InvestMacro

By George Prior

China’s efforts to kick-start a property sector revival are poised to have a substantial, positive  impact on international stock markets and delight global investors, says the founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The upbeat assessment from deVere Group’s Nigel Green comes as The People’s Bank of China eased borrowing rules and slashed the reserve requirement ratio for foreign exchange deposits from the current 6% to 4%. Some of the country’s largest banks also cut interest rates on yuan deposits.

He says: “Global stock markets are set to get a boost amid the rollout of steps being taken by the People’s Bank of China (PBOC) to revive the country’s beleaguered property sector.

“We expect the decision to ease borrowing rules and cut reserve requirements for foreign exchange deposits, plus the cutting of interest rates on deposits, will have a considerable positive impact on global stock markets as investors digest news that Beijing is being proactive on this critical economic issue.”

On Monday, Hong Kong’s Hang Seng Index gained 2.5%, while mainland markets were also in positive territory, with the benchmark CSI 300 up 1.33%.

Elsewhere, Japan’s Nikkei 225 also climbed 0.7%, in Australia the S&P/ASX 200 was up 0.56% and ended at 7,318.8, while South Korea’s Kospi traded 0.81% higher.

China’s property market had been facing a crisis marked by plummeting property prices, oversupply, and a debt-laden real estate sector.

This turmoil raised concerns not only for China’s domestic economy but also for global investors with exposure to Chinese assets.

“The global impact of China’s efforts to revive its property sector cannot be underestimated,” says Nigel Green.

“A healthy property market is a vital driver of economic growth. As China’s property sector stabilises, it will boost construction activities, create jobs, and stimulate related industries like cement, steel, and furniture. The resultant economic growth will have a positive spillover effect on global markets, especially for countries that rely on China as a major trading partner.”

He continues: “China’s property crisis had dented investor confidence in the country’s markets. Therefore, by addressing the issue, China is sending a reassuring message to international investors that it is committed to maintaining stability and promoting growth.

“Restored confidence will, we expect, lead to increased foreign investments in Chinese assets, benefiting both domestic and global portfolios.

“China’s property sector revival will offer new investment opportunities, both in the real estate market and related industries. Global investors looking for diversification and growth prospects can be expected to find China an appealing destination once again.”

Since the beginning of this year, Nigel Green has been publicly saying that Beijing will take the necessary measures to shore-up the world’s second-largest economy and that global investors “must not overlook the opportunities in China if they are serious about building long-term wealth.”

The deVere founder concludes: “Global financial markets will be buoyed by these measures that will stabilise the critically important Chinese property market, restore investor confidence, and stimulate economic growth.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of offices across the world, over 80,000 clients and $12bn under advisement.

By Christopher Decker, University of Nebraska Omaha 

Don’t be overly fooled by seemingly rosy jobs data heading into the Labor Day weekend.

Yes, the U.S. economy added 187,000 jobs in August 2023 – faster than the revised 157,000 increase for July and above most analysts’ expectations for the month. And yes, gains were seen across most industries, with health care and social assistance adding 97,300 positions, leisure and hospitality boosting numbers by 40,000, construction up by 22,000 jobs, and 16,000 additional general manufacturing jobs.

But there was also enough in the data released by Bureau of Labor Statistics on Sept. 1 to give comfort – of sorts – to the “Jeremiahs” among us economists. I’ll explain.

While jobs were up, so too was the unemployment rate, which ticked up a modest 0.3% from July to 3.8%. And average hourly earnings increased by just 0.2% in the month to US$33.82 – working out to a rather paltry 8 cent increase.

To me, rather than indicating that the job market is moving along at a healthy clip, as some suggest, it shows signs of something else: a continuing slowdown.

Look at the long-term trend

The fact that, overall, jobs expanded a bit faster than expected doesn’t suggest that the economy is ramping up and inflation is going to spike again soon. Rather, it mostly speaks to the difficulty in predicting month-to-month movements. There’s good reason, perhaps, that economics is sometimes called “the dismal science” – we aren’t always that good at saying with certainty what will happen over the short term.

Monthly data has its place in making assessments and guiding policy, for sure. But focusing on just one month can be misleading as the data can be quite volatile.

The underlying trends are what matter more. And that is where I see signs of a slowdown.

In 2022, labor demand – as measured by job openings plus nonfarm employment – exceeded labor supply, as measured by the labor force. In other words, there were more job openings than people willing to fill the positions.

As a result, we saw labor earnings increase by 5.1% relative to 2021. Great news for employees, but less so for the Federal Reserve: Higher wages combined with supply chain disruptions and the effect of war in Ukraine meant that the inflation rate, as measured by consumer price index growth, rose 7.7% in 2022.

To tame inflation, the Fed embarked on a program of aggressive interest-rate hikes. This resulted in a general economic slowdown by the beginning of 2023. The housing market cooled. Construction and related markets slowed.

But now labor supply is outpacing labor demand – there are more people looking for jobs than there are openings.

Based on the first seven months of data in 2023, wage growth has slowed to 3.4% compared to 2022, as has general inflation, slowing to 3.5%.

So where is the economy heading? The preponderance of the data is pointing to a general economic slowdown. As a result, some suggest the U.S. economy may be heading for a “soft landing,” where inflation rates reach 2% to 2.5% as the U.S. avoids recession.

But when it comes to the chances of recession, the economy is not quite out of the woods yet. True, inflation is trending down. But earnings have generally grown slower than inflation, resulting in a loss of purchasing power for consumers.

