72nd CFA Institute Annual Conference – London Experience

The experience of participating in the 72nd Chartered Financial Analysts Conference in London. I had the opportunity to hear thoughts of some big names in the fund management industry along with their works in the domain.

Disruption: The New Reality in Investment Management.

The world’s most valuable resource is no longer oil, but data

  • Inputs on DATA, that were shared was mind blowing.
  • Donald Trump the 4th  Moron ruling the US after Bill Clinton, George W Bush & Obama.
  • Japanese are experts at de-sourcing which is the reason they have flourished all over the globe.
  • Millennials are full of consumption and their consumption has postponed US recession
  • Greece and Brazil are starved of Capital. Greece is changing from Neo Family to Joint family, Government pays social security of about 400 Euros per citizen. How long they will survive?
  • China is the most credited country in the entire Human history, it is such a big treat. India has the 2ndhighest NPA’s in the world, another shock!
  • By the end of 2019, US will become net exporter of Oil. In a situation where demand for oil is depleting, new competition for the oil economies. What is in store for the middle east, which is funding terror all over the globe? This is actually happy news.
  • Italy has cash only to survive for 271 days, threatening.
  • The disruption that China is creating, it has transformed from a duplicate economy to innovator economy. They say, China cannot be another US. China is investing heavily in Africa. After China & India, next developments likely to be in Africa. China is positioning well there.
  • In the need to produce China has started building roads and bridges even where there is no use. There is a road being built to connect China with Italy.
  • Crypto will become common mode of exchange, fiat currencies will cease to exist. If this has to happen all the central banks have to collapse, will countries agree? What would be the change that will happen?
  • There are only 6 good currencies in the world and even they are going to vanish.
  • When global structure changes, Gold will lose its value. What a disruption that will be?
  • World will see London’s demise of being the global Financial Hub.
  • Traditional markets will thrive because money and price help us in making decision. We love comparing numbers. Data gets that joy for the human beings. Data rich economies are diverse economies, which will kill money value of large scale commoditisation.
  • Automation on the cost cutting side will hit bottom soon, then it will be only innovation. Renaissance of small and agile firms will survive and thrive. Data will help build communication first and then will develop products to sell.
  • Artificial Intelligence came to academics in 2012, in 7 years it has penetrated to threaten the existence of mankind. Yet, 85% of data collected is not getting used in the Europe. Economies that don’t use data will die.
  • Now, we have data available on how markets reacted after a financial announcement by a company. Linear regression, which is the father of Machine Learning will get closer to a problem, will create designs which will get replicated. There will be a strong need to constantly work on new ideas.
  • Information like news, sectors, market for a product, political info will combine to influence sentiments. Fundamental data will get merged with sentiment data. This will be future of investing.

Being wrong is OK, Staying wrong is not. Banks will Vanish.

Picture Courtesy : American Banker.com

  • Though thoughts have been going on in this front, it was a surprise to know that Banks will be history within a decade. There would be so many people who would be unemployed, how will the world confront this issue?
  • On one hand users will be happy as they get the services at a lesser cost. Lending will move to separate entities who will be like Mutual Funds which come with more responsibilities. Quality of assets will improve. Spreads will come down, borrowers as well as investors will benefit.
  • Banks as of now have a spread of about 4% between the deposit rate and lending rate, which will now become zero. This 4% was what made bank employment lucrative, highly paid, lavish life style.
  • Now it is scary to even think of what this huge population which will be dislodged from employment do. World over Financial services constitute more than 35% of GDP and employment. Which means a fairly good number of employed population will be staring at jobless life?
  • Blockchain will be the best opponent to currencies in the next 5 years. While banks will get disrupted, custodians will remain. Fiat currencies likely to die and crypto will grow. By 2027, 27% of world GDP will be in Crypto. A very shocking revelation.
  • Japan is a great example for learning from mistakes. It is 9 years ahead of Europe & 15 years ahead of the US. Japan leads in many domains across the world. It sells more cars than any other country across the globe.

