A Chinese Bubble? Markets for the week ending 23-Jan-09

As the Chinese government made moves to suppress escalating lending growth driven by excess liquidity, it's worth comparing the similarities with the Japanese experience during it's boom years.

1) At its 2007 peak, the Shanghai A shares traded at more than 7 times book value. Japan's Nikkei index in 1989 peaked at 5 times. Chinese stocks has since halved in value
2) Price to earnings ratio of Chinese stocks using past 10 year average earnings (Graham and Dodds PE ratio) is 50X compared to about 15x in US
3) Residential real estate of Chinese cities is at a multiple of 15-20 times household income versus 12-15 times during Japan's real estate boom
4) Fixed asset investment as a proportion of GDP in China is currently 50% and Japan had similar growth rates then with 30-35% GDP
Finally a thought to hold:
A decrease to 10 year ago investment-to-GDP rates for China would have a disasterous effect on all emerging economies and countries exporting to China.

Eric Tan,
London

Parallel Universes

Investors diametrically opposed views on everything in the markets from growth prospects, inflationary fears and deflationary pressures are all causing simultaneous rises in assets.

Since March, we have witnessed a surge in the equities markets. Oil,gold, commodities are rising in antipation of a global recovery. On the other hand, bond yields are falling steadily and reports of US mutual funds are increasing net inflows to fixed income funds. In the world of forex, Australian and Brazilian currencies are reflecting the increase in risk appetite and yet Japanese Yen and gold typically reflecting a safe haven currency are at record highs.

The markets have been reflecting the inconsistent economic data with rising unemployment and recovering growth.

With a strong boost provided by Alcoa earnings, over the next few weeks, US companies is likely to announce strong earnings supported by exports and continued cost cuts, but inability to demonstrate revenue growth may result in a fall in momentum leading to a reality check for investors.

Eric Tan
London

A weaker dollar. Markets for the week ending 25-Sep-09

The dollar has been falling steadily against its main trading currencies for the last 8 weeks. So, what does a weaker dollar imply and what kind of policy responses might that provoke in the EU given the euro has more to lose with a weaker dollar.

A super weak USD could risk exporting deflation to the rest of the world
since central banks around the world are now enagaged in managing the recession with a cocktail of a) quantitative easing, b) loose monetary policies, and c) low interest rates and it leaves them very little to combat a sudden appreciation of their currencies against the dollar. This could lead to a liquidity trap and result in them being unable to dig their economies out of a deflationary scenario.

Looking back into the history books, in the last 30 years the world has witnessed several instances of central bank intervention:
1985, G7 signed the Plaza accord to weaken the dollar
1987, G7 pledged to support falling dollar
1995, G7 intervened to help dollar
1998, Americaand Japan sold dollars to prop yen
2000, ECB, Fed, BOJ and UK, Canada supported the Euro.

So, does this mean we're going to see another round of central bank intervention in 2009?
Maybe. Coordinated intervention can work(as seen in the past), but needs to be consistent with changes in interest rates globally.
So why not do it straight away?
Central bankers hate to mess around with free markets, besides it's difficult to predict the precise consequences of interventions.

Eric Tan,
London

Is the worst over for the US economy ? Week ending 14-Aug

This week, the Fed announced that the longest period of US economic decline is coming to an end and the top economic outlook supporting that was that headline unemployment rate in Jul-09 fell from 9.5% previously to 9.4%.

In the US. the monthly rate of job losses in July has slowed to 250,000 from 600,000 at the start of the year, but the statistical computation of unemployment only improved because 400,000 workers dropped out of the labour force and are no longer looking for work.

So, the thing is, if the state of the economy is getting worse at a slower rate than before, can one argue that the worst is over?

I foresee that given the high rates of foreclosure in the US mortgage market and the continuing high unemployment rates, US household income is going to continue to be put under pressure and any economic recovery will be sluggish for the rest of the year.

Eric Tan, London

US non-farm payrolls: Employers cut 467,000 jobs in Jun

So, given the government stimulus so far, it looks like employment is still weakening and consumer deleveraging, crimping demand.
Reflation efforts by governments worldwide helped boost risky assets such as commodities and equities in the last 3 months and in the process trashed treasuries and bonds.
10-year US benchmark rates rose from 2% at the start of 2009 to a peak of 4% last month, despite the Fed announcing plans to maintain its purchase plans.
Popular belief has it that the negative sentiment is drawn from the potential indigestion of a trillion more dollars of issuances bound for the doorsteps of willing investors in the coming year.

