Investment Insights Podcast – Japan: Sunset on the Horizon?

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager & International Strategist

On this week’s podcast (recorded April 29, 2016), Stuart puts the focus on Japan and their struggling economy especially on the current political climate and its economic impact.

Why talk about Japan?

  • It’s the third largest economy in the world.
  • It’s one of the world’s leading lenders to the rest of the world, including the U.S.
  • Political fallout and economic downside loom if monetary easing policy is not accompanied with fiscal progress.

What’s the latest?

  • On April 27, the Bank of Japan decided not to add to currently high quantitative easing, greatly disappointing the markets.
  • The Japanese Yen appreciated over 2% (versus the U.S. dollar), that’s a negative given that two-thirds of the equity market is based towards overseas earnings.

How did Japan get here?

  • Back in 2013, Shinzo Abe inspired hope to reinvigorate the economy through the three arrows: monetary policy, fiscal stimulus, and structural reform.
  • The reality is there has been little-to-no follow through on fiscal policy or structural reform.
  • Bank of Japan has created a massive QE program, owning one out of every three long-duration government bonds.

Japan_Chart_1

So, did the quantitative easing measures work?

  • QE helped asset prices, but did not reset inflationary expectations nor economic growth (GDP around 1%).
  • Japanese corporations aren’t investing back into Japan, but rather overseas.
  • Negative interest rates have resulted in a deceleration in bank lending.

That’s not great, but what does that mean exactly?

  • Failure in Japan could also have implications for global markets.
  • Despite stagnant growth for parts of the last three decades, Japan remains the third largest economy and second largest equity market.
  • Japan is also one of the largest holders of U.S. Treasuries.

Shoot me straight here, has Japan entered into the “sunset” phase?

  • It appears likely that Japan still has liquidity to muddle through its problems for now, but one cannot rule out a more negative scenario with the latest inaction and failure to improve the economy.
  • Fiscal stimulus could come in light of the recent earthquake, but progress on tax code reform and increased spending would provide longer-lasting relief.
  • One potentially negative scenario could come in July if a larger-than-expected victory for the opposition happens–this could lead to general elections and the departure of Abe causing policy uncertainty and higher volatility.

Please click here to listen to the full recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

Investment Insights Podcast – Brazil: Does Instability Bring Hope?

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager & International Strategist

On this week’s podcast (recorded March 21, 2016), Stuart weighs in on all things Brazil especially on the current political climate and its economic impact.

Why talk about Brazil?

  • It’s the eighth largest economy in the world.
  • It’s the largest economy in Latin America.
  • For the last several years, it’s been a large drag on emerging market economic growth.

So, what’s been happening?

  • Brazilian markets shifted from a bear to a bull in March, as currency rebounded and markets followed.
  • There is increased hope for major political change as the current administration under President Dilma Rousseff faces potential impeachment.
  • Rousseff’s approval rating has plummeted (62% now disapprove) since her reelection in 2014 amid political scandal and economic stagnation.

Let’s talk about this scandal

  • In what has been labeled “Operation Car Wash”, the two-year investigation centers around corruption between oil giant Petrobras involving dozens of corporate executives and political figures.
  • Rousseff was head of Petrobras until 2010, prior to taking office.
  • Former Brazilian President Luiz Inácio Lula, who was to be Rousseff’s Chief of Staff, has been implicated on bribery charges.
  • Encouraged by massive protests, opposing politicians have called for a formal impeachment process to begin.

How does this begin to shape the Brazilian economy?

  • The prospect of a new start in Brazil bodes well for markets–Brazilian index has risen over 27% in 2016, currency has appreciated 10% in March alone.

That’s great, but there’s more to it

  • The path to impeachment is murky and should not be taken for granted.
  • Operation Car Wash has indicted politicians from both the current regime and the opposition.
  • Even with the possibility of a new government, political consensus on structural reform appears evasive for Brazil.
  • Pensions, infrastructure, and autonomy of the central bank are important to address in order to revive the Brazilian economy.

 Where does Brazil stand now?

  • Overall, the economy is in a difficult situation–GDP declined in 2015 and is set to decline again in 2016.
  • Inflation continues to rise and exceeds targets set by Central Bank.
  • Unemployment and bad credit also continue to rise.
  • Given that Brazil represents over half of the GDP and total population of Latin America, economic prospects are important for growth.

Please click here to listen to the full recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

International Insights Podcast – Greek Tragedy Revisited After the Referendum

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

This audio podcast was recorded July 6, 2015:

Stuart’s podcast provides an update on Greece following this weekend’s referendum vote.

Highlights of the discussion include:

  • Greece itself is a known issue; however, secondary contagion impacts are not known
  • More caution on Europe; potential fallout on other risk markets
  • Areas to watch: level of EUR, peripheral bond spreads and politics

Click here to listen to the full audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

International Insights Podcast – Greece: How Bad Is It?

