Strategic Cash Placement in A Portfolio

istock_000010501865largeA portfolio is a categorization of financial assets like stocks, bonds and cash equals, along with their mutual fund, exchange-traded fund, and closed-fund equivalents.

Portfolios are either held by investors or managed by financial experts. Investors must create an investment portfolio as per their risk tolerance and investment goals.

Often, investors are not prepared when a correction happens in the market. They make their entry into the market when the market is doing well and then become vulnerable when the market is not doing well.

They conclude that a correction means that something is not right and that stocks should be avoided. That is a wrong approach towards the market. Corrections always follow a big run, and they must be expected, but an investor cannot write off the market when they occur.

Many investors believe they are supposed to be completely invested at all times. In fact, there are several money managers who think they are supposed to have invested all their money. This is absolutely the wrong strategy from a stock market investment perspective.

According to Jim Cramer (former hedge fund manager), “”Cash is the perfect hedge in an environment when the market hits dangerous highs and could protect from devastating losses.”

Having cash on hand during a market correction is crucial to safeguard a portfolio. At times, the market would not perform well and there is nothing to do, but hold the cash. Money managers with sufficient amount of cash tend to perform well in the business.

Some experts consider cash to be an extremely underrated investment. It would be prudent to increase the cash supply whenever the market rises.

Investors must sell on strength and buy on weakness. Otherwise, they could end up selling their best stocks in order to hold their worst stocks because the best stocks stopped increasing.

Investors must understand that there are many reasons for the stock market to fall. Therefore, they must be prepared for a correction.

Having sufficient amount of cash would possibly mean the difference between good and bad stocks in an investor’s portfolio. Again, maintaining a robust portfolio that would make sure it would be able to recover from a correction.

Hence, it would be appropriate to have cash to fund, instead of selling high-quality stocks to beat the competition in the market.

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Private Equity Investors Must Focus On Scale-Ups

investment-private-equity-africa-620x350Current news has focused on record highs for private equity investments in the UK. However, are investors directing funds towards start-ups and overlooking the all-significant scale-ups?

According to experts, private equity investment in Europe increased by 14% in 2015, in spite of the fact that the number of firms receiving private equity investment fell by 13%. This reflects that the value of distinct investments is growing, while the real quantity of these kinds of deals is decreasing.

These statistics offer a valuable understanding of investor behaviour. Instead of providing less money to a gamut of start-ups, a percentage of investors are beginning to direct their funds to a specific set of SMEs.

This is to some extent reflects a trend that has been accepted in the US and must be seen as a constructive development in the alternative finance market.

Financing for the scale-up of the business community, instead of start-ups, is a vital stride for the UK if it is to realize the potential of its private sector, of which a surprising 99% are SMEs.

According to a research by Barclays, the University of Cambridge and the University of Oxford, “gazelles” (firms that increase turnover by 20% for three successive years) are an increasingly occasional occurrence.

These businesses amount to just 2% to 4% of SMEs across the UK – a disturbing factor when taking into consideration that these “gazelles” are responsible for a huge percentage of the UK’s SME growth. In order to maintain the high-growth abilities of small businesses, funding is vital.

According to an independent survey commissioned by private equity firm IW Capital, 34% of investors in the UK with more than £100,000 in investments would consider investing in SMEs over a five-year period, but do not have the expertise to do so.

In order to boost and foster private equity investment in the UK, it is crucial that the stakeholders responsible for guiding investors and SMEs focus on creating awareness.

There is an increasing connection between alternative finance solutions and growing businesses in the UK. Therefore, service providers and government must take the responsibility to increase responsiveness amongst investors in driving SME development forward securely.

In this regard, IW Capital and Crowdfinders in collaboration with the UKBAA, and Invesdor (international crowdfunding partner) among others, have launched a new programme known as Race to Scale – a funding drive valued at £100 million to generate development finance dedicated to the scale-up community in the UK.

It not only delivers a percentage of finance to ensure viable growth for the UK scale-ups, but also seeks a long-term solution by educating the investors that would ensure SMEs continued financial stability.

At a time when the infrastructure of the private sector is transforming rapidly in the UK, it is crucial that the alternative finance sector changes rationally, prioritizing long-term viability and development along with an investment of capital into the early stage of start-ups.

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Exceptional Service Vs Low Spreads

downloadIt could be a complicated task to select the correct forex broker. Selecting a business partner providing an investor access to the trading market while ensuring costs are low and the investor’s funds safeguarded is difficult enough, particularly when trading online with a broker located overseas.

Again, identifying a broker who would deliver exceptional customer service is even more challenging.

