Last Friday, 24 April marked the second anniversary of the collapse of the Rana Plaza complex in Bangladesh, in which more than 1,100 people perished. Immediately following the disaster, which represented the climax of a string of similar events in the textile industry there, the Bangladesh Memorandum was adopted. ERSTE-SPARINVEST was one of the first major asset management companies to join this initiative as a signatory. In this interview, Alexander Osojnik, Senior ESG Analyst at Erste Asset Management (EAM), speaks about developments in the global textile industry.
In Turkey, the impact of the currency fluctuations are being discussed and even an ordinary Turk on the street knows what it means for the currency to depreciate. For example, during a cab ride, you may have a very deep economic discussion with the taxi driver about the dollar and the Turkish lira. This is as a result of the crises Turks experienced in the past – unfortunately there was more than one! This in turn, has enabled Turks to have their guard up automatically to cope with the strong dollar and there is a dollar investment mechanism in every household immediately if they get a whiff of the depreciating Turkish lira. Corporates also got used to foreign currency fluctuations, but as an import and export oriented country, the depreciating lira has some negative implications on the corporates as well as economic indicators.
After quite a stable period the Turkish lira has started depreciating against the dollar since the final months of 2014 due to a combination of: i) President Recep Tayyip Erdogan’s comments regarding the Central Bank of Turkey, ii) the ECB’s quantitative easing program, iii) woes about Greece’s exit from the EU and iv) the FED’s rate hike expectations.
The new normal
The importance of China for the global economic and financial system continues to grow at a rapid pace. Last year the country set a new milestone by becoming the world’s biggest economy. The total value of goods and services produced in a year exceeds that of the United States. Thus, at 30% China accounts for the largest contribution to global economic growth.
It is one of the best-known stories from the Bible: Man wants to see eye to eye with God and starts building a tower towards heaven; and God punishes man’s hubris with Babylonian confusion. Bereft of a common language, mankind fails to finish the tower.
The dynamics of the economy and the markets have declined. Global economic growth is down on a quarter-on-quarter basis, the two most important trends of the past months (appreciation of the US dollar and falling oil price) have come to a halt, inflation is not falling anymore, and the US Fed has put a damper on the expectations of interest hikes. One important exception: the Eurozone has been picking up speed.
The US central bank, the Fed, is very likely – almost 90%, according to Fed funds futures – to raise the Fed funds rate this year. The expected rate hike has been one of the dominating topics on the financial markets for a year. The bursting of a mega bubble, rising pressure on fragile emerging markets, and the end of years of a share market rally in the USA are the most commonly mentioned worries in this context. None of which is overly far fetched, as we have indeed seen all of these scenarios before. Still – history prompts the conclusion that there is no need to panic, at least not when it comes to equities.
For many institutional investors corporate bonds from emerging markets issuers have become an important instrument of portfolio diversification. Our fund management team estimates that a portfolio made up of 70% investment grade bonds and 30% high-yield bonds can yield an average 5% in the medium term. This sort of yield can hardly be achieved with fixed income papers from the industrialised nations.