FMAP Convention 2016 Key Takeaways #1
As part of this year’s FMAP Annual Convention, Bradley Okita, CFA, shared the insight and experience he acquired over 25 years in Asset Management across the US, Europe and Asia with the audience. Okita is a managing director at Neuberger Berman, a 100% employee-owned asset management company with an AUM of USD 240 Billion. In his presentation, Bradley touched on common themes contributing to the recent financial market pessimism and volatility such as concerns of an economic slowdowns in both the US and China leading to a recession and “hard landing”, respectively therein, as well as in emerging markets. Bradley also cited a strong US Dollar, stubbornly low commodity prices and the prospect of further Fed interest rate hikes as key drivers of said bearish sentiment. Mr. Okita was more constructive than others in his observations given that, while said challenges to global economic growth are real and significant, the affected markets should prove more resilient than what valuations are currently pricing in.
In China, where the authorities recently guided 6.5% to 7% growth and promised a “soft-landing” rather than hard, double-digit consumption growth is already 2/3 of the economy and non-manufacturing PMI has been above 50 for several years. E-commerce, IT and tourism is standing out within the services sector. Chinese equities (CSI 300) are also undemanding at 11x on a 1-year forward PE basis versus its shorter-term historical mean of 15x. Also, while substantial fund outflows have occurred and the PBoC has had to defend the RMB peg with precious USD reserves, the quality of government policies and the communication of the same have improved. Bradley noted that part of the outflows were the normal overseas savings/investment of Chinese entities and pent up earnings of foreign companies in China which delayed repatriation due to foreign exchange rate concerns. And, for all the publicity surrounding Chinese leverage, bankrupty and default, Bradley expressed his confidence that the government could contain and manage the unpleasantness and pain to an orderly process and still “engineer” growth while the economy is in transition.
With regard to the EM and the US, meanwhile, Mr. Okita attributed much of the pessimism to very low commodity prices which may take a long to rebound. While an obvious driver of energy-dependent EM economic weakness, the price crash accounts for much of the friction in an otherwise rosy US employment, inflation and corporate earnings story. FMAP was appreciative of Bradley’s insight, which helped reassure jittery investors that the present volatility is only partly-supported and that the drivers of the same are likely transient.
Article by: Jose Luis C. Lim