Global Economy Power shifts from G7 to E7

    • Group of Seven big economies that are the largest wealthy economies which between them control 58% of global wealth is going to change. It will be Emerging 7 that will lead the world very soon. This seems to be a very big expectation, will it happen and what would be the world after that?
    • Canada, France, Italy, Germany, Japan, UK & USA will be replaced by China, India, Mexico, Brazil, Russia, Indonesia & Turkey. This was an expected outcome for 2050, now it is speeding up and will change in the next 5 to 6 years.
  • The rapid growth that China had and India is witnessing now, some of the top professors in world economics have also coined the name CHINDIA will rule the world.
  • Today, 10 among 100 tourists across the globe are Chinese, which shows the growth that their economy has had in the last decade. A transformation like that for India, look at the potential we have as a country. Even we become a nation, that selects its way of life, discard industries that pollute, like what is now happening in China. Being part of this transformation itself will be a beautiful experience.

Labour will have challenges

Technology is killing JOBS

  • Technology is displacing employed people in almost all domains. Both skilled as well as unskilled are impacted equally. In fact the trend is a little different in developed countries where unskilled labour is at par with skilled in income levels. In London, a tube driver is paid between 3-4K pounds which is equal to what a techie gets.
  • In the last 20 years compensation to employees have grown 115%, whereas productivity has grown 246%. Labour is underpaid. Is this true? Asking myself, might be it is.
  • Capital is moving away from public domain. Number of listed companies are going down rapidly. Private equity is going up. Only a handful of investors benefiting the global consumption. This is not good.
  • In counties like India, there is more challenge to be faced. All of that disruption that is happening is displacing unskilled labour, big time. Some thoughts are circulating that Women will be most affected. Consequences are going to be more challenging. In today’s lifestyle there is a necessity of double income in our country.
  • Governments across the globe will have to find solutions for this challenge. Politicians will now be fighting elections on employments as a primary objective.
  • This challenge will get more intense when banks close down. Very soon tech companies will have different taxation. Where the burden of joblessness created by them, will have to be addressed. Based on the sales they have and the percentage of employment expense, taxes can be charged.

Investments are poor in Europe & US

  • Developed economies are going through a phase where capital is getting reduced on a regular basis. Companies are using profits to buy back equity. The reason they give for this change is that, opportunities don’t exist.
  • When the developed world is facing scarcity of opportunities, Emerging countries are deploying more capital not only from their profits, they are also borrowing. Where, all types of lenders and investors are active from Banks to PE investors.
  • When investments slow down, growth gets stagnated. Lesser employment and more joblessness. Governments in developed nations will have to cough up more on the social security. Which on one side will make their population more lazy and bring in.
  • Sovereign wealth funds helping nations to give support to population, this only creates a lazy population and more responsibility on fund managers. There was a fund in UK, which is 20B pounds which is supporting 25K families. The fund manager said that, he has the responsibility to deliver 1.4B pounds returns every year for the next 15 years.
  • As they have less opportunities in their world, all of this money is being invested into the emerging markets. Can we see the opportunity knocking at our doors? Western money coming to make the eastern world wealthy.
  • EM’s will crush US. Sell US and buy EM’s, because they have lesser valuation that the developed world. MSCI weight on Asia is likely to go up to 20%, it is presently low due to political reasons. China is the biggest consumer in the world. It is winning the trade war. There is no more ‘Made in China,’ it is only, ‘Made for China’.

There is nothing called ‘PASSIVE’.

    • Passive investing has been doing rounds recently in the global financial markets. There is nothing called passive. There is only ‘Slow’ & ‘Active’. It comes when there is excess liquidity. More money chasing few opportunities. Where maximum exposure goes to wrong things at a wrong time.
    • Stocks will not be cheap at any time. When it comes down, it is fair value. There is opportunity available at some part of the globe at all times. Presently, when the developed world is starved of growth, EM’s are flourishing. They are likely to compound at 10%, which is very big number. If it stays for 10 years, multiplication will be 160%. We need to make money go through change, engage & adept to make it active. If we don’t, someone else will.