Scenario:
Say Bernanke's "green-shoots" of recovery was stunned by the high oil prices and the economic recovery widely expected by the end of this year doesn't materialise, we could once again face the swings of the oil price cycle and see bond yields revisit the 2% levels.

Eric Tan, London

Impact of China's rise on the world economy.

Impact of China's rise on world economy
1) huge increase in global current account imbalances
2) global decline in nominal and real yields on all forms of debt
3) increase in equity risk premium (gap between earning yield on equities over bonds)
4) increase in global returns on physical capital

1 and 2 can be explained by the global saving glut, loose monetary policies, but a massive increase in global labour supply and extreme risk aversion of creditors from emerging economies explains 3 and 4.

We have seen that the accumulation of net overseas assets are entirely accounted for by public sector acquisitions and channeled principally into reserves.

The global balance of trade and economic power has been tilted by the resurgence of the Chinese economy, and this will have a large impact on global trade and growth in the future. China has already started acquiring raw materials directly by buying into companies with large reserves and will continue to do so in a larger way to secure its vast needs for growth.

We will continue to see the expansion of their growth and there will be opportunities for investors who manage to identify targets that are aligned with the Chinese interests for raw marerials.

Eric Tan,
London

Can spending hold up?

Overview of the the current state of the US economy

The American economy is contracting at its steepest pace in 50 years, the government reported on Wednesday, but an unanticipated rise in consumer spending since January suggested to many economists that the worst of the recession might have passed

Output fell at a 6.1 percent annual rate in the January-through-March quarter after falling at a rate of 6.3 percent in last year’s fourth quar
Analysts are expecting that as tax breaks and government stimulus spending kick in, the decline in the gross domestic product could be cut in half by summer by federal spending and on various small windfalls for consumers

The looming question remains the severity of job losses. More than five million jobs have disappeared since the recession began in December 2007. As their wages disappear, households spend less, and business, in response, reduces the output of goods and services, cutting more jobs in the process.

Eric Tan

PPIP: A Stampede on Thin Ice. Markets for the week ending 27-Mar

The S&P 500 Index rose more than 6% this week as hope mounted that the worst might be over for the banking system and a turn of the broader global economy is on the way.

As US released more details of its Public Private Investment Plan (PPIP), the US stock market surged 7% overnight but fears on the viability of the plan and likelihood of participation from banks were the main concerns.

My take on the new release is that the US is taking on a "do-everything-it-takes" attitude to rescue the economy and that should set the right tone for investors and stabilise the markets but ultimately it is not the pricing of the legacy assets and loans that will turn around the lack of confidence, but the greater transparency that is attached to this move that will allow the big banks to raise sufficient capital from private markets (in the range of hundreds of billions more) that will call an end to the crisis.

A couple of issues need also to be addressed to stop the economy from spiralling down further:

a) Distressed home sales: Without a clear sign of the bottom of falling house prices, risk appetite will not return. Hence, finance for viable borrowers with sound leverage need to be earmarked to help establish a floor for home valuations

b) Deleveraging of consumer : UK household savings rate jumped from 1.7% in the third quarter of 08 to 4.8% in the fourth quarter. Although rebuilding and repairs of the household balance sheet will bring balance back to the debt-fueled decades of 90's and early 2000's, the governments also need to ensure consumer credit is freed up to improve liquidty for the people. This is not to fuel another debt spending spree, but to inject consumption back into the economy and pull it out of a longer than expected recession.

Final words, Stabilisation is still not equal to Recovery.

Eric Tan, London

Are we witnessing a possible turn? Markets for the week ending 13-Mar

So it's true. After I commented last week about equities appearing to look cheap, the market has gained several more percentage points. The thought on most investors mind is whether this is another bear market rally or does it signal the possible turn of the bull market.

Anthony Bolton, President of Investments at Fidelity, has called for a bottom in stock, although he did make the same call late last year. My personal opinion is that the economy is not out of the woods yets and this is highly probable to be a bear market rally that may fade in investor memory in time to come.

Bear market rallies are often short and explosive in nature and it's not uncommon to see bounces in excess of 10 percentage points on the stock market indices. I believe that last month's low will mark a temporary floor for global benchmarks and indices may trade sideways, hence it might not be a bad idea to start making some investments in the Equity market although it is most likely moving too early.

