Vitro, the Mexican-based glass manufacturer, defaulted on $1.5bn of debt in 2009 – but before so doing ensured its subsidiaries were its major creditors, allowing the company to control its own reorganisation proceedings. Its bankruptcy plan is preliminarily valid in Mexico but in the US it has been rejected: Dario Oscos explains the significance of this decision, its implications for cross-border trade, and the timeframe for a final verdict.
How can foreign exchange traders ensure they keep to their plan, and not react emotionally to unexpected market movements? By using the latest strategic software, says Terry Thompson. He explains how FX Primus’ technology innovations are helping its clients trade smarter; and how the retail forex industry is building trust with its traders, by being more transparent and moving away from the ‘market-maker’ model.
Financial markets in the Gulf region have enjoyed strong growth, helped by healthy fiscal and current account surpluses. However, the GCC’s dependence on oil as a source of income also makes volatility high and forecasting difficult. Ammar Shata explains how AlKhabeer Capital has gained a competitive advantage in investment banking, focusing on a female client-base, gaining their trust by co-investing, and helping them find the right opportunities in real assets.
Kely Melo tells World Finance how the transparency Bloomberg brings to markets is helping investors in Brazil and across Latin America, and talks about the outlook for the region in 2013.
Many of our clients are banking institutions, financial institutions, and we have them here in Peru as a client and all over the world, and this is also to understand their plans also for 2013, their plans here in Peru, and how we can work together.
The challenge is economic, obviously, and how we can continue to grow as a country, as an economy, and for the bank side, how we are going to avoid the impact of the crisis we have around the world.
Our presence in Brazil is growing, much faster than before, and I think that the transparency that Bloomberg provides for the market is something that’s been very well accepted. And being reliable: in news, in financial services, so we are trying to fit to Brazil needs, and also here in Peru, to their needs for systems technology.
The outlook is sort of positive in my point of view, in comparison to what’s happening around the world. It’s a challenge to understand how we’re going to perform, having China and other countries not importing from Brazil, which is a big exporter country. So, I think it won’t be as bad as it was this year, but still we’re going to face big challenges.
World Finance reports from the conference floor of FELABAN 2012 in Lima. We speak with the President of FELABAN, Oscar Rivera, and the Executive Director of FIBA, David Schwartz. We also interview delegates from Bancredito, Bladex, Bloomberg, BNY Mellon, Credit Andorra, KPMG Peru, London Consulting and Universal Assistance.
FELABAN is the largest conference of senior Latin American bankers outside the IMF meetings, and this year marks the 46th annual assembly. World Finance speaks to Oscar Rivera, who resigned as President of FELABAN at this year’s assembly. He discusses the organisation’s mission in furthering financial inclusion, the impact that Basel III and other north hemisphere -focused regulations will have on Latin America, and the goals of the Federation in the future.
World Finance: Financial inclusion is one of your key objectives at FELABAN; what’s the best way to develop these eMoney and financial education programmes on the continent?
Oscar Rivera: At FELABAN, we are indeed concerned about this matter: financial inclusion, and training our people up – i.e. financial education. This is because people on our continent are largely unaware of what is offered by the financial segment and the security that there is.
Therefore, this would mean that consumers would be much better informed about the products they could take advantage of. Basically, small and medium enterprises are sometimes unaware of all the financial products available which would make their lives much easier and make their transactions much simpler.
For example, with suppliers of products to supermarkets, payments are made within 90 days; factoring offered by BAN of the financial system would take the burden off their budgets, and they would have more liquid investments, rather than having to deal with the hindrance caused by 90 day payments. This goes on around the world: delayed payments being made by supermarkets.
“I do not think there is excessive regulation; I think that was the Fed’s big mistake: believing there was”
What do you think the lasting impact of Basel III will be on the continent?
Oscar Rivera: The impact on the continent – on the southern part of the continent – is a more robust economy, liquidity and strength. This is thanks to the economic policies that have been implemented in recent years by governments, which have maintained an interest in managing monetary policy, export policy and regulation in general.
This is precisely where regulation failed during the 2008 crisis in the US and now Europe: the regulators failed to fulfil their obligations.
World Finance: Is there a danger of excessive regulation leading to a reduction in lending?
Oscar Rivera: No, I do not think there is excessive regulation; I think that was the Fed’s big mistake: believing there was. There was too much deregulation, then it collapses. Instead of deregulation, it ended up becoming total liberalism.
Was there regulation? Yes, in the commercial banking sector there was, but not in the financial sector. The same is happening in Europe: there is lack of regulation to such an extend that at this point the EU said: “Let’s get rid of regulators and just share one single regulator.” I think it’s a slap on the wrist to European regulators, telling them, “You did not fulfil your purpose.”
We do have our concerns, however. Thanks to Basel, there may be over-regulation based on the problems of the northern hemisphere, which are totally unrelated to the problems of the southern hemisphere. Let me explain: the northern hemisphere is required by Basel to meet certain minimum capital requirements in 2019. These minimum capital requirements were fully achieved and exceeded in Latin America two years ago.
So, it’s clear that you cannot regulate… It’s just like within a family. You treat a badly-behaved son differently from a well-behaved son. The former needs more discipline; the latter can be given more freedom. The same goes for the economy, doesn’t it? They shouldn’t be treated the same.
“Basel III is based on the problems of the northern hemisphere, which are totally unrelated to the problems of the southern hemisphere”
World Finance: Now, commodities exports from Latin America have soared while domestic production has slowed. Is there a need to diversify?
