AdviserVoiceInvestec Asset Management Archives - AdviserVoice https://www.adviservoice.com.au/tag/investec-asset-management/ Financial planner information & financial planner education/CPD - AdviserVoice Wed, 29 Jul 2026 21:30:27 +0000 en-US hourly 1 https://wordpress.org/?v=7.0.2 Investors should look to blocs, not BRICS https://www.adviservoice.com.au/2014/09/investors-look-blocs-brics/ https://www.adviservoice.com.au/2014/09/investors-look-blocs-brics/#respond Mon, 22 Sep 2014 22:00:40 +0000 https://adviservoice.com.au/?p=32965 Investec Asset Management’s visiting global strategist Michael Power suggests new framework for emerging markets investing
By grouping countries according to key economic characteristics, investors could guard against volatility.

By grouping countries according to key economic characteristics, investors could guard against volatility.

Emerging markets investors should move away from the flawed BRICs concept and frame the investment landscape in terms of country blocs that perform similarly as the macro environment evolves, according to Investec Asset Management Global Strategist, Dr Michael Power.

Dr Power presented an analogy where emerging markets were at the mercy of two tides – liquidity, governed by the ‘American moon’, and commodities, ruled by the ‘Chinese moon’.

By grouping countries according to key economic characteristics, investors could better understand how markets react to the movement of the two tides, and position themselves more intelligently against future volatility, he said.

“There are four main blocs within the emerging markets asset class, and they are not a matter of geography,” Dr Power said. “It’s more useful to firstly distinguish between whether a country tends to run a current account deficit or surplus, and secondly whether it is primarily a commodity or manufactured goods exporter.”

The new building blocs

Dr Power explained that by this theory, oil exporters could be grouped in the north-east bloc; sub-Saharan Africa, South America and Indonesia in the north-west bloc; Mexico, Eastern Europe, Turkey and the Indian sub-continent in the south-west bloc; and China-centred East Asia in the south-east bloc.

“The developed world can also be handily described by this matrix”, said Dr Power. “Oil-exporting Norway is in the north-east; Australia, Canada and New Zealand are in the north-west; the US and UK are in the south-west; and Japan, the Eurozone, Switzerland and Scandinavia are in the south-east.”

The financial health of the western bloc countries is closely tied to global liquidity, while the northern bloc’s prosperity is linked to the commodity cycle. “For instance, 2011 saw the high tide for commodities coincide with strong liquidity flows from quantitative easing. This was ideal for the north-west bloc, with both the Brazilian real and Australian dollar reaching their peak values,” he said.

Areas of focus for the future

Dr Power believes the south-eastern bloc, led by China-centred east Asia, presents the strongest opportunity for emerging market investors.

“The characteristics of this bloc tend to reduce the risk profile in all asset classes, in that they tend to create a less volatile economic environment,” he said.

“As a result, smart money – sovereign wealth funds in particular – are seeking a more focused exposure to this region.”

However, Dr Power explained the approach wasn’t foolproof, with regional events playing a role beyond the twin tides of liquidity and commodities.

“As evidenced by the Ukraine crisis, specific events can and do impact individual countries, more often negatively,” he said. “But for investors the bloc approach will make much more sense going forward than the BRIC approach, which is essentially an exercise in sizeism.”

]]> Investec Asset Management’s visiting global strategist Michael Power suggests new framework for emerging markets investing
By grouping countries according to key economic characteristics, investors could guard against volatility.

By grouping countries according to key economic characteristics, investors could guard against volatility.

Emerging markets investors should move away from the flawed BRICs concept and frame the investment landscape in terms of country blocs that perform similarly as the macro environment evolves, according to Investec Asset Management Global Strategist, Dr Michael Power.

Dr Power presented an analogy where emerging markets were at the mercy of two tides – liquidity, governed by the ‘American moon’, and commodities, ruled by the ‘Chinese moon’.

By grouping countries according to key economic characteristics, investors could better understand how markets react to the movement of the two tides, and position themselves more intelligently against future volatility, he said.

“There are four main blocs within the emerging markets asset class, and they are not a matter of geography,” Dr Power said. “It’s more useful to firstly distinguish between whether a country tends to run a current account deficit or surplus, and secondly whether it is primarily a commodity or manufactured goods exporter.”

The new building blocs

Dr Power explained that by this theory, oil exporters could be grouped in the north-east bloc; sub-Saharan Africa, South America and Indonesia in the north-west bloc; Mexico, Eastern Europe, Turkey and the Indian sub-continent in the south-west bloc; and China-centred East Asia in the south-east bloc.

“The developed world can also be handily described by this matrix”, said Dr Power. “Oil-exporting Norway is in the north-east; Australia, Canada and New Zealand are in the north-west; the US and UK are in the south-west; and Japan, the Eurozone, Switzerland and Scandinavia are in the south-east.”

The financial health of the western bloc countries is closely tied to global liquidity, while the northern bloc’s prosperity is linked to the commodity cycle. “For instance, 2011 saw the high tide for commodities coincide with strong liquidity flows from quantitative easing. This was ideal for the north-west bloc, with both the Brazilian real and Australian dollar reaching their peak values,” he said.

Areas of focus for the future

Dr Power believes the south-eastern bloc, led by China-centred east Asia, presents the strongest opportunity for emerging market investors.

“The characteristics of this bloc tend to reduce the risk profile in all asset classes, in that they tend to create a less volatile economic environment,” he said.

“As a result, smart money – sovereign wealth funds in particular – are seeking a more focused exposure to this region.”

However, Dr Power explained the approach wasn’t foolproof, with regional events playing a role beyond the twin tides of liquidity and commodities.