Several traders tend to look at the cost aspect and choose a broker promoting the low spreads. However, it is vital to comprehend the impact that these tight spreads could have on the level of service an investor would receive.

Reliable brokers have an excellent understanding of their cost structures and they have to recover costs by one process or another in order to stay in business.

If a broker provides very low spreads, then the broker has to compromise somewhere else within the business structure (either by increasing fees or by reducing the quality of the services).

There are two facets on which brokers usually compete – service quality and cost. It would not be possible for any broker to be the best in both fields. Hence, any broker offering the lowest probable spreads would be compromising on quality elsewhere, or be charging unknown fees, or implementing poor business practices.

Traders may be able to identify inefficient customer service and hidden fees, but poor business practices could be difficult to identify and may have a negative impact on the trading success.

Since a broker highlighting the low spreads does not provide good quality, investors may not be able to get their issues resolved quickly.

However, there are situations in which certain forex traders would gain from opting for tight spreads. Algo traders relying on complex algorithms and systems to implement successful trades would benefit from selecting the low spread every time.

The efficiency of algo trading depends on a high volume of trades at low spreads in order to generate a profit. Since transaction costs must be paid on each trade implemented, a low spread ensures that these costs are kept down to a minimum.

On the whole, for most of the forex investors, when it comes to deciding between the high-quality forex brokers, attention must be given to the service quality along with the tightness of the spreads.

Evaluating all the pros and cons of every broker could make the difference between implementing profitable trades and a costly mistake.

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Election Fears Impacting the US Economy

27199_l_us-economyThe slowdown in the US economy recently has been due to the forthcoming election in November 2016.

Some business economists believe that uncertainty about the election is detrimental for growth projections this year.

The National Association for Business Economics has marked down their outlooks for this year, fixing the total growth in gross domestic product at a modest 1.8%. It is down from 2.2% in the group’s survey in March and 2.6% in December 2015.

The economy in the US went through a period of weak economic performance in the first quarter of 2016, reducing to a yearly growth rate of just 0.8 percent. The economic data have been reflecting mixed indications.

In April 2016, consumer expenditure surged, recording the largest gain in almost seven years. The job market report released by the government on June 3rd, 2016, showed the pace of hiring reduced drastically in May and was weaker than initially reported two months before.

The downturn comes as businesses are becoming progressively anxious about the result of the presidential election, and the broader uncertainty regarding the policies proposed by the next President. The political uncertainty is perceived as a drag on the economy in the US this year.

According to Greg Daco, head of U.S. macroeconomics at Oxford Economics and a NABE survey analyst, “Businesses are generally prepared to not have everything go their way, but they have a much harder time when they don’t know what’s going to happen or what to expect.”

Certain precise policy offers have also heightened concerns, including those by probable Republican presidential nominee Donald Trump to take tough actions on some US trade partners such as China and Mexico.

Such a policy when combined with an economic model would have a negative impact on the US economy if it starts a trade war.

Businesses as well as consumers are cautious about expenditure and investing. Market experts have cut their growth projections across a wide array of sectors – business investment, consumer spending, industrial production and corporate profits.

Corporate stakeholders must monitor the latest trends and be prepared for any contingency. Organizations must focus on their internal dynamics to safeguard their business from external factors.

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China’s Exports Fall

oilmeals-exports-fall-by-42-in-augustThe sluggish Chinese trade data in May 2016 provided the latest indicator that the second biggest global economy was still far from robust health.

Exports measured in terms of dollar crashed 4.1 percent on-year, in excess of 1.8% fall in April and marginally worse than assessments for a 3.6 percent decline.

On the other hand, imports ended 0.4 percent down on-year, narrower than the 10.9% drop in April and the 6 percent fall expected.

This resulted in Beijing have a trade surplus of $49.98 billion, broader than $45.56 billion in April.

The yearly exports were 7.3% lower, while imports were 10.3% lower during the five months of 2016.

Market response was comparatively subdued. Softening demand globally was the main reason for weak exports and not internal factors. Experts pointed to poor demand in several of China’s vital trading partners, including the EU, Japan, and the US.

The export growth in China is expected to be subdued in the short-term. The global economy is estimated to neither slow down nor pick-up.

Analysts referred the better-than-expected imports data to the continuing improvement in international commodity prices that increased import values. Import growth is likely to move upward throughout the year.

According to Thierry Apoteker, executive chairman and chief economist at TAC Economics, “China has been losing worldwide market share on manufactured products for a while… if worldwide trade in dollar terms is zero, China is at minus 4. This is no surprise because most competitors have had their currency depreciating by 20-25 percent since 2013, but the yuan has remained broadly stable, with depreciation only beginning since July 2015.”

