While the whole world seems to be keen to invest in Vietnam, interest in Indonesia has cooled down considerably in recent years. Vietnam’s success story is based on privatizations, better protection of intellectual property and clear policy choices aimed at a rapid development of the export sector. In Indonesia, almost the opposite is happening: the government is becoming increasingly populistic to support the consumer, at the expense of business’s competitiveness. The big export companies stay away or leave for other Asian countries, and preferably Vietnam.
It’s proxy season! Throughout Q2, most publicly listed companies and their shareholders meet each other at the annual general meeting (AGM). During this time, shareholders can express their opinion about a company’s performance and strategy, which makes it an important period of the year. It is still the beginning phase of the proxy season, and a good time to reflect on our focus points for this year. So far this proxy season we have voted at over 300 meetings and we have attended a couple AGMs in person. This season, we emphasise three key issues; sustainability, board effectiveness and diversity, and the alignment of executive remuneration with company strategy.
The cost of hedging US Dollar assets into other currencies has gradually risen over the past years. During the first quarter of 2018, a sharp rise in US Libor has pushed this cost to a level that makes US Dollar fixed income assets much less attractive for non-US investors, such as European or Asian institutional investors, which have been large buyers of US Investment Grade Credit in recent years. We expect that this development will lead to less demand for US Credit during the remainder of this year. Euro-denominated Credit assets may benefit from this increase in hedging cost, as they represent the only Credit asset class that is not denominated in US Dollar, yet can compare with US Credit in terms of size and liquidity.
China is well known for its cultural wonders, such as the Great Wall of China, and also for the breakneck speed at which it has managed to modernise. Unfortunately, the country is also notorious for its grey skyline that is often clouded by pollution and fumes. Long-term smog exposure has slashed life expectancy in northern China by more than three years compared with the south, according to a new research at the University of Chicago.
Will 2018 be the third year in a row in which emerging equity markets outperform developed markets? Probably yes. Growth prospects are adequate and risks seem manageable. The main theme is an accelerating credit growth almost everywhere in the emerging world, so that both consumption and investments are on the rise after years of contraction. Risks are always there, but they now seem to be mainly country-specific and therefore not insurmountable for the emerging world as a whole.
I have noticed that many investors struggle with ESG data and how to apply it in their investment processes. In fact, a growing group believes that ESG issues are not material and have no added value. What's going on?
The 2013 Rana Plaza collapse in Bangladesh, which killed more than a thousand people and is considered the deadliest garment-factory incident in history, served as a warning to clothing producers about supply chain management issues. Similarly, the severe environmental impact of palm oil production has given many global food producers a wake-up call about supply chain management. These events remind us that environmental, social and governance (ESG) standards in emerging markets are in need of improvement, as a big part of the global supply chain is based there.
In 2015, China was seen as the biggest risk to the world economy. Two years later, this is completely reversed. China has managed to maintain growth, while economic imbalances are being reduced. In particular, rapid consumption growth through e-commerce channels has made China one of the best-performing emerging markets of 2017. The risk premiums on Chinese assets have fallen sharply as a result of the policy focus on debt reduction and productivity-enhancing reforms.
Impact investing, the investment strategy that intends to generate a measurable, beneficial social or environmental impact alongside a financial return, has many challenges. For example, one could easily be discouraged by the poor quality of data and the low level of understanding. Impact investing’s focus on changing the world makes it even more difficult than incorporating environmental, social and governance (ESG) factors. Most ESG analysis is still about assessing the current ESG state, although the more advanced ESG investors now focus on ESG improvement – a major driver of alpha generation as our research with the European Centre for Corporate Engagement (ECCE) has shown. Impact investing goes even further. It aims to bring about a vastly better state of the world – while being short of data and a common language than ESG.
In early August, Indonesia’s private power producer Paiton Energy successfully launched two long-dated bonds amounting to USD 2 billion. These project bonds – issued to finance the supply of electricity to the country’s state-owned utility Perusahaan Listrik Negara (PLN) – are currently among the first of their kind in the offshore Asian bond market.