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Posted On 09  Jul  2015  

Athens – the Greek tragedy and now the start of a slow recovery

A few weeks ago we wrote that the Greek drama will unfold with a European solution. We still believe that this is the best outcome for Greece. Here is our take on recent development and possible outcomes: Link  

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Posted On 03  Jul  2015  

China shares, volatility, margin trading and prospects

The SSE Composite Index rose from a level of around 2,000 to over 5,000 recently and has corrected by more than 1300 points over the last three weeks. In our previous notes many months ago we recommended that one should be long of China. So what has gone wrong and what is the likely scenario? The SSE Composit Index was launched in 1991 at a base value of 100. Today it’s value is 3684 (03/07/2015) having reached 5023 on June 5th, 2015. The sell-off is attributed to the unwinding of leveraged positions by retail investors. The retail investors are responsible for >80% of the daily trading volume of Chinese equities.  The Chinese market regulator (China Security Regulatory Commission) and brokers determine the workings of the markets by increasing or decreasing reserve requirements and increasing or decreasing margin requirements. This active oversight (control) forces participants to adjust their market exposures and

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Posted On 09  May  2015  

How to manage fixed income and credit portfolios?

In recent weeks the yield on the German 10-year bonds has soared. Sentiment turned from expecting negative yields in up to 20 years was reversed within days. So what can one expect going forward? Markets never behave rationally. Triggers for big sell offs may have very little to do with economic fundamentals. Unemployment in Europe remains high. Economic growth is sluggish. Long term demographics are not favorable. Sell offs can result from simple market dislocations and lack of liquidity. The concentration of assets in very big funds is dangerous. If BlackRock or PIMCO decide to change their asset allocations from bonds to cash or equities or alternatives or even decided to adjust the duration of their vast holdings, the rest of the bond investing community will be in serious trouble. Since simultaneous very large portfolio adjustments will be difficult, it is important to think about how to design portfolios that

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Posted On 04  May  2015  

Algoam Currency Management Strategies

Currencies are the most liquid markets in the world and often can be very volatile. The daily price movements can often exceed the interest rate differentials. With divergent monetary polices in the major economic blocks, currency volatility may rise. It is generally assumed that rising rates cause currencies to appreciate. There is no sustainable correlation between rising rates and rising currency values. Economic factors contribute a lot more to long term currency value developments. A great deal of progress has been made in understanding currency movements. Our understanding of the FX Carry Trade and how one can benefit from it and the risks it poses is better now because we’ve been monitoring FX Carry models for the last 10 years, both for high yield and G-10 currencies. The key lesson we have learnt is that currency and rate risks have to be managed. We also have a better understanding of

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Posted On 20  Jan  2015  

Are banking shares a buy in 2015?

In a deflationary world loose money policy has to be largely transmitted through the banking system. In the developed world there is a concerted effort to reflate. Low and negative interest rates, flat yield curves impact bank profits for some forms of lending. But bank margins over their cost of funds need not be impacted to the same extent. The benefits of low interest rates and low energy prices cannot be understated for bank customers who borrow. Their ability to service debt is enhanced. Default rates go down and corporate and retail client defaults for banks are not as costly because in a world where asset prices have to rise, recovery rates should also be higher. But when investing, one has to look at value as a starting point and one has to measure, monitor and manage market risks. Please have a look at out short piece on banks. Click

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Posted On 15  Dec  2014  

Crude realities of the energy markets

In order to perverse market share OPEC appears to be waging war against US shale oil producers. Sanctions and tumbling oil prices are having severe consequences on the Russian economy. Lower oil prices will have major impact for both oil importers as well as exporting economies. Algoam shares its views on the dynamics of energy markets. Please click here      

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Posted On 08  Dec  2014  

Closet trackers

According to the FT today, GBP 58bn is struck in UK closet trackers – fund managers who claim to be active managers but are in fact doing no more than tracking equity indices. The returns they deliver, after fees are then obviously less than passive investing. According to the Danish regulator, Finanstilsynet, almost 1/3 of the 188 domestic funds in Denmark could be classified as closet trackers. In the UK the estimate is that 46 per cent of fund managers are closet trackers. Market trackers such as the ones offered by Vanguard charge fees that are 80 per cent less compared with closet trackers. In Europe Eur 10tn is being managed by funds, the Brussels-based Financial Services User Group has found that, after fees that there is no asset class where active managers outperformed the index for the period 2003 to 2012. Only 20% of the asset managers who were

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Posted On 06  Dec  2014  

Bull or bear – should one care?

John Authers in the FT asks if we are still in a secular beat market. Most of us want to know if we are in a bull or bear market. Analysts use terms such as secular bull or bear markets and make it sound so profound. It is common to assess what it means by looking at the long term history and taking measures of P/E ratio or the labor market or look at inflation adjusted returns or comparisons of the stock market to the performance of Gold or Oil or Barbie dolls. What does it all mean? Let us look at the P/E ratio It is true that markets rally from distressed P/E’s in the single digits and correct from very high P/E’s when they are in the so called ‘bubble’ phase. But using P/E ratios to trade markets produces very poor results. Extreme P/E’s are only reached a

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Posted On 05  Dec  2014  

China Equity Markets

The fall in commodity prices in general and the price of oil in particular has significant positive consequences for the China growth story. Cornered with western sanctions, China has been able to strike a bargain long term deal on energy with Russia. Thus this is not a temporary stimulus. The slower growth and lower inflation has prompted easing of credit conditions with a first reduction in interest rates that is imminent. Lower inflation outlook will lead to lower rates. Tying the CNY to the dollar, however loosely, causes import of deflation into China. This can only prompt restructuring of the inefficient part of the economy and drive productivity growth. China isn’t going to give up its hard won market share of global trade, while it drives demand locally. The latest move to permit investors in Hong Kong to buy onshore stocks has fired up Chinese equities. This is only a

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Posted On 05  Dec  2014  

Distribution partners

Algoam is now offering its products via Banks and Interactive Brokers. We are looking to partner with individuals and organisation to distribute. If you like our product range and think that you have the scope to help in distribution, please contact us. We pay out a very significant percentage of the fees for distribution. For structured products there is scope to earn the fees upfront on completion of the transaction. Please contact us

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