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Newton's Markham Recommends International Equities (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters.
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  Speaker 1: I'm Katherine Cowdery. The stock market is retreating, on track
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  Speaker 1: for its biggest drop in more than a month as
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  Speaker 1: investors turn risk averse. Socks have fallen from Japan to
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  Speaker 1: Europe as oils plunged into a bear market renews at
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  Speaker 1: global growth concerns. Consumer companies are taking big losses as
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  Speaker 1: investors worry about the health of the US economy. A
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  Speaker 1: report reinforced concerned that American consumers are losing power as
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  Speaker 1: wage gains remain as sluggish. We check the markets every
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  Speaker 1: fifteen minutes throughout the trading day. Dow industrial leverage is
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  Speaker 1: down eighty two points four tens of a percent trading
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  Speaker 1: at eighteen thousand, three hundred twenty two S and P
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  Speaker 1: five founded down twelve point six tents of a percent
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  Speaker 1: at eight then AZDAC is down thirty nine points three
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  Speaker 1: quarters of a percent at fifty four. West Texas intermediate
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  Speaker 1: crude oil down forty six cents of barrel one point
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  Speaker 1: one percent to spot gorolled up twelve dollars fifty cents
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  Speaker 1: announced at ten year treasury down five thirty seconds with
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  Speaker 1: the yield of one point five four percent. And that's
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  Speaker 1: a Bloomberg business flash. Catherine Calderie, thank you so very much.
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  Speaker 1: It is time now for the e t F report,
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  Speaker 1: brought to you by Sector Spider et F S. Why
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  Speaker 1: by a single stock when you can invest in the
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  Speaker 1: entire sector. Visits sector spdrs dot com or called one
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  Speaker 1: eight six sector e t F crops, our, cultural commodities
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  Speaker 1: and rainfall. Maybe there's an e t F that can
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  Speaker 1: help you make a bed house on All of that
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  Speaker 1: is going to work out. Catherine Cawtery is back with
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  Speaker 1: the day's et F report. Investors have turned against three
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  Speaker 1: of the largest US crops, betting a timely rainfall will
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  Speaker 1: further increase supplies of corn, wheat, and soybeans. Hedge funds
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  Speaker 1: and other money managers are now holding a record wager
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  Speaker 1: on further declines for weight. Sal Gilberti, president of two
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  Speaker 1: Griam Trading, recommends taking a longer term view of agricultural
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  Speaker 1: commodities through the use of his firm's exchange traded products.
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  Speaker 1: Long term trends and corn, along with soybeans and wheat,
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  Speaker 1: are the usage continues to increase. It's it's primarily driven
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  Speaker 1: by population growth. Globally, the population expands by roughly seventy
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  Speaker 1: five seventy eight million people per year. It's the equivalent
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  Speaker 1: of the population of California doubling every year as new
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  Speaker 1: added population on the planet Earth. Gilberti makes a case
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  Speaker 1: for corn, saying it's used for fuel to fill up
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  Speaker 1: your tank, is also an animal feed, and is used
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  Speaker 1: to make paper and those recyclable plastic cups. Gilberti maintains
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  Speaker 1: that E T N s that focus on agricultural commodities
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  Speaker 1: should be included in a diversified portfolio. That's ther Bloomberg
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  Speaker 1: ETF Report. I'm Catherine Colderie. You're listening to Taking Stock
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  Speaker 1: with Kathleen Hays and pimp Box on Bloomberg Radio. What
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  Speaker 1: do drug and discount stores in Japan, real estate in
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  Speaker 1: Germany and a global food company based in Switzerland all
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  Speaker 1: have in common? While they're the focus us of our
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  Speaker 1: next guest, Paul Markham, Global Equities portfolio manager of the
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  Speaker 1: Newton dry Fuss International Equity Fund symbol there s N
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  Speaker 1: I e X and he is from Newton Investment Management,
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  Speaker 1: helping to manage more than one billion dollars of customer assets.