Less cash to spend on goods doesn’t appear to have hit the economy yet. Consumer spending in the first seven months of 2023 was up 1.9% on the previous year, by my calculations. However, there is evidence that a lot of this was due to consumers purchasing on credit. Credit card debt reached a staggering $1.3 trillion in the second quarter of 2023.

This is not sustainable. At some point soon, consumer spending will have to slow.
And given that consumer spending represents about two-thirds of total GDP, a recession could still occur.

My best guess at the moment is that a recession is most likely to occur in early 2024, after the usual spending spree that is the holidays. But fortunately, thanks to the Fed’s recent efforts to decelerate the economy gradually, a major contraction is unlikely.

About the Author:

Christopher Decker, Professor of Economics, University of Nebraska Omaha

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By George Prior

The US Federal Reserve will “lose the confidence of the public and financial markets” and have “disastrous” economic effects, if it continues raising rates any further, warns the CEO and founder of one of the world’s largest independent financial advisory, asset management and fintech organizations.

The stark warning from deVere Group’s Nigel Green comes ahead of the Personal Consumption Expenditures index, which comes out Thursday at 8:30 am EST.

The PCE price index measures changes in the prices paid by consumers for goods and services over time. It’s one of the key indicators used by the US central bank and other economic analysts to assess inflation trends and make monetary policy decisions.

The deVere CEO comments: “The PCE is being keenly watched as investors were cheered earlier in the week by the weaker-than-expected payrolls data and annual gross domestic product growth forecast – both of which strongly make the case that the Federal Reserve must now stop its most aggressive tightening campaign in decades.”

He continues: “The Fed’s battles against inflation, growth and jobs are being won.

“There are now genuine concerns that unless the Fed drops raising rates, it will drive the US economy into a major recession.

“As the world’s largest and most influential economy, this would potentially have disastrous global implications.”

Nigel Green also stresses that not only must the Federal Reserve abandon its tightening program because the program has been effective, but it must also do so because inflation is likely to fall quicker than many anticipate for three reasons.

“First, there’s unlikely to be a wage price spiral as real wages are typically going down despite the increases.  Employers now seem to be holding back from increasing salaries on demand, which will help stifle wage inflation.

“Second, the time lag for monetary policies is incredibly lengthy. It takes around 18 months for the full effect of rate hikes to make their way into the economy – and that’s where we are – and so financial conditions will get squeezed even harder in the near term.

“And third, although many economies are now likely to avoid a full-blown recession, economic growth is still expected to be weak for the foreseeable future.”

He concludes: “If the Fed does not stop its rate hiking agenda, it will lose the confidence of the public and financial markets which would have serious, far-reaching negative consequences for the US and the world.”

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of offices across the world, over 80,000 clients and $12bn under advisement.

By George Prior

High-net-worth investors “remain absolutely convinced” by alternative investments, including venture capital, cryptocurrencies, structured products, and hedge funds – despite a wider slowdown of inflows into the sector.

The assessment from Nigel Green, the chief executive and founder of deVere Group, comes as media reports cite research that suggests that inflows have dropped by hundreds of billions of dollars over the last year as institutional investors reassessed their exposure to ‘alts.’

He says: “While institutional investor inflows into alternative investments might have slowed, our experience worldwide shows that the opposite is true with individual investors.

“Interest from our high-net-worth individuals around the world is growing in ‘alts’; they remain absolutely convinced that less familiar, return-enhancing asset classes, which include venture capital, structured products, high dividend stocks, crypto, hedge funds and managed futures, and real estate, should be a part of their investment mix.”

Alternative investments are distinct from traditional asset classes like stocks, bonds, and cash, encompassing a diverse array of investment options that offer unique risk and return profiles.

While they require careful due diligence, their inclusion in a well-structured portfolio can offer opportunities for enhanced returns and exposure to non-traditional investment strategies.

Alts are characterised by their potential to deliver higher yields and increased capital appreciation, though they can also come with greater complexity and illiquidity.

“Savvy investors will be considering this temporary period of falling inflows or lower popularity as a buying opportunity.  They will be seeing the bigger picture,” affirms Nigel Green.

“These investors understand that alternative investments tend to have low correlations with traditional asset classes like stocks and bonds, meaning that their performance may not be closely tied to the movements of traditional markets. Diversification can help reduce overall portfolio volatility and mitigate the impact of market downturns. This can improve the overall risk-adjusted returns of a portfolio.”

He continues: “While alternative investments come with higher risks, they also offer the potential for higher returns compared to traditional investments, especially in periods of economic growth or when specific strategies are successful.

“They also provide flexibility in terms of investment strategies. Hedge funds, for instance, can employ a range of strategies to potentially profit from market inefficiencies.

“Potential for Alpha: Some alternative strategies aim to generate alpha, which is the excess return earned above the market’s benchmark. Skilled managers in areas like hedge funds or private equity may be able to capitalize on their expertise to outperform the broader market.”

For these important, strategic reasons, the deVere CEO predicts that “institutional investors will be back into alts in the near future”, adding, “the current slowdown of inflows by institutions is a blip.”

Investors considering alternative investments should conduct thorough due diligence, assess their risk tolerance, and consult with a financial advisor who understands the opportunities as well as complexities of these investments.

“Remaining steadfast in their strategy for wealth building success, ‘diversify and thrive’ would be high-net-worth individuals’ attitude towards alternative investments,” concludes Nigel Green.

About:

deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients.  It has a network of offices across the world, over 80,000 clients and $12bn under advisement.