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Analysts haven’t been this negative on Emerging Markets since...
Capital Markets
<p>Analysts Haven’t Been this Negative on Emerging Markets Since the Financial Crisis Low in Stock Prices, and that’s Great for Investors!<br /> In simple terms, everyone has moved to the same side of the boat when it comes to expectations about the prospects of emerging market stocks. Not since the financial crisis nadir in stock prices have analysts of EM stocks been so bearish and quick to rerate expectations. Yet, amid all this negativity, there arises a fantastic opportunity for investors of EM stocks. As the famous Warren Buffet axiom states, “Be fearful when others are greedy and greedy when others are fearful”. To say that analysts are fearful would be an understatement. It could be that market expectations for EM stocks have moved to far negative and now could be an opportune time to increase exposure to this hated asset class. Enough commentary, let’s get to the charts.</p> <p>The first two charts below show the sales (first chart) and EPS (second chart) growth expectations for EM stocks. The blue line is the average stock’s growth expectation and the red line is the median stock’s growth expectation. Expectations for the next twelve months of growth have not been this low and falling since the market thought the world was going to implode in 2009.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>The next two charts show the percent of issues with higher sales (first chart) and EPS (second chart) expectations versus three months ago. These charts show for how many companies expectations are improving. The bottom line is that expectations are improving for the smallest percent of companies since the fall of 2008 when Lehman Brothers went bankrupt.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>Surely no one knows what the future holds and that is why investing is a game of probabilities. It seems to us the probability that expectations for EM stocks to be lower in six months time than they are now is slim.</p> <p>© GaveKal Capital</p> <p>This story originally appeared in Advisor Perspectives.<br /> Photo: Joe The Goat Farmer</p>
Daily Scan: Asian shares end the week higher
Capital Markets
<p>Updated throughout the day</p> <p>September 11</p> <p>Good evening everyone. With the Fed keeping the world on the edge of their seats, Asian shares went into risk-off mode once again with only the Shenzhen Composite and Japan’s broader Topix managing to eke out some gains. Here’s how Asia’s largest bourses did this week:</p> <p>&nbsp;<br /> Day<br /> Week</p> <p>Shanghai Composite<br /> +0.073<br /> +1.3%</p> <p>Shenzhen Composite<br /> +0.62%<br /> +3.8%</p> <p>Hang Seng Index<br /> -0.27%<br /> +3.2%</p> <p>Hang Seng China Enterprises Index<br /> -0.63%<br /> +6%</p> <p>Nikkei 225<br /> -0.19%<br /> +2.7%</p> <p>Topix<br /> +0.1%<br /> +2.5%</p> <p>The European markets meanwhile turned mostly negative, with the FTSE 100 slipping 0.2%, the Dax falling 0.5%, and the CAC sliding 0.3%. Since the Fed won’t give its decision until Thursday next week, I doubt anything’s going to change market-wise until then. Here’s what else you need to know:</p> <p>Non-OPEC oil production set to hit 24-year low. We all know that crude oil’s continued fall could mean bad news for the industry, but here’s the International Energy Agency to tell you just how bad it could get: “Oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day - the biggest decline in 24 years.” International Energy Agency </p> <p>Italian industrial output thrashes estimates. Proving how awesome Italians are, industrial output in the nation surged 1.1% in August, nearly double the 0.6% climb analysts have been expecting. Energy output’s 7.1% rise seemed to be the main driver behind the surge, while consumer good added another 1%. MarketWatch</p> <p>Indonesia sends troops to battle smog fires. More than 10,000 troops are being sent to fight fires in southern Sumatra, as smoke makes thousands sick, delays flights and pushes air quality to unhealthy levels in neighbouring Singapore and Malaysia. Channel News Asia</p> <p>Bank of Korea keeps rates unchanged. After slashing rates four times between August and June, the Bank of Korea kept its benchmark Base Rate unchanged this month at 1.50%. The prior cuts were mostly due to the MERS outbreak, which crippled the nation’s economy enough to force a government-backed stimulus package. While they’re not out of the woods yet economy-wise, the BOK “forecasts that the domestic economy will show a trend of recovery going forward.” Bank of Korea</p> <p>Moody’s takes on the SFC. In a closely-watched hearing at the Securities and Futures Appeals Tribunal, U.S.-based Moody’s has locked horns with Hong Kong’s Securities and Futures Commission over complaints that a 2011 report from the ratings agency was “shoddy.” The report was apparently titled “Red Flags for Emerging Market Companies: A Focus O</p>
GE looks to sell asset management arm
Asset Management
<p>General Electric is looking at a potential sale of its asset management arm, reports the Wall Street Journal.</p> <p>GE has expressed interest in cutting extraneous units to focus on its core industrial businesses. The asset management arm has $115 billion in assets from GE's U.S. benefits plans, as well as third party institutional investors. Proceeds of a potential sale will go to GE Pension Trust. GE Asset Management would still remain plan sponsor and fiduciary for the company's plan benefits following a sale.</p> <p>GE Asset Management is separate from the financial services unit GE Capital, but GE is moving to shrink that business as well.<br /> Photo: Diana Parkhouse<br /> &nbsp;</p>
Will VC valuations come down to earth?
