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Japanese stocks have been mired in a multi-decade bear market since 1990. Remarkably, Japanese equities had an annual gain of -0.3% between 1990 and 2023. Some of the major reasons for this poor performance was that stocks become extremely expensive at the peak in 1990, companies were less profitable than European and US competitors, deflation was raging, and the currency was also very strong which hurt exports.
Now, we are at the opposite end of the spectrum in many ways. Japanese companies are flush with cash and have low levels of debt. Deflation is no longer a threat, while the Japanese yen has weakened and become quite competitive with other countries. On the aggregate, profit margins have risen from 3% to 5.5% since the early 90s. In turn, Japanese stocks have returned 7.4% annually since 2010.
Another positive development for equities is that activist investors have been successful in unlocking shareholder value on balance sheets. The government is also actively encouraging consolidation within fragmented industries and companies to focus on maximizing shareholder value.
Despite these initiatives, Japanese stocks still remain quite cheap with half of companies trading below book value. Yet, there is some compelling evidence to believe that Japanese stocks have more upsides given this combination of catalysts.
Finsum: Japanese stocks are quite cheap relative to the rest of the world. In addition, there have been quite a few positive developments in recent years in terms of corporate behavior and government policy.
Based on a recent report from the Alternative Credit Council, the private credit affiliate of the Alternative Investment Management Association, private credit managers remain bullish on their business prospects heading into the new year. In fact, more than 80 percent of global private credit managers are either bullish or cautiously optimistic about the market’s prospects over the next 12 months. The report was based on a survey of 54 private credit managers with $805 billion in combined assets. The optimism comes at a time when more investors are looking to increase their allocations to private credit next year. This was highlighted by a recent survey by Ernst & Young. According to the report, many private credit managers are taking advantage of this tailwind by expanding into new geographic locations. The report said, “Much of this growth is being led by the private equity market, which continues to spearhead private credit’s expansion into new markets. This development is likely to prove valuable for the European and Asian economies as they seek to diversify the sources of financing available to borrowers.”
Finsum:Due to an increase in interest from investors, private credit managers are optimistic about their business prospects heading into the new year.
According to a global two-phase survey from Morningstar Indexes and Sustainalytics, asset owners are not, by and large, implementing ESG factors in their portfolios. The Voice of the Asset Owner survey asked 500 global asset owners in 11 countries their thoughts on ESG. Survey findings revealed that only 29% of asset owners reported that they consider ESG factors for at least half their holdings. The reason for the low figure was attributed to concern over the impact on returns, a lack of available products, and the reluctance of both clients and stakeholders. However, the survey also showed that 85% of asset owners believe ESG factors are material to investment policy, while 70% said that ESG factors have become more material over the past five years. Asset owners that participated in the survey included OCIOs, family offices and sovereign wealth funds, pension funds, and insurance providers. Two-thirds of the respondents noted that the quality of ESG data, indexes, ratings, and tools have improved. However, about half stated that data and ratings would stand to benefit from improvements in accuracy, timeliness, and greater objectivity.
Finsum: A recent survey revealed that while many asset owners believe ESG factors are material to investment policy, only 29% consider ESG factors for at least half their holdings.
According to Sage Advisory in its recently released fourth annual stewardship report, ETF issuers offered much less manager disclosure and transparency regarding their ESG activities compared to their responses in the previous year’s report. The financial firm said that ETF firms had a “distinct change in tone” and “restrained language” in their responses to the survey. The firm attributes the drop in transparency to pending regulation in Europe and from the SEC that would require issuers to define ESG investments more clearly. Regulators are looking to crack down on firms that government agencies believe are overstating their fund’s ESG credentials, also known as greenwashing. The survey covered seven areas of stewardship such as proxy voting, climate and governance, and had a total of 69 questions. Based on its report, the firm believes that fines and proposed regulations could have both positive and negative consequences. The positive is that greenwashing could become less common, while the negative is that a lack of transparency could become an issue.
Finsum:As a result of pending regulations, ETF firms are becoming less transparent regarding their ESG activities.
According to Straits Research, the cybersecurity insurance market is projected to grow 19.52% annually and reach $38.7 by 2030. Cybersecurity insurance is a policy that individuals or companies can purchase to reduce the financial risks of conducting business online. The policy transfers certain risks to the insurer for a monthly or quarterly fee. Many companies purchase cybersecurity insurance to cover expenses resulting from digital assets loss. These costs can include the cost of notifying clients of a security breach and the cost of fines for noncompliance with regulations. North America, which holds the largest market share, is expected to grow 15.32% annually. The North American market saw more data compromises in 2021 than any other year before it. The European market is forecasted to generate $13 billion by 2030, growing at an annual rate of 23.17%
Finsum:With security breaches hitting an all-time high, the cybersecurity insurance market is projected to grow 19.52% annually and reach $38.7 by 2030.