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  Speaker 1: He's based in London and he joins us now. Paul,
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  Speaker 1: thanks very much for being with us. Tell us the
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  Speaker 1: strategy that you mean that you that you use to
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  Speaker 1: manage this fund because it is global in nature and
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  Speaker 1: it covers a wide variety of companies. Yes, that's right,
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  Speaker 1: good afternoon, and it's a pleasure to be to be
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  Speaker 1: with you. Um. Yes, the fund is essentially an international
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  Speaker 1: equity portfolio, which means that it invests around the world,
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  Speaker 1: excluding securities or equities in the US. We try to
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  Speaker 1: divertify the portfolio and have a wide range of geographies,
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  Speaker 1: um and sectors represented. But we do use a thematic
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  Speaker 1: backdrop of those big changes which we see socially, politically
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  Speaker 1: and economically that we think will influence markets over time,
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  Speaker 1: and we allow that to drive our stock selection, and
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  Speaker 1: we have a fairly focused portfolio around sixty stocks on
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  Speaker 1: the fund. You have a lot of big trends to
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  Speaker 1: help you now. Of course, with the US Fed Reserve
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  Speaker 1: maybe starting to continue on a path of tightening, and
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  Speaker 1: the Briggs that vote in the Bank of England. I'm
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  Speaker 1: just fascinated by the Bank of Japan and this big,
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  Speaker 1: big turnaround we've seen in Japanese government bonds, the Bank
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  Speaker 1: of Japan not going pedal to the metal on more
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  Speaker 1: monetary stimulus, and we're going to think about what we're doing.
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  Speaker 1: We've got the details on the fiscal plan from Prime
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  Speaker 1: Minister Abby. What do you make of what's going on Japan?
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  Speaker 1: What does it mean for the markets there and basically
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  Speaker 1: your your global portfolio strategy. Well, I think that's you're
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  Speaker 1: You're very right to put Japan in the context of
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  Speaker 1: what could happen globally, because what we've seen quite often
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  Speaker 1: with many developments in the macro economy is Japan really
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  Speaker 1: leading because it's been the first major economy to really
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  Speaker 1: have the problems of demographics really coming into play, for example.
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  Speaker 1: And so what we're seeing is the Bank of Japan
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  Speaker 1: really throw the ball back into the court of the
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  Speaker 1: Japanese government. So what we're seeing is the potential of
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  Speaker 1: monetary policy perhaps not being as strong an emphasized tool
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  Speaker 1: of of economic policy going forward, and maybe more of
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  Speaker 1: an expansion on the fiscal side, and what that means
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  Speaker 1: in the near term and what we've been seeing over
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  Speaker 1: the last few days is that the market has anticipated
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  Speaker 1: that the b o J will no longer be buying
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  Speaker 1: as many government bonds, and also potentially that the fiscal
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  Speaker 1: burden for the Japanese government will expand. The bond yeld
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  Speaker 1: to have really become far less negative. We had a
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  Speaker 1: very significant move in Japanese government bonds over the last
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  Speaker 1: few days, and that's been positive for the end and
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  Speaker 1: we suspect that will also be negative for the market
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  Speaker 1: going forward, given the Japanese market tends to be dominated
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  Speaker 1: by exports oriented companies. Up the performance of the fund,
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  Speaker 1: it's up about the two and a quarter percent in
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  Speaker 1: one month. You're to date, though, down about the two
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  Speaker 1: and in the context of Japan and wondering if you
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  Speaker 1: could maybe give us a little thought about why some
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  Speaker 1: of these holdings are in the fun Japan Tobacco, don
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  Speaker 1: Quixote holdings. You've also got a holding in Japan Airlines.
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  Speaker 1: Are you betting that the Japanese economy will continue to
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  Speaker 1: prosper despite this lackluster stimulus package. What we've really tried
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  Speaker 1: to do on the portfolio is to let the thematic backdrop,
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  Speaker 1: which we see as being continued very sluggish chronic sluggishness
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  Speaker 1: in the Japanese economy and indeed across many of the
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  Speaker 1: developed markets. And what that's led to is us to
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  Speaker 1: believe that in many cases, companies which are firstly perhaps
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  Speaker 1: focusing on the lower end consumer or companies which have
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  Speaker 1: exceptional return characteristics will prosper in this environment. So Don Dyuxote,
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  Speaker 1: for example, is the Japanese equivalent really of a dollar
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  Speaker 1: store UM, and it's run very much for profit, with
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  Speaker 1: very much more efficient operating metrics than it's petitors domestically
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  Speaker 1: in Japan, much more like a Western company, if you will.
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  Speaker 1: On the for example, Japanese Airlines investment case, this is
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  Speaker 1: a company which is very different to Global Airlines, has
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  Speaker 1: twice the operating profit operating margin of many of its
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  Speaker 1: global competitors, as a high dividan yield. The government took
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  Speaker 1: it out of bankruptcy and made sure that it's pension
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  Speaker 1: liabilities no longer we're on its balance sheet. So this
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  Speaker 1: is something which we see as being very much a
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  Speaker 1: special situation UM. And finally, companies such as Japan Tobacco
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  Speaker 1: for many years a company with substandard returns relative to
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  Speaker 1: competitors in the US or in the UK, for example,
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  Speaker 1: but a company with exceptional global brands, we think of
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  Speaker 1: very strong management team and rising cash returns. And I
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  Speaker 1: think in this environment of financial repression and very low
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  Speaker 1: bond yields, I think high dividan the yield will continue
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  Speaker 1: to be the global investors an attractive phenomenon, even if
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  Speaker 1: in the near term we may see some other pressure
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  Speaker 1: on bond yields, which may see some of those yielding
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  Speaker 1: stocks do a little bit less well in the market.
