deVere Names Goldman Sachs Asset Management as One of the Preferred Fund Advisors
The deVere Group, the world’s largest independent financial advisory, is proud to announce that it has selected Goldman Sachs Asset Management as one of its preferred Fund Advisers to provide exclusive investment management solutions to its clients.
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Courtesty of Goldman Sachs – weekly update.
The S&P advanced above its earlier highs for the year on Thursday, surpassing the highs seen since May 2008. Many other equity markets also enjoyed one of the best sessions in a long time. The recently beleaguered Chinese A-share market also had its best one-day performance in a long time.
Unsurprisingly, many people remain highly sceptical of the sustainability of this rally. In many ways, as one of the minority bulls out there, this is rather pleasing. Let the wall of worry rally continue!
Technically, the break of the year’s previous high by the S&P, at around the 1426 area, occurring in the first ‘back-to-school’ week of September suggests momentum is now supportive of other arguments, primarily valuation driven, to cause the positive sentiment to continue. The question is, of course, why?
The ECB’s Moves.
The most obvious starting point for a more optimistic stance were the pronouncements from the ECB on Thursday. After having already contributed to a rather pleasant August, including a huge decline in short-term interest rates in peripheral Europe, it wasn’t so easy for President Draghi to deliver a positive surprise. Moreover, Mario didn’t unveil anything that hadn’t been broadly expected in the days that led up to the ECB meeting. Instead, the ECB President essentially reaffirmed the clarity with which he spoke on Thursday 26th July, some six weeks ago. Just as on that beautiful day, the sun shone brightly – at least in London – so it did on Thursday. Draghi, in my judgement, said in the clearest terms on both days, the ECB regards keeping the Euro alive and functioning as central to its role and this is not to be doubted. Expressed in terms of the convertibility premium and with various issues for us all still to contemplate – currently led by whether Spain will ask for formal help – the message remains, at least to some of us, loud as well as clear.
But Will Europe Remain Weak?
Amongst many arguments the bears understandably make, is one that whatever the determination of the ECB (and perhaps others), the underlying fundamentals for economic growth in the Euro zone are so negative that the Euro zone project will remain plagued with an environment that means it will not survive. Maybe.
Most recent Euro-area cyclical economic data continues to be disappointing with the August manufacturing and services PMIs highlighting the weakness. Indeed the ‘final’ PMIs were weaker than the early ‘flash’ ones. This suggests momentum may still be deteriorating, or at least did through August.
However, there are three points the bearish voices should at least consider.
One, historically the Euro area has generally derived its aggregate economic performance as a ‘taker’ from the rest of the world and not from domestic Euro-area driven demand.
Two, as shown in the attached chart, Euro area financial conditions have eased considerably in 2012, especially in recent weeks prompted by the ECB’s action. While the statistical reliability of an FCI-type indicator as a leading indicator is less reliable than elsewhere, such as the US and China, it is very difficult to argue that such a degree of FCI easing is an unwelcome development. On the contrary, it is surely a rather helpful and welcome one, especially for the peripheral economies that have experienced most of this easing. Will the PMIs be so weak for the rest of the year and into 2013?
Three, as I’ve touched on previously, there are signs that some troubled Euro-area countries are improving their competitiveness. Credible measures of unit labour costs, as I have shown, demonstrate while there are plenty more required, improvements have recently taken place.
China and the BRICs.
In last week’s Viewpoint, I focussed on the dilemmas surrounding China. We now await the monthly Chinese economic data releases. Based on their disappointing August PMI, which fell to 49.2, there’s no doubt the data will be soft. However, as I argued last week, the markets probably have to get used to a ‘new’ China, for which growth in the 7-8% vicinity will be the norm. Consumption will increasingly drive the growth of GDP, not exports or State-directed investment. One key sign of such recognition will be for leading sell-side financial firms to lower their 2012 and 2013 GDP forecasts to the 7-8% range, and in recent days some of the more prominent ones have begun to do so. GSAM have been assuming real GDP growth of 8% for 2013, and 7.5% for the decade as a whole.
A second point, related to the August data releases and China’s own financial conditions, is that I am looking forward to the release of the monetary and credit data to observe whether there are any signs of impact from the easing of Chinese monetary policy. If there are signs of a pick-up in monetary growth, then in my judgement, believers of the ‘soft landing’ school of Chinese thought can rest more easily.
I continue to think being long all things related to Chinese consumption, and short all things related to Chinese production will yield investment reward. One such example, that I have previously highlighted, is the slightly odd combination of being short the Australian Dollar and long China A-shares.
The US. Better Except Where it Wasn’t!
While the global media airwaves were dominated by the post-Labor Day electioneering antics of the Republications and Democrats, last week’s US economic data releases were largely better than expected, particularly the latest weekly jobs claims and the ADP estimate of monthly job changes. I am writing this on Friday morning UK-time and have made the extremely risky assumption that the latter portrayed a stronger payrolls estimate due to be released early morning US time Friday. The better data extended to the non-manufacturing ISM August Survey which rose to 53.7, surprising forecasters and contradicting the earlier, more worrying, slowing in the August manufacturing ISM survey. This latter development was a rather more disturbing release, not least as its key components also exhibited weakness. On top of all this, Fed Chairman Bernanke made it very clear in Jackson Hole that the Fed believes more QE will be necessary and forthcoming if unemployment declines don’t start to accelerate. His speech was a victory for those that believe the Fed, at least under Bernanke, think the trend rate of US GDP growth has not been dramatically weakened by the 2008-09 crisis.
The UK. The Olympics Really Were Good!
As the long period of athletics celebration comes to an end with the London sunshine present, the published UK data has suddenly taken a turn for the better. Both the manufacturing and services PMI indicators for August showed significant improvements. This was sufficient to result in a composite indicator to rise back notably to the 50.0 area. This suggests, once again, that the notion that the UK is mired in recession is rather questionable.
On top of these pleasant data surprises, August ‘silly’ season was sufficiently silly that the ‘back-to-school’ UK Government has added further steps to boost the economy. These have included some unclear signs, but nonetheless signs that the Government is going to start its own small business lending bank. Could it be that the Government is stimulating an improving economy?
In addition to this, there was another interesting speech from Jackson Hole that pertained to the UK. In what was one of the most sensible things I have seen from any western policymaker for some time, the Bank of England’s Andy Haldane made a sophisticated but also simple plea for regulation to be much less complex. Hopefully, his fellow central bankers (and regulatory colleagues elsewhere) were taking note. This alone was reason for the sun to shine.
Markets and So On.
When I returned from my August break last weekend, I had the privilege of being in the Away end at Southampton FC, and witnessing the startling hat-trick of Van Persie to give United that rather undeserved victory. As one of my pals pointed out, we had forgotten under the current ownership, what it is like to sign a truly proven, class footballer. This, with sensible comments from UK and European policymakers and the sun shining… it’s all a bit nice isn’t it? Enjoy!