LB Lux SICAV-FIS Act One Fund UNDERSTANDING FINANCIAL MARKET WITH AN ASSESSEMENT OF GLOBAL ECONOMIC TRENDS

Transcription

1 Apostolos D. Constantinidis LB Lux SICAV-FIS Act One Fund UNDERSTANDING FINANCIAL MARKET COMPLEXITY WITH AN ASSESSEMENT OF GLOBAL ECONOMIC TRENDS

2 INVESTMENT MANAGEMENT vs. ECONOMIC REALITIES Subject: Financial Micro-Analysis Science is the sum of intellectual data in the same way that a house is a sum of tiles. But it does not mean that a pile of tiles makes a house. Henri Poincaret ( ) French scientist believed to be among the first researchers to deal with the problems of chaos and complexity. Subject: Financial Macro-Analysis "Economics is not just politics. There is more to human progress than aggregate statistics of growth. We have to ask the right questions and concentrate on what matters to people." Amartya Sen, Nobel economist WEF 2008

3 A SWITCH FROM FINANCE TO ECONOMICS? O CS? World Economic Forum, DAVOS, Switzerland, 2008: Is economic history about to change course? Among the chieftains of politics and industry gathering in Davos for the World Economic Forum on Wednesday, a consensus appears to be building that the capitalist system is in for one of those rare and tempestuous mutations that give rise to a new set of economic policies. (*) (*) Time to turn attention the role of Institutions in economic growth as studied by Douglas C. North (Nobel economist, 1993)

4 ANOTHER MAJOR IMBALANCE: THE GLOBAL WEALTH DISTRIBUTION Economic policy implications in developing economies The richest 2 percent of adults in the world own more than 50 % (half) the world's wealth (40 % in 2000). The richest 10 percent of adults in the world own 85 % of the world's wealth. The assets of half of the world's adult population account for barely 1 percent of global wealth. And the rest 40 % of the world s population owns 14 % of global wealth. According to a new study released by the Helsinki based World Institute for According to a new study released by the Helsinki-based World Institute for Development Economics Research of the United Nations University.

5 GLOBAL FINANCIAL MARKETS TAKE OFTEN LONG AND RANDOM WALKS Visualisation of GPS data from people walking on the Greenwich peninsula (London, UK) The Bio Mapping project allows the recording of Galvanic Skin Response (GSR), which is a simple indicator of emotional arousal in conjunction with their geographical g location. This can be used to plot a map that highlights point of high and low arousal. By this data one can construct maps that visualise where a community might feel stressed and excited.

6 INVESTMENT IMPLICATIONS High volatility in all asset classes (Bonds, Stocks, Commodities, Currencies) Factors of stress in the financial markets: Active traders cannot sustain their current positions due to higher h cost of lending and appreciation of carry-trade currencies (Yen). The unregulated shadow banking system suffers losses that affect the global banking system (i.e. through leverage, debt securitization). Confidence must be restored, by a combination of new policies, but this process will take some time due to the need for global coordination.

7 INTERNATIONAL TRADE IS COMPLEX A network using the product classifications by E. Leamer. The size of the nodes is proportional to the money moved by industries in World Trade. To give a sense of the proximity in his network - dark red and blue indicate for strong links; yellow and light blue weaker ones.

8 WHAT PRODUCTS AND SERVICES ARE IMPORTANT WHAT PRODUCTS AND SERVICES ARE IMPORTANT IN EACH ECONOMIC ZONE

9 INVESTMENT IMPLICATIONS TREND TOWARDS MORE PROTECTIONISM & PROMOTION OF LOCAL COMPARATIVE ADVANTAGES Some examples: CHINA Low-cost industrial products INDIA Growth of services & software sectors JAPAN Concentration on high technology EU Quality industrial & branded products US Banking, technology and branded products Russia Energy, raw materials and heavy industries

10 WHAT IS THE BEST INVESTMENT STRATEGY FOR EQUITY SELECTION IN A VOLATILE MARKETPLACE? IDENTIFY COMPANIES WELL EQUIPED TO TAKE ADVANTAGE OF FUTURE GROWTH : Companies that promote long-term stability against short-term term shareholder value growth Attract a loyal shareholder structure Have enough own resources (innovation, adaptive to change) Have low level of debt Their growth is not dependent on share price valuation Offer quality that justifies some kind of pricing power Adopt realistic management incentives (use of stock options)

11 CLOSING ARGUMENT an advice for investment managers IT IS BY LOGIC THAT WE PROVE, BUT BY INTUITION THAT WE DISCOVER Henri Poincaret