“As evidenced by the Ukraine crisis, specific events can and do impact individual countries, more often negatively,” he said. “But for investors the bloc approach will make much more sense going forward than the BRIC approach, which is essentially an exercise in sizeism.”

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]]> https://www.adviservoice.com.au/2014/09/investors-look-blocs-brics/feed/ 0 Quantitative easing creates investment ‘Waterworld’ https://www.adviservoice.com.au/2013/10/quantitative-easing-creates-investment-waterworld/ https://www.adviservoice.com.au/2013/10/quantitative-easing-creates-investment-waterworld/#respond Mon, 28 Oct 2013 20:45:51 +0000 https://adviservoice.com.au/?p=26121 Visiting global strategist Michael Power from Investec Asset Management suggests new safe havens for stranded investors

The enormous injections of liquidity via quantitative easing (QE) has created a financial ‘Waterworld’, flooding the global monetary system and significantly altering the investment landscape, according to Investec Asset Management Global Strategist, Dr Michael Power.

Dr Power, who is visiting Australia this week at the invitation of Investec Bank (Australia) Limited, presented an analogy with the 1995 Kevin Costner film, Waterworld, where humans were forced to navigate a submerged world.

Dr Power believes the almost limitless liquidity injected to the global monetary system has melted the monetary ice-caps, in the process destroying the traditional risk-free rate investing anchors – or “dry-land”.

“The concept of risk free investing, where capital invested earns a positive after-inflation return has underpinned fixed income and equity investing in the Western world over the last three decades,” Dr Power said. “However, the liquidity injection of central banks has moved developed markets interest rates underwater, sinking many safe haven returns below inflation.”

Expanding balance sheets

Dr Power explained that the ‘Waterworld’ has been created by the dramatic expansion of central bank balance sheets as governments around the world have taken on further debt since 2008. At the same time, the populations of developed economies of the West and Japan continue to age.

“Quantitative easing, in effect, is a frantic effort by Western and Japanese authorities to stop the natural deflation of their economies as the population ages and the size of their workforces start to shrink as a percentage of total population,” Dr Power said.

“Were technological advances and hence productivity so profoundly positive as to offset this demographic drag, economic growth would remain healthy. However, this does not seem to have been the case and Japan in particular has now endured two lost decades of growth and the question on where to invest is becoming more difficult to answer,” he said.

Where to find dry land?

Dr Power believes that the ultimate destination for capital is “dry-land” – in other words, new safe havens offering new risk free rates with real yields that reset the foundations upon which to base both fixed income and equity investment decisions.

According to Dr Power, the challenge for investors as navigators of capital will be to first preserve capital, navigate macroeconomic headwinds, and set course for emerging opportunities.

“As asset managers, we must see ourselves as the navigators of capital, unanchored from the traditional certainties of a positive-yielding risk-free rate. Our challenge is to choose the appropriate vessel, ensure capital is preserved and deal with the structural changes caused by central bank liquidity as new anchor points emerge,” said Dr Power.

He said many of the anchors will be located in emerging markets, and that inflows to Asian currencies already reflect this changing landscape.

“We believe safe havens should offer investors a risk free real return, not a return free risk, which is becoming increasingly difficult to find in developed markets,” he concluded.

]]> Visiting global strategist Michael Power from Investec Asset Management suggests new safe havens for stranded investors

The enormous injections of liquidity via quantitative easing (QE) has created a financial ‘Waterworld’, flooding the global monetary system and significantly altering the investment landscape, according to Investec Asset Management Global Strategist, Dr Michael Power.

Dr Power, who is visiting Australia this week at the invitation of Investec Bank (Australia) Limited, presented an analogy with the 1995 Kevin Costner film, Waterworld, where humans were forced to navigate a submerged world.

Dr Power believes the almost limitless liquidity injected to the global monetary system has melted the monetary ice-caps, in the process destroying the traditional risk-free rate investing anchors – or “dry-land”.

“The concept of risk free investing, where capital invested earns a positive after-inflation return has underpinned fixed income and equity investing in the Western world over the last three decades,” Dr Power said. “However, the liquidity injection of central banks has moved developed markets interest rates underwater, sinking many safe haven returns below inflation.”

Expanding balance sheets

Dr Power explained that the ‘Waterworld’ has been created by the dramatic expansion of central bank balance sheets as governments around the world have taken on further debt since 2008. At the same time, the populations of developed economies of the West and Japan continue to age.

“Quantitative easing, in effect, is a frantic effort by Western and Japanese authorities to stop the natural deflation of their economies as the population ages and the size of their workforces start to shrink as a percentage of total population,” Dr Power said.

“Were technological advances and hence productivity so profoundly positive as to offset this demographic drag, economic growth would remain healthy. However, this does not seem to have been the case and Japan in particular has now endured two lost decades of growth and the question on where to invest is becoming more difficult to answer,” he said.

Where to find dry land?

Dr Power believes that the ultimate destination for capital is “dry-land” – in other words, new safe havens offering new risk free rates with real yields that reset the foundations upon which to base both fixed income and equity investment decisions.

According to Dr Power, the challenge for investors as navigators of capital will be to first preserve capital, navigate macroeconomic headwinds, and set course for emerging opportunities.

“As asset managers, we must see ourselves as the navigators of capital, unanchored from the traditional certainties of a positive-yielding risk-free rate. Our challenge is to choose the appropriate vessel, ensure capital is preserved and deal with the structural changes caused by central bank liquidity as new anchor points emerge,” said Dr Power.

He said many of the anchors will be located in emerging markets, and that inflows to Asian currencies already reflect this changing landscape.

“We believe safe havens should offer investors a risk free real return, not a return free risk, which is becoming increasingly difficult to find in developed markets,” he concluded.

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