Venture Capital
<p>Is the U.S. VC market in bubble territory? There’s no shortage of commentary on the subject, but the conversation was more theoretical before the stock market dipped in late August. For startups and their investors, high valuations feel more uncertain today than they did 12, six, even three months ago. Most of the data in this report is through the first half of 2015, before the stock market lost its footing. As such, they could represent a high point in round sizes and valuations across any—or all—stages. Even if stock prices recover over the next few months, it wouldn’t be surprising to see valuations come down to earth as the year progresses.</p> <p>Through June, however, valuations kept climbing. Seed valuations hit a median $6.1 million, a record. Markups at the seed stage have pushed up Series A and B valuations to $15.1 million and $41.4 million, respectively, up from already high medians of $12.6 million and $35.3 million in 2014. Later stage trajectories were even steeper, and arguably more vulnerable to the latest downturn in public markets. At a median $184 million, valuations at Series D and later stages are the most likely to get hit in the coming quarters. So-called “unicorns”, startups valued at $1 billion or higher, are set to get the most scrutiny. As we detail on page 13, the number of U.S.-based unicorns has almost doubled this year. Another 31 startups joined the club through August, on top of 32 new unicorns minted last year. It’s taken less time for this year’s unicorns to reach billion-dollar status; the time between their prior rounds and unicorn rounds fell to a median 1.1 years, and median valuation step-ups from those prior rounds fell to 2.1x compared to 10x in 2012.</p> <p>One reason for the rise in unicorns (and high valuations in general) has been a steady migration of mutual fund investors into the asset class. We dove into that trend on page 15 and found some interesting results. Late stage rounds with mutual fund participation skyrocketed in 2014 (no surprise there) and stayed high through 1H 2015. Starting this year, however, mutual funds have crowded into earlier stages, as well, causing the median early stage valuation (Series B and prior) to jump to $56 million. The 2014 median was a much more modest $13.6 million, about half of what it was in 2007.</p> <p>If U.S. VC activity is in for a correction, it’s going out on a high note. $21.8 billion worth of investments were inked in 2Q, yet another post-crisis record. The past five quarters have either nearly hit or eclipsed the $15 billion mark, compared to zero prior to 2Q 2014. At the same time, the number of rounds has steadily waned since the 2,200 seen in 1Q 2014. This past quarter’s total fell to 1,767, a 20% drop by count. The sharpest slowdown continues to be in later stage activity, tallying only 338 rounds in the second quarter versus 548 in 2Q 2014. Depending on investor sentiment, we might see further slowdown at the Series C and D stages, or at least a leveling off if VC firms are pressured to finance future pre-IPO rounds.</p>
Robert De Niro becoming Ponzi scheme king
Lifestyle, 4:01
<p>Just seven years after his arrest, Bernie Madoff is being immortalized in film.</p> <p>Robert De Niro and Michelle Pfeiffer will star in HBO's TV movie "The Wizard of Lies," reports Vanity Fair. De Niro will play Madoff, as portrayed by Diana Henriques' book, as well as Laurie Sandell's "Truth and Consequences." Pfeiffer plays Madoff's wife Ruth, Hank Azaria is Madoff's partner Frank Dipascali, and Alessandro Nivola is Madoff's son Mark.</p> <p>ABC is also producing a miniseries about the infamous Madoff, with Richard Dreyfuss and Blythe Danner staring as Madoff and his wife.</p> <p>The shows can't be flattering for the Madoff family, but Ruth at least will rest knowing she's been portrayed by two attractive leading ladies.<br /> Photo:_Untitled-1<br /> &nbsp;</p>
Legg Mason cracks into growing ETF field
Asset Management
<p>Legg Mason isn't one to be left out. The Baltimore-based asset manager is breaking into ETFs.</p> <p>The $696 billion, multi-boutique Legg Mason requested regulator approval for its first four ETFs last week, reports InvestmentNews. Legg Mason CEO Joseph Sullivan has pushed to revitalize his firm after it was decimated during  and after the financial crisis. The ever-popular ETFs offer Legg the growth Sullivan is so fervently seeking.</p> <p>The four new ETFs include: developed ex-U.S. diversified core ETF, emerging markets diversified core ETF, the U.S. diversified core ETF, and the low volatility high dividend ETF. Legg affiliate QS Investors has developed the proprietary technology for the funds.</p> <p>U.S. listed ETFs brought in $2.4 billion in net new assets last month, according to ETFGI. The funds are raking in cash, posting net inflows of $219.7 billion globally during the first eight months of 2015, a 16% increase from the same period during 2014.<br /> Photo: Liam Quinn</p>