Certain banks like Oversea-Chinese Banking Corporation (OCBC) are forecasting a still weaker currency due to an impending U.S. interest rate hike, and not because of policymaking within China.

The overall currency management strategy in China has been criticized for being the weak link. Activity in China’s manufacturing and services sectors was comparatively unchanged.

Indeed, anxiety regarding the direction of the Renminbi (the currency of China) has been the cause of unstable investor sentiment.

Traders and financial stakeholders have often accused China of devaluing its currency to increase its exports. However, the Chinese central bank has denied the rumours as it tries to make the currency become more market-oriented.

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Banking on IOT

screen-shot-2015-09-22-at-09-32-37The Internet of Things (IoT) has made a significant impact on the global economy in 2016. The growing number of connected digital devices –  wearables, smartphones, appliances and computing devices which can communicate with each other besides outside entities at any given time have changed the lives of people.

According to a forecast by Gartner (technology advisory firm based in the US), there would be around 25 billion such connected devices globally by 2020. The impact of IoT would be greater than any previous digital revolution in corporate, banking and financial services.

Spearheaded by the availability of an extraordinary level of data, these sectors can create data-driven customer insight, connect information and act on it, in a way that was not possible before.

At present, the connected customers are fuelling IoT innovation in corporate, banking and financial services.

The use of IoT-enabled technology enables banks to deliver an exceptional customer experience, which is the driving force behind the current progress in new payment technologies.

However, there are concurrent concerns that the huge quantity of data related with IoT would increase issues around confidentiality, identity authentication and security, especially around data management and data security.

Several users are using technologies like Apple Pay through an iPhone or Apple Watch, while some market players like Google, Samsung and different OEMs are deploying secure online payment strategies and installing payment functionalities in wearables.

Banks and vendors using real-time geolocation technologies to detect where and when they might be able to provide incentives to their clients must also be considered. Biometric data (fingerprints, iris scans among others) is providing banks new methods to validate clients.

Providing this kind of data needs a certain level of trust from users. Without this, IoT would not be able to reach its complete potential and users would not feel comfortable linking devices with bank accounts.

If handled properly, IoT has the potential to become a game changer for financial services firms. They could offer instinctive services to customers, across the devices and places. However, they must tackle the security challenge and increase customer trust, while improving overall network infrastructure.

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International Trade

international_trade_2Trade refers to the buying and selling of goods and services. The goods that are exchanged are those that people make or grow, such as machines, food items, clothes, etc. Services denotes to things that people do for others, like teaching, working in companies, etc.

We trade to fulfil our needs, requirements and to make money. People also trade for the services that they cannot do themselves. Trade between nations happens for this reason only. Some nations, for example, have some natural resources, like oil, coal, or wood which other nations might want to purchase. The countries try to sell the things or services that they have a lot to other countries. In return, they make money and then buy the goods that they themselves don’t have.

Both consumers and producers make a profit from international trade. There are many nations that have a lot of different products to export, and on the other hand, there are nations that depend only on one or two goods to make money. For example, countries of the Middle East mainly depend on the oil business, because it is the only commodity they have. Similarly, countries in Africa depend majorly on the business of tropical farm products to make money.

It is shocking to know that every year products and services valued about 11 trillion dollars are traded globally. The biggest exporting countries are France, UK, Canada, USA and Japan. If a nation exports more than it imports, it is called as a trade surplus. On the flip side, if a nation pays more for its imports it has a trade shortfall.

In some countries the government regulates all trading activities, while in others, the government allows organizations to trade freely. Many governments try to boost domestic production by restricting imports. They levy high import duties on imported goods to make them costlier when compare to their own produce. A government may also put restrictions on the products to be imported. This strategy is called as protectionism because governments want to protect their economies.

The advantages of international trade have been the major contributors of growth for the country’s economy. Countries with good international trading strategy have accumulated wealth and dominated the global economy. The international trade can become one of the major drivers to the reduction of poverty.

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World Bank Reduces Global Growth Forecast

101935455-96502248-530x298The World Bank reduced its 2016 global growth forecast on June 8th, 2016 to 2.4 percent from the 2.9 percent projected in January 2016 because of low commodity prices, slow demand in developed nations, sluggish trade, and reducing capital flows.

Commodity-exporting emerging nations have not been able to adjust to lower prices for several commodities, including oil and metals, accounting for 50% of the descending revision.

The World Bank predicts these economies to grow at a minimum 0.4 percent pace this year, a descending revision of 1.2 percentage points from the January position.