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  Speaker 1: Bank of England big meeting on Thursday, they passed on
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  Speaker 1: the rate cut in July many I mean, smalt pent.
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  Speaker 1: They've got to do it and then give us more
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  Speaker 1: details about their plan um equities companies in the UK.
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  Speaker 1: Is that an area to stay away from? How do
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  Speaker 1: you deal with that right now if you don't know
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  Speaker 1: how Brexit is going to play out? Well, yes, absolutely,
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  Speaker 1: I mean the Bank of England's um sort of quandary
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  Speaker 1: is pretty clear. I think what we've been seeing in
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  Speaker 1: the last couple of days is some comments from former
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  Speaker 1: Monetary Policy Committee members at the Bank of England who
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  Speaker 1: have suggested that Governor Carney doesn't have too much possible
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  Speaker 1: further monetary stimulus to to to create UM, I guess
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  Speaker 1: that's you know, current policy rate half a per cent.
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  Speaker 1: We could potentially, and we did originally expect post Brexit
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  Speaker 1: to see a cut to zero. UM. What I think
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  Speaker 1: is becoming clear is that the post Brexit data has
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  Speaker 1: got worse, but we haven't yet seen enough data to
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  Speaker 1: justify that full jump down to zero interest rate repost
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  Speaker 1: zero interest rate policy. So what I think will be
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  Speaker 1: bothering the Bank of England is the idea that they
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  Speaker 1: could cut rates completely to zero and then we see
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  Speaker 1: a deterioration in real estate and the consumer economy further
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  Speaker 1: down the line, and that will then mean that they
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  Speaker 1: have very little room to cut rates any further. So
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  Speaker 1: what I suspect may happen is that they may go halfway.
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  Speaker 1: They could go for a twenty five basis point cut
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  Speaker 1: or maybe something you know, unorthodox, like a ten basis
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  Speaker 1: point cut. But at this moment it does seem that
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  Speaker 1: the the market is rather betting on a disappointing rate
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  Speaker 1: cup from Bank of England, given the strength of sterling
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  Speaker 1: over the last few days. On the subject to the
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  Speaker 1: equity markets in the UK, it is interesting to see
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  Speaker 1: that we've had a really strong rally posts the sort
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  Speaker 1: of Brexit collapse, and largely I guess that is to
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  Speaker 1: do with the fact that the particular oriented towards exports
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  Speaker 1: UM and that's something which has been very helped by
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  Speaker 1: much help by a weaker sterling. However, looking forward UM,
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  Speaker 1: it certainly seems that the prospects for the UK economy
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  Speaker 1: in the near term are uncertain. It may be over
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  Speaker 1: a much longer period of time that the UK is
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  Speaker 1: able to establish itself once again as a very major
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  Speaker 1: player on the world stage. And certainly we've seen so
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  Speaker 1: far quite a lot of interest from many major international
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  Speaker 1: trading partners to put some sorts of trading agreement in place,
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  Speaker 1: but that can't happen until the Brexit process is finished,
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  Speaker 1: and that could take some time to do so. I
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  Speaker 1: think the UK economy will be um, you know, certainly
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  Speaker 1: in a doubtful place for a period of time. The market,
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  Speaker 1: I suspect will act quite cyclically. It may will be
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  Speaker 1: a kind of risk on market for the next year
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  Speaker 1: or two, and in the in the near term it
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  Speaker 1: does feel that maybe there is scope for a little
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  Speaker 1: bit of disappointment after a strong run. Paul marcam thank you.
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  Speaker 1: So very much. Was looking at a global macro pictures
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  Speaker 1: such a big factor for global equity markets and also
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  Speaker 1: some of the individual holdings in his portfolio. He's Global
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  Speaker 1: Equities portfolio manager for the Newton Drivers International equity fund.
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  Speaker 1: Well movers and shakers are coming up on Bloomberg taking
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  Speaker 1: stock Dave Wilson our Stock said it will be joining
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  Speaker 1: in on Kathleen Hayes along with pim Fox and this
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  Speaker 1: is Bloomberg h