The secret to looking engaged during meetings
Lifestyle, 4:01
<p>Put your phone away and pull out a pencil. No, not the new iPad Pro pencil.</p> <p>Phil Libin, co-founder and former CEO of Evernote, says that old-fashioned writing in a notebook is the best way to appear interested during meetings, writes Business Insider. Taking notes on a phone makes you look like you're texting, or worse checking out your dating apps. Clicking away on a laptop creates a literal and figurative barrier between you and the speaker. Paper and a pen on the other hand says, "'Man, this person really cares about me.' It totally flips the odometer the other way. You are signaling deep caring and interest," says Libin.</p> <p>Libin, who also founded CoreStreet and Engine 5, says the beauty of the notebook is that you don't even have to really be paying attention. "Even if you're just drawing houses and clouds and unicorns," people see someone alert and more interested in what they're saying than the guy on his phone, says Libin. That says a lot coming from a guy who designed a company around digitally taking and storing notes.</p> <p>The University of California, Los Angeles can back Libin up with some hard data. Hand writing forces the brain to reflect, understand, and encode more than typing does, researchers say. Laptop note takers don't process and reword comments like analog note takers do. They're too busy taking everything down verbatim.</p> <p>Libin says he likes to write down specific words and phrases in his notebook to jog his memory later. In between his unicorn doodles of course.<br /> Photo: Doodle Databáze</p>
Daily Scan: Stocks barely end with gains; Dems block Republican Iran disapproval resolution
Capital Markets
<p>Updated throughout the day</p> <p>September 10</p> <p>U.S. stocks had an up and down morning, dipping slightly at the open and rising a bit more midday. The Dow closed with a 0.5% gain, as did the S&amp;P 500. The Nasdaq added 0.8%. Prices for imported goods posted the biggest decline since January last month. Prices were down 1.8%, compared to expectations of a 1.7% drop. Oil gained 4% Thursday, edging close to the $46/barrel mark. The yield on the 10-year Treasury note rose to 2.227%. Don't forget to set your fantasy lineup! The NFL season kicks off tonight.</p> <p>Here is what else you need to know:</p> <p>Senate blocks GOP measure to kill Iran nuclear deal. Senate Democrats voted 58-42 to kill the Republicans'disapproval resolution of President Obama's nuclear deal with Iran. Politico</p> <p>U.S. to "scale up" acceptance of Syrian refugees. President Obama wants to admit at least 10,000 Syrians in the next fiscal year. These refugees would boost the total number of refugees allowed in the U.S. to 75,000 for 2016. CNN</p> <p>New species of human found in South Africa. Scientists have identified a previously unknown species of early human lineage dubbed Homo naledi. Naledi, which means "star" in Sesotho, is a nod to the area where the bones were found. New York Times</p> <p>Three Colombians charged in global money laundering ring. The U.S. is charging the men in laundering billions of dollars of drug trafficking money through bank accounts in China and Hong Kong. Other defendants remain at large. Reuters</p> <p>Died: Former Giants safety Tyler Sash. The 27-year-old professional football player died after being found unresponsive in his home Tuesday. Sash played two seasons for the Giants, including their Super Bowl win, but was cut in August 2013. Foul play isn't suspected, but Sash's death is under investigation. ESPN</p> <p>The Justice Department is asking companies to rat out their employees. Stung by accusations that the top cop in the nation let executives get away with criminal activity in the years leading up to the financial crisis, Justice says it won't consider cutting deals with corporations unless they get names of individuals who promoted allegedly illegal activities. A nationwide memo to prosecutors essentially says it's not enough to prosecute corporations and get fat fines. It's time to get the people who made the corporate decisions. New York Times (paywall)</p> <p>Weak data in China and Japan slap markets. So much for yesterday's soaring optimism. Concerns over China, fueled by producer prices falling for the 42nd month straight, and a surprise drop  in Japanese machinery orders, a gauge for capital spending in the country, helped put Asia's markets in reverse today. The Shanghai fell 1.39% and the</p>
