition. The quality and dynamics of networks play a unique role in the venture building model. The model relies on sourcing a specific and unique blend of expertise to turbocharge portfolio companies faster than competitors.
In an increasingly globalised world with large-scale challenges never faced before, we firmly believe that venture building with ESG credentials will become the gold standard for investing in the future. We are excited to be taking this approach at Skymind, and we hope that it won’t be long before others follow our lead.
Skymind is the world’s leading open-source enterprise deep-learning software company and the first dedicated AI ecosystem builder, enabling companies and organisations to launch their AI applications and bring their business cases to life. We provide clients with supported access to Eclipse Deeplearning4j and other open source tools as well as global capital funding and talent development. Skymind is headquartered in London, UK, with offices across Asia and Europe. For more information visit the website. https://skymind.global/
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GameStop surges more than 18%, other ‘meme stocks’ also rally
By SinÃ©ad Carew and Lewis Krauskopf
(Reuters) – GameStop and other â€œmeme stocksâ€ mounted a late-day rally on Monday, with shares of the video game retailer climbing nearly 32% at one point on little apparent news.
Shares of the videogame retailer, along with other stocks favored by retail investors congregating in online forums such as Redditâ€™s popular WallStreetBets, have roared back in recent sessions after a wild ride in which they soared in late January and tumbled early last month.
Along with GameStop, which pared gains to close up 18.3%, cinema chain AMC Entertainment finished up 14.6% and headphone maker Koss added 13.4%.
At one point, GameStop, which closed at $120.40, reached a session peak of $133.99. Its low for the day was $99.97.
Some analysts said a tick higher in short positioning from last week may have provided some fuel for the rally. A short squeeze – in which a flurry of buying forces bearish investors to unwind their bets against the stock – was a key catalyst behind GameStopâ€™s late January run, when it gained as much as 1600% before reversing.
The number of GameStop shares shorted stood at 17.74 million, analytics firm S3 Partners said on Monday, with short interest accounting for about 32.6% of the float, compared with about 26% a week earlier, according to S3 Partners. Short interest peaked at 142% in early January, S3 data showed.
“We’re definitely seeing some of the shorts who came on over the past week probably covering and it’s helping boost today’s rally,” said Ihor Dusaniwsky, managing director of predictive analytics at S3. “Looking at today’s price movement, I’m sure these big red numbers are going to be chasing out quite a few shorts out of their positions.”
GameStop short sellers were down $331 million in mark-to-market losses on Monday, bringing year-to-date mark-to-market losses to $5.1 billion, according to Dusaniwsky.
More than 48 million shares in GameStop changed hands, with volume surpassing the 10-day moving average. So far the stock is up 539% year-to-dated. However, it was still below its Jan.28 peak of $483.
(Reporting by SinÃ©ad Carew and Lewis Krauskopf; Editing by Ira Iosebashvili and Dan Grebler)
Wall Street rallies on U.S. stimulus and vaccine hopes as bond markets calm
By Suzanne Barlyn
NEW YORK (Reuters) – Global equities markets rose and the S&P 500 on Monday had its best day since June 5, with investors taking lower U.S. bond yields in stride on optimism over the $1.9 trillion coronavirus relief bill and distribution of Johnson & Johnson’s newly authorized COVID-19 vaccine.
Wall Street’s rise follows a jump in European shares and solid gains on Asian stock markets.
Investor optimism that the J&J vaccine would further lift the economy is “giving a lift to all of the ‘go-to-work’ stocks” that benefit from businesses reopening, said Jim Awad, senior managing director at Clearstead Advisors in New York.
A stabilization of U.S. Treasury yields has also removed pressure from growth stocks, Awad said.
The Dow Jones Industrial Average rose 603.14 points, or 1.95%, to 31,535.51, the S&P 500 gained 90.67 points, or 2.38%, to 3,901.82 and the Nasdaq Composite added 396.48 points, or 3.01%, to 13,588.83.
The much-anticipated COVID-19 relief bill was passed in the U.S. House of Representatives on Saturday, and now moves to the Senate.
The pan-European STOXX 600 index rose 1.84% and MSCI’s gauge of stocks across the globe gained 2.01%.
Emerging market stocks rose 1.71%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.83% higher, while Japan’s Nikkei rose 2.41%.
Reports on manufacturing and factory activity showed strength in many developed economies on Monday, including a three-year high in the United States, which could keep inflation concerns on the radar.
Major sovereign bonds rallied on Monday as markets showed further signs of stabilization after their worst monthly performance in years.
Expectations of economic recovery and rising inflation boosted global benchmark bond yields in February to their biggest monthly rises in years. But the expected run-down of U.S. Treasury balances at the Federal Reserve has held down shorter-dated rates.
Benchmark 10-year Treasury notes last rose 8/32 in price to yield 1.429%, from 1.456% on Monday.
The coronavirus pandemic laid bare weaknesses in the financial system that should be addressed with new rules to prepare for the next shock, Fed Governor Lael Brainard said.
“We should not miss the opportunity to distill lessons from the COVID shock and institute reforms so our system is more resilient and better able to withstand a variety of possible shocks in the future,” Brainard said.
Gold prices rose as the retreat in U.S. Treasury yields helped to bolster its status as an inflation hedge, but a firmer dollar limited bullion’s advance.
Spot gold dropped 0.5% to $1,724.06 an ounce. U.S. gold futures fell 0.45% to $1,720.40 an ounce.
The dollar index rose to a three-week high as investors bet on faster growth and inflation in the United States, while the Australian dollar gained after Australia’s central bank increased its bond purchases in a bid to stem rapidly rising yields.
Bitcoin rose 6.70% to $48,719.02, with Citi saying the most popular cryptocurrency was at a “tipping point” and could become the preferred currency for international trade.
Goldman Sachs has restarted its cryptocurrency trading desk, a person familiar with the matter told Reuters.
U.S. crude recently fell 1.77% to $60.41 per barrel and Brent was at $63.45, down 1.51% on the day on fears that Chinese oil crude consumption is slowing and that OPEC may increase global supply following a meeting this week.
(GRAPHIC – Germany 10-year: https://fingfx.thomsonreuters.com/gfx/mkt/jbyprddzype/Germany%2010-year.png)
(Reporting by Suzanne Barlyn; Editing by Lisa Shumaker and Sonya Hepinstall)
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