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Joseph Mariathasan: How should pension funds invest in EM?

first_imgAccording to a recent survey by Mallowstreet, 90% of its UK institutional investor respondents are either retaining existing allocations to emerging markets (EM) or increasing them. Only 2.5% are decreasing, and 7.5% still have no allocations.What should these investors be looking for, both in terms of investment opportunities and the underlying factors driving them? What is apparent is that is just sticking to market capitalisation indices as benchmarks is likely to be misguided for a number of reasons.MSCI recently announced the inclusion of Chinese A-shares in its indices, adding 222 shares to its Emerging Markets and ACWI benchmarks from June 2018. Longer term, if China continues to liberalise the A-shares market and MSCI is to fully include them, China’s weight in the MSCI Emerging Markets index could rise to 40.8% from 28%.As the index provider says, institutional investors who have not examined how A-shares might fit into their portfolios should not underestimate the work involved in preparing, creating and maintaining such an allocation. Would A-shares inclusion alter emerging markets’ role in asset allocation? What is China’s role in emerging market equity allocation? MSCI also states that a sensible starting point would be to revisit the role of emerging markets in the policy asset allocation, including how China fits into that sub-asset class. Investors considering EM equity investments have to first decide whether to adopt an active or a passive approach. The obvious attraction of passive investment is cost, but the problem with market-cap-weighted indices is that the better a stock does, the greater the weighting, so they have a pro-momentum and anti-value bias. In addition, investors sticking closely to cap-weighted market indices are getting little exposure to the grand themes driving EM growth – the increasing spending power of middle-income consumers and the favourable demographics of younger populations.Alternative approaches such as fundamental indices conceptually get round this problem but end up introducing new issues of even more pronounced sector skews: two-thirds of the index universe is composed of financial, energy and basic materials companies, while one company (Petrobras) accounts for 9% of the total market cap. Petrobras is very volatile and subject to political interference, as are many other large companies such as Samsung.Valuation dispersions are much higher in EM – and that means greater opportunities for active management. If investing in EM equities benefits from active management, then the logical conclusion is that investors should seriously consider investing in emerging market private equity. It represents a more active approach to investment than listed equities.Accessing attractive but widely dispersed EM private equity opportunities is a challenge for investors – funds-of-funds provide one accessible solution.Pension funds are still very wary of investing in EM private equity, but risks are misperceived and much lower than imagined. The opportunity set is very large. Until the 1800s, China and India represented more than 50% of global economic output and, by 2030, five of the 10 largest economies will be EM, according to the US Department of Agriculture.Four key economic segments – food and agriculture, cities, energy and materials, and healthcare – could create a few hundred million new jobs by this point, and almost 90% of them would be in EM. The optionality value of such investing is high, while the opportunity costs are low.At a time in which valuations of private equity investments in the US and Europe are very high, shifting to EM at much lower valuations does seem to make sense.last_img read more

Concerns grow in Jamaica as another schoolgirl is found murdered

first_imgIn Jamaica, on Monday a human rights and advocacy group called for more protection for children, and a junior government minister condemned as “cruel, inhumane and barbaric” the murder of a 14-year old secondary school student.The authorities said the mutilated body of 14-year-old Raven Wilson, a third form student of Ocho Rios High School in St Ann, was found in a plastic bag, meters from her home on Sunday, three days after she had been reported missing.Cold and heartless criminals “I. am seriously disturbed by the killing of yet another promising young girl, whose life was cut short by cold and heartless criminals. There is simply no justification for such cruelty against our children. The level of violence being meted out against them needs to stop, because it is robbing them of their right to life,” Minister of State in the Ministry of Education, Youth and Information, Floyd Green, said in a statement. He said that there seems to be a worrying trend in the recent spate of child murders with the perpetrators dismembering their victims.No stone will be left unturned “We want to send a clear message to these perpetrators that there will absolutely be no safe-haven for them. We continue to work assiduously with the police and will leave no stone unturned in ensuring they are brought to justice,” Green said, urging the community to come forward with any information that can assist the police with their investigations.40 children murdered in 2018The human rights group, Hear The Children’s Cry, is calling for the prosecution of persons involved in carrying out criminal acts on children. In a statement condemning the murder of Wilson, the group said “we have not even gone ten months of the year and nearly 40 children have already been murdered during 2018. That is double the usual gruesome annual statistic.The truth is, children in Jamaica are at terrible peril and are at the mercy of vicious criminals on a daily basis. They are not safe in their homes, they are not safe at school, they are in danger in their communities and on the roads, they are at horrible risk on public transportation, not to mention being vulnerable targets of pedophiles when they are online,” said the organization’s founder Betty Ann Blaine.Call for Emergency Child SummitShe repeated an earlier call for the government to convene an Emergency Child Summit to devise a plan to protect the nation’s children.Meanwhile, the ministry said a team of first responders from the Child Protection and Family Services Agency (CPFSA) will visit the Ocho Rios High School to conduct counselling sessions with affected children, followed by a home visit during the course of the week.Wilson’s death followed the killings of Shanoya Wray and Yetanya Francis, both 14, in Kingston last month.last_img read more

Incoming head of Iowa commodity group fears tough year ahead

first_imgRIPPEY — A farmer from west-central Iowa’s Greene County is taking the helm of the Iowa Soybean Association this fall but it comes with trepidation.Incoming president Tim Bardole of Rippey says these are very challenging times for soybean farmers. “It’s going to be a tough year,” Bardole says. “The association is funded from the Soybean Checkoff, a lot of it, and with the low prices, a tough planting season, there’s a lot of unknowns and a lot of budget issues.”Many commodities have seen poor prices for several straight years and they’re slow to recover, while Bardole says recent tariffs and trade troubles have made matters worse. “We need worldwide free trade,” Bardole says. “The U.S. farmer, even in tough times, we’re very good at producing soybeans and all of the other agricultural products. The U.S. definitely feeds the world.”Bardole took a trip to China earlier this year and saw up-close how that country’s enormous numbers depend heavily on American growers. “I’ve been to Malaysia and the Philippines,” Bardole says. “The world very much depends on U.S. agriculture for the good of their population.”While foreign travel helps Bardole learn to appreciate what challenges other nations face, he also sees how much they appreciate us. “We have a lot of responsibility to do what we do and to do it very well,” Bardole says. “When you go to these other countries and once they find that you’re a farmer from Iowa, the respect that you get is somewhat overwhelming.”Bardole will take office in September. He comes from a farming family and his father was the president of the I-S-A in the late 1980s. The Ankeny-based Iowa Soybean Association has 11,000 members.last_img read more