Boston HF does away with 2 and 20
Hedge Funds
<p>We all know how hedge fund fees work. We give them an x amount of money, and then they charge us around 2% off that as a management fee. They then try to make a y amount of money using our x, and then charge us a 20% performance fee from the y that they made. What if they lose money? Well, there’s usually a clawback clause for that – but they still get to keep the 2%.</p> <p>It’s been that way for decades, millennia even, given that Alfred Winslow Jones copped the formula off Phoenician sailors. Two ex-Harvard endowment people however, seem to be trying to change that:<br /> “A pair of former Harvard University endowment executives have built the world’s largest stock-focused hedge fund with the opposite approach. Robert Atchinson and Phillip Gross let investors in their $28 billion Adage Capital Management LP keep almost all of their trading gains—and promise refunds if the fund’s performance falters.”<br /> According to the Wall Street Journal, Adage Capital charges just 0.5% annually plus 20% off gains in excess of the S&amp;P 500’s return. While that doesn’t look particularly anomalous at first glance, here’s the kicker: they keep half of their performance fee locked away for the rest of the year, and it gets awarded to them only if they beat the S&amp;P in the following year. What happens if they fall short? Well, it goes back to investors as a refund.</p> <p>The break from “tradition” seems to have brought Adage its fair share of fans; the firm saw its assets under management balloon from nearly $4 billion in 2001 to $28 billion in 2015, and ex-Harvard endowment head Jack Meyer had nothing but good things to say about their fee structure:<br /> “That’s how I think the world should look…I’m surprised it has taken the world so long to get there.”<br /> It has cost them a King’s ransom in fees though. Last year, when the fund was up 18.4%, Adage divvied up just $400 million in fees among its 26-strong staff, a massive sum by any measure, but still much less than an over $1 billion take they would have claimed had they done the usual 2 and 20 structure. No one seems to be complaining however, as the firm’s crew seems to be more interested in winning that getting on the Forbes list.</p> <p>Also impressive is the fact that they’ve only paid refunds on two occasions: in 2002 and in 2008, when the fund trailed the S&amp;P by 0.18% and 0.75% respectively.</p> <p>It also raises the question though; if their fee structure catches on – which I think it will – what does that mean for absolute return? I thought that was the whole point of hedge funds in the first place – to not be tied down by some benchmark and to just focus on making money, bull or bear market.</p> <p>Its different strokes I guess, but still, I'm curious what you have to say.<br /> Photo: GotCredit</p>
KKR snaps up stake in Marshall Wace
Asset Management
<p>Its competitors may be shutting down hedge funds right and left, but for private equity luminary KKR, now seems to be the time to get in, and in a big way.</p> <p>The Wall Street Journal reports that the vaunted private equity firm has taken a 24.9% stake in Marshall Wace (MW), the London-based, $22 billion long-short equity hedge fund run by Paul Marshall and Ian Wace.</p> <p>How much KKR valued its stake is currently unclear, though the acquisition was apparently a stock and cash deal with MW partners receiving 7.4 million shares in KKR worth $20 each.</p> <p>It isn’t just a straight-up purchase though; according to the Independent, the sale comes in two stages. The first involves an injection of cash from KKR which will be locked up until 2020, with the aforementioned KKR stock vesting in 2018, and in the next comes a possible 15% increase in KKR’s stake at the firm by 2019, with half of the additional proceeds reinvested in the fund and the other half used to snap up KKR stock until 2022, the time when Marshall, Wace, and Anthony Clarke get to cash out of the deal.</p> <p>None of them seem to be particularly eager to do so however, as Ian Wace told the WSJ:<br /> “We were never interested in a financial deal…This is all about the next 18 years of our life, not the first 18 years of our life.”<br /> The move effectively returns KKR smack bang on the hedge fund map, a place it was initially hesitant to join in and was ultimately unsuccessful at following the closure of its Goldman Sachs Principal Strategies group-manned hedge fund last year.<br /> Photo: Esther Dyson</p>