Robert da Silva

The current economic landscape is full of major economic and political threats which have the power to devalue assets and destroy wealth, according to investment research firm van Eyk Research.

Speaking at van Eyk’s Annual Conference in Sydney yesterday, Robert da Silva, van Eyk deputy chief investment officer and head of manager research said the five biggest challenges facing investors were the unwinding of monetary stimulus by central banks, deflation across Europe and in the US, a further slowdown of China’s growth, and political instability and rising debt levels in the emerging markets.

“Unfortunately 2014 is unlikely to be as clear cut as 2013 which was an exceptional year for risky assets and a tale of woe for fixed income markets,” he said.

“The volatile economic environment and the change in valuations, with global equity markets delivering returns in the range of 20 per cent to 50 per cent last year, have made assessing the markets a very difficult task.”

Mr. da Silva told delegates to get comfortable with Fed tapering and the jittery markets that often followed any mention of it by central bankers and financial commentators.

He urged investors not to get caught up in the mania and panic that ensued after the release of vital economic data and to avoid costly buying and selling.

Instead he cited data which showed the benefits of sticking to long-term objectives and investment strategies.

“Tapering is here and the Fed has the difficult task of withdrawing its buying support of US Treasuries without upsetting the progress of a consistent but fragile economic recovery,” Mr. da Silva said.

“At the same time, core inflation in the US has been in a downward trend while unemployment remains higher than acceptable.  This must be reversed to avoid the possibility of inflation. Europe is grappling with similar issues and may require further easing.

Mr. da Silva said the emerging markets were being hit hard by the impact of tapering as well as political unrest, resurgent inflation, current account deficits, currency volatility and return on equity compression relative to developed markets.

“The long term view would look to the favourable demographics, productivity dividend, growing middle class and relative cost advantages that have attracted investors to emerging markets for decades, however, emerging market stocks have not performed as well as their developed market counterparts in the last 18 months,” he said.

“Furthermore, there is a laundry list of issues bedevilling emerging markets at the moment and volatility is likely to persist in the short term.”

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In a day packed full of high calibre speakers, delegates heard from an exciting lineup of international and local presenters on a diverse range of topics: from what stocks to buy in Brazil, to how to combat market volatility, to price dislocation in the seafood trade and what it tells us about financial markets.

Click here to read the conference wrap, a condensed sample of the ideas and trends highlighted on the day.

The post van Eyk 9th conference wrap up appeared first on AdviserVoice.

“Profits are heading only one way and that is south,” said Dr Baz, chief investment strategist at GLG Partners, one of the world’s largest hedge funds.”

He said the painful process of deleveraging that economies would have to go through had barely started, particularly in Europe, noting the total debt to GDP ratio in Europe had not changed since the onset of the global financial crisis.

Governments had few of the traditional weapons to offset the effects of debt reduction such as lower interest rates because these were already at near zero or zero.

“The crisis hasn’t even started and will take 15 years to resolve,” he said.

He noted that the sick economies of Europe would have to cut their wages by 25 per cent just to be competitive with Germany, something their populations would not tolerate.

“Even Mussolini couldn’t force such a wage decline in Italy,” he said.

The fact that European governments and Brussels were trying to impose this level of austerity on their populations showed the biggest deficit in Europe was a “deficit of democracy”.

Dr Baz said earnings forecasts for equities “were less about economics and more about theology” these days. Dividends were a better way of measuring valuations and on that basis equities were not cheap. Corporate bonds were better value; even US Treasury bonds were cheaper. He said the global equity risk premium over bonds was only 2.5 per cent when 5 per cent was more realistic given the economic situation.

However, there were some beaten down equity markets he advised investors should be overweight in, such as Russia, the Middle East and countries in Peripheral Europe.

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