Some analysts are still reiterating that the CAPE (cyclically adjusted P/Es) ratios of companies, are still expensive and markets may fall further, but it is very dangerous to time the market and if you are planning to invest for the long term, current valuations appear relatively cheap.

My take as I've mentioned in previous posts is that if you agree property values have stabilised, i.e. levels of personal wealth no longer falling, we should start to see a return of risk appetite in the equity markets and that should initiate the turn of the bear to bull market.

Eric Tan, London

Why Go Long Equities? Week ending 6-Mar

It's true, hedge fund redemptions are still going on. A total of $73bn was redeemed from hedge fund managers in Jan 2009. Given the need to meet client redemptions, highly liquid asset classes such as index futures seem to be the obvious choice for hedge fund managers.

But having witnessed the sharp falls in world equity indices in the last 2 weeks, we wonder what the impact would be on hedge fund performance. HFRX reported dismal Feb-09 results for equity strategies.

I believe this can be partially attributed to the high cost of hedging. Put option interest has been declining since Nov 08 due to higher costs - it costs approximately 25% to purchase a 12 month at-the-money put on SX5E. So implicitly it costs the same amount to buy a put as the estimated downside of the position, and if historically bear market rallies provide a 50% upside, the cost of hedging would have consumed 1/2 of the potential profits.

It would be interesting to find out the average level of protection put on by equity-based hedge funds...

Eric Tan, London

Will supervision solve the crisis?

Yesterday's problem: Banks that are too big to fail..
Today's worry: Institutions that are too "interconnected" to fail..

The last 2 decades of financial imagery and innovation, combined with globalisation has created a financial system with entities that are connected in unimaginable ways. This interconnectivity has been raised by Trichet that there is an impending need to extend regulatory and supervision oversight to "systematically important" financial institutions.

In the last century, supervisors and central bankers have conveniently and neatly grouped financial institutions into Banks and Non-banks, but the over-simplistic approach to non-bank financial institutions is now deemed to be obsolete. Hedge funds, credit rating agencies, credit default swaps, structured investment vehicles and offshore centres are areas highlighted by Trichet as requiring more regulation and supervision. The role required is likely to include more monitoring, and analysis of financial stability, developing early warning systems for risks to the financial system, conducting stress testing exercises and advising on financial regulation to improve stability.

Whether how Trichet's proposals will tie in with what the Obama administration has in mind is likely to take months to thresh out. It may ultimately lead to a super agency and the list of headline-screaming reforms will definitely have an impact on both financial markets and investor confidence. But whoever's in charge should keep in mind that the one size fit all approach from policy makers across both sides of the atlantic needs to manage the increased supervision without stifling innovation.

Eric Tan, London

Markets for the week ending 6-Feb-09

Markets

- US markets rallied despite news that the US economy shed almost 600,000 jobs in January. Market assumed that the job losses would strengthen the president's hand and ensure that the stimulus would go through.

- US financial stocks enjoyed spectacular gains on the close of the week as investors looked beyond the bleak economic data and focused on Obama's plan to shore up the strickened sector.

- In Asia, Shanghai composite share index rose almost 10% this week on hopes that China's economy could see an early recovery

- The sterling pound continued recovering against the euro after the markets welcomed Bank of England's interest rates cut of 50bps to 1%, and the ECB left Euro Area interest rates unchanged at 2%.

Comments

European Central Bank made clear on Thursday, (as the Bank of England slashed UK interest rates by another half a percentage point) that zero per cent rate policy would be inappropriate “at the moment”, but his remarks did not rule out the ECB eventually following the US Federal Reserve, which has moved rates close to that level.

Sterling has climbed to a 2 month high against Euro after weeks after coming close to a whisker of being parity with the Euro.

This week, we also witnessed Unilever and GSK announcing that they will not be providing financial guidance for this year. CEO of Unilever is of the opinion that setting a target and subsequently revising them would lead to a decrease in credibility in the company.

Defensive companies had outperformed the market significantly in the last quarter of the 2008, but with them off their recent highs this week, it has given investors a wake up call that there aren't many more places to hide.

As investors continued to flock to the safe haven asset class of gold, Goldman Sachs, Merrill Lynch and UBS have dramatically altered their earlier forecasts and are all now predicting that the gold price will hit at least $1,000 an ounce this year, up from previous estimates of $700.

