Henley Global Masterclasses 2017 Henley Business School, Greenlands, Henley-on-Thames Friday 12 May 2017

Transcription

1 The End of the Golden Era for Global Investing Prof Sotiris Tsolacos International Capital Markets Association (ICMA) Centre and School of Real Estate & Planning Henley Global Masterclasses 2017 Henley Business School, Greenlands, Henley-on-Thames Friday 12 May 2017

2 Global Investing A strategy that is not constrained by geography in asset investment and selection 2

3 Global Financial Investing a Component of Globalisation 3

4 Global Financial Investing a Component of Globalisation 4

5 Relevance? Is our business international (markets, suppliers, operations, other)? + Indirect impact of globalisation on personal business and wealth General economic activity Our financial investments The way we vote Our pensions 5

6 Rationale For Financial Investment 6

7 Strategy and Execution 7

8 Typical Asset Allocations Equities Gov bonds Corporate bonds Real estate Infrastructure Commodities Currency Financing Other 8

9 An Allocation in Practice 9

10 Does Global Investing/Globalisation Bring Benefits? 10

11 Voices Against 11

12 (yoy %) World Has Become Wealthier World GDP per capita Source: World Bank 12

13 Unemployment (%) 30 Globalisation? Germany Greece Spain France UK United States 0 Source: Eurostat 13

14 Indeed, There Are Other Concerns 14

15 Indeed, There Are Other Concerns 15

16 Cons of Globalisation Often Referred To: 16

17 Negative Effects of Globalised Financial Investments Unaccounted or not well-understood political and economic risks Not as diversified as you think Carry Trade? Higher fees 17

18 Globalised Financial Markets Responsible for Crashes? 18

19 Globalisation or Something Else? and not only houses 19

20 Subprime Crisis Banks sold mortgages (homeowners could not eventually afford) to the secondary market, where they were repackaged and resold (CDOs). Credit rating agencies put high ratings on these investments to appear safer Some insurance companies insured CDOs but they did not for a a catastrophic collapse All was fine until economy deteriorated and jobs lost (house started to decline) - borrowers defaulted on these unsustainable mortgages. Those who had invested in the massive mortgage market, starting with Bear Stearns and ending with many financial institutions throughout the world, found they weren't protected from the risk.

21 Globalisation, EU or Risk Management Failure? Lack of control for years Maastricht criteria grossly abused for years 21

22 Golden Era of Global Investing Ending? Lower future returns? Retreat in capital flows? Higher geopolitical and other risks? False diversification? Return of protectionism? 22

23 Global Investing Trends There are pros and cons from investing overseas. Which strategy wins? What role will international investing play in portfolios? Will there be a retreat from going global? 23

24 Retreat of Globalisation in General? 24

25 Globalisation strengthens 25

26 What Goes Into the Index Economic Globalisation Social Globalisation Political Globalisation Trade Tariffs and barriers Taxes on international trad Other International tourism Television (per 1000 people) Number of McDonald s restaurants (per capita) Number of Ikea (per capita) Other Embassies in country International treaties Membership in international organisations Participation in U.N. Security Council Missions 26

27 Globalisation Trends (Index) Europe Asia N America S America Africa Oceania 10 0 Source: KOF 27

28 ($ billions) Foreign Direct Investment - Net Inflows Net inflows of investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital. This series shows total net FDI. Source: World Bank. 28

29 ($ billions) Portfolio Equity Investment - Net Inflows Portfolio equity includes net inflows from equity securities other than those recorded as direct investment and including shares, stocks, depository receipts and direct purchases of shares in local stock markets by foreign investors. Source: World Bank 29

30 REAL ESTATE GLOBAL OVERVIEW Global Volume By Sector Top 10 Countries Q1'17 Volume YTD 2017 Volume $b YOY Chg $b YOY Chg United States % % Germany % % United Kingdom % % Japan % % China % % France % % Spain % % Canada % % Hong Kong % % Sw eden % % $USD billions, data as at Source: Real Capital Analytics

31 Equity Returns in the U.S. (S&P500) (%) Source: Bloomberg, Yahoo Finance, Author 31

32 Equity Returns in Europe (Euronext Index) (%) Source: Bloomberg, Yahoo Finance, Author 32

33 Equity Returns in the UK (FTSE 100) (%) Source: Bloomberg, Yahoo Finance, Author 33

34 Equity Returns in Japan (Nikkei 225) (%) Source: Bloomberg, Yahoo Finance, Author 34

35 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Market Co-Movements Often Disturbed SP5 - FTSE100 SP5 - Euronext SP5 - Nikkei Regional -0.2 Global Source: Bloomberg, Yahoo Finance, Author 35

36 Take Aways Global investing will remain an investment strategy BUT and more work to source opportunities o Increasing regulation o Occurrence of major cycles will not be averted such cycles will still occur 36

37 The competent investor will make less money The naive investor will lose less money 37

38 Assessment The competent investor will make less money The ignorant investor will lose less money 38