Commodity-importing emerging nations are doing better, but the benefits of lesser energy and other materials have occurred at a slow pace. The World Bank forecasts growth in these nations would reach 5.8 percent, down a tenth of a percentage point from the January estimates.

In the US, a sharp reduction in energy sector investment and sluggish exports would also remove eight-tenths of a percentage point from the World Bank’s 2016 estimate, taking growth to 1.9 percent.

The euro zone witnessed a modest downgrade of its 2016 prediction to 1.6 percent, in spite of outstanding monetary policy support and a boost from lesser energy and commodity prices.

According to Kaushik Basu, World Bank Chief Economist, “As advanced economies struggle to gain traction, most economies in South and East Asia are growing solidly, as are commodity-importing emerging economies around the world.”

The quick increase of private debt in many emerging nations posed a risk to growth should non-performing bank loans increase.

As far as key emerging market nations are concerned, the World Bank maintained China’s growth estimate unchanged at 6.7% this year after 2015 growth of 6.9%. It forecasts China’s growth to slow further to 6.3% by 2018 as the second-largest global economy rebalances towards a greater consumer-driven growth model away from exports.

India’s dynamic economic growth also is estimated to hold steady at 7.6%, while Brazil and Russia are expected to continue in severe recessions than forecast in January.

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The Bayer-Monsanto Deal Could Result in A Takeover Boom in Europe

103657160-gettyimages-512335082-1910x1000Just when markets believed the lack of mergers and acquisitions (M&A) in Europe was here to stay, Bayer AG (a global pharmaceutical firm based in Germany) has made a $62 billion bid for Monsanto (a multinational agrochemical firm based in the US).

The tie-up would not only result in the biggest agricultural supplier globally, more significantly for the region, it would supposedly be the largest outbound takeover by a German company on record. It could also result in the beginning of a flurry of deal-making in Europe.

According to some strategists, The European Central Bank’s new easing measures that came into effect in May 2016 would further increase the M&A activity.

Again, an increase in corporate re-leveraging would see more M&A. The ECB is expected to establish the foundation for European companies to take over firms located globally.

However, not everyone is supporting renewed interest for overseas acquisitions. Some Bayer shareholders are not happy with the new approach. The bid has been met with caution by certain investors.

The senior management of Bayer does not see any apparent financing or regulatory risks with the all-cash transaction. The German firm plans to fund the offer with a mix of debt and equity that would also consist of a capital hike.

The market is waiting for a response from the credit agencies and the jury is still out whether the credit agencies would approve the deal.

Once the deal gets approved, Monsanto would be burdened with a net debt ratio of about four times earnings. That could lead to some questions about the firm’s ability for future strategic investments in other areas of business.

It would also be viewed as a positive correction in business preparedness to re-leverage. Overall, Bayer’s goal is extremely strategic in a highly favourable credit scenario.

Against the background of the referendum in the UK on its EU membership and the reducing influence of Europe, the region could benefit immensely from corporates based in Germany acquiring firms overseas.

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Market Corrections

market-corrections-599x270A reverse shift, generally negative, of at least 10% in a stock, bond, commodity or index to adapt for an overvaluation.

Corrections are normally short-term price reduction interrupting an uptrend in the market or an asset. A correction has a shorter period than a bear market or a recession, but it could be a forerunner to either.

A stock market correction is a normal portion of the stock market cycle. Every bull market in the last four decades has witnessed a correction. In fact, knowledgeable investors often want a correction to enable the market to stabilize before moving upwards.

A stock market correction could be produced by some type of event that generates anxiety and consequent panicked selling. It could be a very difficult time, and several new investors would want to be part of the move to exit the markets.

However, that would not be the right move because the stock market normally makes up the losses in a short period. Therefore, if an investor is going to sell during the correction, the investor would mostly not be able to buy in time to make up the losses.

Corrections are unavoidable. When the stock market is rising, investors would like to make an entry on the possible profits. This can lead to unreasonable eagerness.

A correction is not similar to a stock market fall, which is when stock prices fall by over 10% in a single trading day. Crashes are so disheartening; they normally result in a bear market.

Dissimilar to a correction, a stock market fall could result in a recession. It is not easy to differentiate between a correction and a crash. A correction would become a crash if the stock market reduces by over 10%. The process of deciding if a correction is turning into a crash is called as “timing the market”.

This is almost not possible to do. There are several factors that can impact the market’s movement. Hence, it would be appropriate to have a diversified portfolio with an optimal mix of stocks, bond, and commodities.

An investor would profit from market upswings through the stocks, and be safeguarded from stock market correction through the bonds and commodities. Diversification would enable an investor to ride out any stock market corrections.

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