Interests in dividend swaps have been stirred up recently and it might be interesting to look at my article posted on 22-Jan-09.

Eric, London

How do you shrink the house of cards? Markets for the week ending 16-Jan-08

The FT economists forum was quite interesting this morning and I thought it was quite a good idea to put that in perspective with what the governments are adopting to deal with the current crisis.

Q: With the US official interest rate at close to zero, is monetary policy running out of ammunition?
People are confusing the 'level of interest rates' with the 'rate of change of the interest rates', hence are focusing on America's inability to lower interest rates further.
But cheap money itself provides a strong incentive to borrow and spend and raise discounted cashflow calculations of asset values
However,
1) There is an imperfect linkage between the official interest rates and the actual range of borrowing rates offered in the market
2) Borrowers further out in the yield curve, which hasn’t fallen as much has less to benefit (10-year US Treasury rates has fallen only 2% compared to the Fed fund rates which has fallen 5%)
3) Banks may not be in a position to lend for various reasons such as shortage of capital, dissapearance of commercial credit market

So, can ZIRP (zero interest rate policy) help ?
- Yes:
A) Central banks can push out as much base money (Issuing bonds) as they want to at close to zero rates.
B) Governments can use the money raised to buy longer dated government paper to push down the yield curve to partially address 2) above
C) The money can buy undervalued assets that are clogging illiquid markets from banks and add much needed capital to their balance sheet, addressing 3)
D) The same money can fund expansionary fiscal policies such as improving infrastructure, providing insurance or guarantees to banks and companies

Comments
But the above does not do much to fix the problems happening in the banking sector. The government wants to maintain a flow of lending to help good companies, but how can they distinguish between the good and toxic assets at the micro level.

The UK government has just announced more help for Royal Bank of Scotland this morning but short of nationalising the banking sector in the UK, the regulators are going to find their hands tied on how to shrink the banking sector to a realistic size while not fully recognising the large amounts of mis(over)-priced illiquid assets still sitting in the banking books of financial institutions that have yet to be marked to market.

Something positive
On hind-side for UK, not being part of the Euro might just turn out to be a blessing this week as the European nations in the EU battle to rescue crumbling credibility of the Euro as the Irish economy worsens and Spain's soverign rating downgrade from AAA to AA+. At the rate this continues, it is not impossible to predict a default of posibly a large European economy. (Other at risks: Greece , Italian Portugal)

Eric Tan, London

The Psychological Profile of a Downturn. Markets for the week ending 9-Jan-09

Economy:
The U.S. Economy Lost 524,000 Jobs in Dec 2008,
Unemployment Jumps to 7.2% Jan 9, 2009
Non Farm Payrolls declined by -524,000 in Dec 2008. Oct and Nov job losses revised up to -584k and -423k.
Unemployment rate rose from 6.8% to 7.2% (15-yr high).
Total 2.6 mn jobs were lost in 2008 (most since World War II).
Households Survey: 806,000 jobs lost in Dec; 3 mn in 2008 (most since 1945)
Continued job losses in manufacturing (-149k), construction (-101k), residential construction (-87k), services (-273k), finance (-14k), retail (-67k), business&professional services (-113k), leisure services (-22k), temporary help (-81k). Job gains in govt. (+7k), education & health (+45k)

Psychological Profile of a Downturn
The massive debt accumulation that drives up prices of assets means, that when the downturn comes, previously optimistic investors are forced to sell assets to raise money. That factor tends to make the downward spiral steeper than the upturn that preceded it. Over the past 60 years, nine of the 10 biggest one-day percentage moves in the S&P 500 were down.


Market participants hoard and protect wealth as they pay down the accumulated debt. This reduces economic transaction velocity, restraining demand for the bubble asset, further increasing the inventory oversupply. And so it goes until the inventories decline near sustainable levels, giving market participants confidence to put their money to work.


Investors look ahead to an improved segment of the economic cycle and begin to adjust asset valuations. More participants enter the fray, seeking higher returns for their cash hoards, and economic activity returns.

2009: Still Underweight Banking? Week ending 02-Jan-09.

Markets

Grim UK economic data drove government bond yields to a fresh low of 0.95 per cent last week.