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

This audio podcast was recorded June 29, 2015:

Not surprisingly, Stuart’s podcast this week features the unnerving situation in Greece and the ripple effect it may have on a global scale.

Highlights of the discussion include:

In short…

  • The breakdown in negotiations between Greece and its creditors justifiably disappointed the markets.
  • Our sense is the end of the world has not come yet.
    • Primary links to Europe and world economy appear small and manageable.
    • Secondary links to Europe are murkier but not visible near term.
  • Watch economics and politics in peripheral Europe for further direction.

So, what about the near-term?

  • Do not underestimate Europe’s ability to prolong the agony (though it appears they are trying to force Greece’s hand even with the announced July 5 referendum).
  • Multiple scenarios could happen:
    • Best case is that Greece gets new government more willing to cut a deal
    • Worst case is Grexit and passive EU institutions

Does that mean it’s time to panic?

  • Primary links appear relatively minor and obvious
    • Most of Greece’s €340bn debt held by large government institutions (ECB, EU, IMF)
    • Direct trade links are small
    • Greek economy is small relative to Europe and the world
  • Secondary impacts less clear
    • Near-term hit to European confidence and economic growth
    • Medium-term credibility issue to the euro as a concept – in event of Grexit, should we worry about who is next?
      • Examples:
        • Italy – lower popular political support for euro (though ruling coalition supports Euro)
        • Spain – pending 4Q15 elections (one opposition party Podemos with minority of votes considers itself kindred to the ruling Greek Syriza party)
        • France – greater need for fiscal tightening, most popular anti-Euro populist party in LePen National Front

What to keep an eye on if things are getting worse or better

  • The euro
  • Peripheral bond spreads (Italy, Spain vs. Germany)
  • Greek referendum (Does it even happen? “Yes” a good result, but does it result in new negotiations and/or change of government?)
  • Popularity of other populist political parties in other parts of Europe (Spain, France, Italy)

Click here to listen to the full audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

International Insights Podcast – Europe and Negative Interest Rates

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

This audio podcast was recorded March 19, 2015:

Stuart’s International Insights Podcast focuses on a new and growing phenomenon in European fixed income–negative interest rates

Highlights of the discussion include:

How did we get here?:

  • ECB QE drove bond values up and yields down
  • One out of every five euros of government debt trades with a negative interest rate (0 such securities existed in the summer of last year)
  • Non-ECB banks Switzerland and Sweden cutting interest rates to dissuade capital inflows in an effort to manage exchange rate
  • Asset managers and insurance companies trying to fund longer-term liabilities but they earn lower or negative spreads without price appreciation.

Potential implications:

  • Scenario 1: Little to no economic growth
    • Near-term, stimulative to European equities
    • Potentially helpful to the U.S. dollar, but less so for export earning of large U.S. companies
  • Scenario 2: Moderate to high economic growth
    • ECB potentially steps back to review QE perhaps pushing bond yields upward
    • Fixed income globally would be most at risk

Click here to listen to the full audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

International Insights Podcast – Implications of Major Central Bank Moves in Switzerland and India

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

This audio podcast was recorded January 15, 2015:

Stuart’s International Insights Podcast focuses on small markets potentially creating big implications for global markets.

Highlights of the discussion include:

Switzerland:

  • Central bank cut interest rates and removed the link of the Swiss franc to the euro
  • Background discussion and what it means for global currencies
  • Losers: carry trades, mortgage holders in Eastern Europe, Austrian banks

India:

  • Central bank cut interest rates modestly, but still sent a major global signal
  • Falling inflation and government reform both key for future cuts
  • Major emerging market able to stimulate growth while others are doing the opposite

Click here to listen to the full audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

 

International Insights Podcast – Greek Tragedy Revisited

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

This audio podcast was recorded December 30, 2014:

Stuart’s International Insights Podcast focuses on Greece.

Three-point summary:

  1. Greece has reemerged in world headlines, although it might be more bark than bite (but with risks to the downside for Europe). Important to keep an eye on general elections in Spain later in 2015.
  2. Greek government collapsed as they failed to elect a new president by December 29. General elections set for January 25. Anti-austerity party leads polls, but markets seem to mostly understand current issues and that debt is held mainly by multilateral institutions–not private banks.
  3. Impact on Europe is small and does not hurt prospects for full-blown QE. However, Greece highlights the toll that comes with a lack of structural reform (and divided popular support) on sagging growth prospects in the EU.

Click here to listen to the full audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

International Insights Podcast – Elections, Opportunity, and Risk in Japan

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager and International Strategist

This audio podcast was recorded November 24, 2014:

Stuart’s International Insights Podcast focuses in specifically on the elections and economics in Japan.

Highlights of the discussion include:

  • Early parliamentary elections this December will be a key signpost.
  • Central bank policy is aggressive, while structural reform needs improvement.
  • Opportunities arise in the forms of deflation changing to inflation, valuation, and flow of funds.
  • Risks include sustainability and investment.

Click here to listen to the full audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.