Ahead of next week's BOE monetary policy committee meeting, the 2-year gilt was affected by an expectation of at least half a percentage point.

a) UK mortgage approvals in Nov hit 27,000 loans, lowest on record

b) Halifax data showed a 2.2 per cent drop in house prices in December 08

c) Bank of England's credit conditions survey showed that banks were cutting the supply of debt to businesses and consumers

Looking back at 2008,

it was easy to claim that the crisis we've tripped ourselves over was largely a crisis of confidence which is unlikely to untangle easily. The spillover into 2009 would most probably be in the form of more business failures (we have seen Zavvi, Woolworth's and Whittards capitulating in the last weeks of 2008) and higher bad debts (credit card loans, mortgages) from recessionary pressures.

Retail banks in the UK and around the world have been used to low levels of bad debt provisions due to a 10-year bull cycle of rising home values and economic growth, but in this new/weaker business environment, banks would have to act fast to raise equity. For those unable to, they will have to resort to balance sheet deleveraging which directly contradicts the UK government's adopted expanionary policy to increase lending.

Many can now claim that investment revenues were actually driven by unsustainable risk taking and dangerous levels of leverage, and with the shift of power from the trading room to corporate and retail banking, we can safely expect less revenues from M&A advisory and proprietary trading. Maybe investment banks can encroach on the business of advising the sale and restructuring of troubled businesses, but that is already a crowded arena with many specialists.

Therefore in 2009, I can safely predict that banking and financial stocks will still underperform the wider "real" economy, but that's something for next week.

Eric Tan, London

Rush to Convertibles. Week ending 11-Dec-08

Several weeks ago, I wrote about convertible bonds as an asset class that have been overlooked by investors and offer a potentially respectable stable yield in the current market environment.

Convertible bonds have been widely held by hedge funds keen to arbitrage the value of the implied option embedded in bonds, but as leverage available reduced from 5x to virtually zero, hedge funds became forced sellers and that resulted in convertible bond prices falling to all time lows.

There is now an opportunity to make relatively low-risk double digit returns without using leverage or complex hedging strategies. It is as simple as buying a distressed debt with a free option kicker on it, and in many cases, it's cheaper than the straight bond issued by the same company.

Recently, there have been pension funds, sovereign wealth funds (SWFs), and new credit opportunity and distressed bond funds being launched to invest billions of dollars into the convertible bond asset class that has become less opaque and complex with the financial market breakdown.

Eric Tan, London

US employment reaches 6.7%. Markets for the week ending 5-Dec-08.

Economy

This week European central banks (BOE, ECB, Sweden) slashed interest rates in a bid to deal with the worsening global crisis, but the mood remains grim. Investors continue to fret about the global economic and corporate outlook. Bond yields in both US and Europe reached historic lows and credit spreads made all new highs.

So what can we take away from the state of the economy now?

a) Low UK sterling: GBP has had 5 major declines in the last 20 years and each averaged 20% frrm peak to trough against the USD. But since the 26 year high of $2.11/GBP acheived in November 07, it has fallen 30%. The number of short position contracts on the pound is still at historic highs and although there is talk that it may fall further to $1.30, there are more interesting ways to play a weakening gbp such as buying UK companies with high overseas exposure.

b) CDX main, ITraxx X/O all made new highs this week. Looking back at Jan 07 when X/O rose from 340 bps to 550 bps in 2 weeks, the market was shell-shocked, but this week, X/O breached 1000bps, i.e. the cost of buying protection on high yield corporate bonds are > 10% now. Markets seems to be overpricing in a fear of major financial disruptions in the last 2 weeks of 2008, and currently imply a 63% rate fo default versus historic peak of 32% in 1932. IS it the time to sell protection ? Single names are being decimated, but the economy cannot recover until credit spreads fall. To play the credit theme, Insurance names and companies with high FCFs are preferred.

c) US unemployment rose to 6.7% and the non-farm payrolls figures exceeded the worst expectations of economists polled by Bloomberg. However, looking back at the last 2 crisises in the early 1980s and 1992, unemployment rates were 10.1% and 7.8% respectively, so it's highly likely that we can expect more job cuts into the new year.

Eric Tan, London

Inversion of the 30-year US swap rate

Power Reverse Dual Currency (PRDC) bonds are the latest instruments causing havoc in the financial world. This product which have been typically issued in Japan has a average maturity of 30 years with coupons linked to movements in a foreign currency such as Austrialian Dollar or US Dollar.

When the yen weakens against the relevant currency, coupon rises, but the issuer can 'call' or cancel the deal after the purchaser receives a certain return.
It allowed Japanese investors to enjoy a leverage form of the carry trade, where Yen is sold to purchase more risky currencies.

However, the deleveraging of assets in the financial markets has driven Yen to record levels instead of the steady depreciation of the Yen as widely assumed by markets. PRDCs are structured such that when a certain level of exchange rate is breached, the coupon stops but the note is still valid.

With strong volatility and strengthening of the Yen, instead of the bond being called early, banks are now struggling to hedge the longer term problems of the FX exposure and currency option embedded in the PRDC bonds. This left them short in the Yen and with Yen strengthening, the problem was amplified. Dealers had to buy Yen calls or Yen spot which accelerated the Dollar/Yen downward move.

Japanese investors have sought higher returns using US swap rates and recent rally in Yen resulted in dealer having to enter the 30-year swap market to stem rising losses. This has caused the 30-year swap spread in recent weeks to fall 60bps below the yield of the Treasury bond.

Eric Tan, London

Update on US economic outlook

Update on the U.S.
- Preliminary Q3 real GDP growth in the U.S. (revised down to -0.5% from the initial -0.3%) displayed a downward revision to personal consumption from the original -3.1% down to -3.7%.
-The U.S. housing starts plunging, Inventories remain at record highs; Home prices (S&P Case-Shiller C-10) are down 23% from the peak and the pace of decline accelerating every month
-Sudden spike in job losses and filing for jobless claims in November.
-Monthly job losses (a lagging indicator) are expected to hit the 300,000-350,000 range in 4Q08 and early-2009, taking the unemployment rate to 8.5-9% by late-2009/early 2010
-Manufacturing sector is facing tight credit conditions and slowing domestic and export demand
- Auto sector is also in a perfect storm amid slumping vehicle sales and tight credit conditions
- Recent readings of both the PPI and the CPI are showing the beginning of deflation
In a sentence: Slow economic recovery, massive erosion of consumer wealth and demand and double-digit decline in industrial activity

Actions to combat:
- President-elect Barack Obama unveiled a first rate economic team (Larry Summers, Tim Geithner and Christina Romer) to address this most severe financial and economic crisis.
- Consumer confidence got a boost from falling oil prices and new leadership in the U.S. government
- Federal Reserve announced direct purchases of $600bn in conforming MBS and agency bonds ($500bn and $100bn, respectively.)
- Simultaneously, the Federal Reserve is setting up a new $200bn Term Asset-Backed Securities Loan Facility (TALF) for investors of consumer loan-backed securities
- Government provided a $306bn rescue package for Citigroup

Next Steps:
- Significant fiscal stimulus expected over next 4-5 quarters to prevent significant growth contraction and deflation.
- Spending on infrastructure and green technology as endorsed by Obama can provide some stimulus during prolonged growth slowdown
- Democrats are also pushing for unemployment benefits and food stamps which are well-targeted and have the largest bang-for-the-buck.
- Obama has prioritized a large fiscal package as soon as he comes into office in Jan 2009

Where are we in the crisis? Markets for the week ending 21-Nov-08

This week panic seized the markets and we saw citi's share price crippled by a vote of no-confidence. One begins to rethink if equities remains a viable asset class in this turbulent market.

Market indicators

a) The flight to safety pushed 10-year US bond yields to a 5-year low of 3.02% and the 30-year bond yields to it ever recorded low of 3.49% since 1977. As investors reduced holdings in riskier assets bond prices could strength further and yields fall further.

2-year Treasury bonds fell below 1% for the first time since it was issued in 1976

b) ITraxx Crossover, a measure of risk aversion, measures the credit spreads of junk-rated bonds at a record high of 942 this week.

c) Tips (inflation linked bonds) moves to levels that only make sense if US prices fell, on average, for the next 10 years.

d) Dividend yield on the S&P500 is higher than the yield paid on a 10-year Treasury note.

IS this the pricing for a deflationary Armageddon? or is it a sign for investors with longer term horizon to buy?

Good economic news is likely to take a long time to arrive as central banks prepare to wrestle with inflation and world growth is projected to decline to a miserly 1.1% (IMF criteria for worldwide recession is <>

But looking further into the wider investment universe, there are convertible bonds out there which have been overlooked by many investors. With some due diligence carried out, investors could yield a hefty 15-20% over the next 12 months, which might not be a bad bargain in these markets conditions.

Eric Tan, London