Oscar Rivera: As regards domestic production, I think that what has been very useful during this period was that when the European and American markets in general shut down, there was a great response from the local markets. It is these local markets that have maintained the emergence of Latin American economies.
On the one hand, the socio-economic level has increased; the middle class has expanded compared with eight to 10 years ago. But in turn, trade has increased between the countries, which had not happened for years.
This idea can be personified by a football star. Latin American players are very skilful! Basically, I think that entrepreneurs from small and micro enterprises on our continent have worked hard so that they can adapt to different products, and they have achieved a much more substantial development.
World Finance: Finally, what does FELABAN want to achieve in the next five years?
Indeed, FELABAN aims to tackle the issue of financial education and to achieve greater financial inclusion. On average, in Latin America, there is financial inclusion among 50 percent of our population. But for countries such as Peru – my home country – only 30 percent of the population has contact with the financial segment. Therefore, this means making many people creditworthy who are currently not eligible for credit.
And a link that is being observed at the moment in South America is transactions carried out via mobile phones. There are more mobile phones than inhabitants: in a country of 30 million people, there are 35 million mobile phones. This is an important step, but it must be controlled by the Superintendency of Banking [the Peruvian regulator], and in turn, via a merger with the financial institutions.
I must reiterate that I’m not referring just to banks, but to financial institutions in general. Why? Because if this is not regulated, we will be faced with another major issue: money laundering. And if there is no regulation of money laundering… well, we have had bitter experiences of this in Latin America.
World Finance: Oscar Rivera, thank you.
Oscar Rivera: Thank you. We’re very glad to have you in Peru and at FELABAN. Thank you very much.
World Finance talks to Martin Litwak about networking opportunities at FELABAN, the challenges for Uruguay and the region in general as crisis-hit countries recover, and how Latin America must improve the rule of law to give security to investors.
FELABAN is one of the largest finance conferences in this part of the world, so, you know, every banker, every law firm active in the banking industry is here. So, we come to see our clients, to see colleagues, to try to expand our business, to learn something, maybe? So it’s an interesting event.
We have seen growth over the last, you know, five or six years, but that was mostly because of the international situation: the crisis in Europe, before that the crisis in the US, more than because Uruguay has done the right things to grow. so I guess the biggest challenge now is, okay, the world will recover sometime, it’s a fact it will happen – every crisis ends. And we have to see not only in Uruguay but in Latin America in general how those countries are prepared to compete when Europe and the United States are back in the game.
2013 will be a good year for most of the countries. I think Latin America has always been weak in terms of providing rule of law to investors; I think that’s the biggest issue in Latin America, and that’s the reason why some people that find an interesting opportunity, decide not to invest, because they don’t know what’s going to happen if they need to leave the country, they don’t know what’s going to happen if the government nationalises those investments. I mean, that won’t happen in Uruguay, which is rather conservative and traditional country. But still. It’s difficult to find regulations incentivising foreign investment.
Panama’s new investment-grade rating, combined with its strong banking sector, lends belief to projections that the country will continue to be a key performer in Latin America. Elena Chong describes how Panama’s banking system withstood the financial crisis, the government’s infrastructure plans for growth, and explains how Credicorp Bank’s unique services positions it ahead of its competitors.
The Massachusetts securities regulator has fined Morgan Stanley $5m for “improperly influencing” analysts in the lead up to Facebook’s IPO. The regulator cites a conflict of interest when a Facebook official was coached by a banker in what to tell analysts. The regulator also raised questions of Facebook’s and Morgan Stanley’s failure to tell investors that revenues could potentially be much lower than forecast.
The IPO, in May this year, was a turbulent affair, and initially so oversubscribed that the system momentarily crashed. Close to 421m shares were sold at around $38 a share, but started to drop significantly amid concerns of future profit growth. Stock prices have dropped around 30 percent since the IPO.
In a statement Morgan Stanley did not challenge the regulator’s claims, but said they were satisfied to have reached a settlement in the matter. “Morgan Stanley is committed to robust compliance with both the letter and the spirit of all applicable regulations and laws,” the statement read.
The case against the underwriter revolved around the presentations which promoted the then-upcoming public offering to potential investors. It has been suggested that during these presentations, aimed at a number of business centres around the US, Facebook representatives informed Morgan Stanley that in all likelihood the revenue for the second-quarter would be at the lower-end of the forecast being pitched to potential investors.
Initially analysts had predicted revenues to surpass the $1.1bn to $1.2bn forecast.
Facebook also admitted to the underwriter that it might miss growth forecasts for 2012 by around 3.5 percent.
The regulator claims that a Morgan Stanley investment banker then coached Facebook representatives on what to tell investors, following the disclosures, and helped set up calls between the company and analysts. The Secretary of Commonwealth of Massachusetts said in a statement of order that the bank assisted Facebook in informing investors “without creating the appearance of not providing the underlying trend information to all investors.”
While most people still consider Saudi Arabia to be heavily reliant on oil, economic diversification has been one of the country’s strategic pillars since the 1980s. Today oil accounts for only 28 percent of GDP, in part thanks to the commitment of banks like NCB to supporting SMEs and local corporates. CEO Abdulkareem Abu Al Nasr discusses the current business environment and the bank’s commitment to sustainability.
Appropriately, the issue of hot air was easily the most strenuously debated matter at the Doha talks on climate change that ended mid-December with a hastily assembled agreement in the final hours. With the deadline already passed, chairman Abdullah bin Hamad al-Attiyah pushed through a document called Climate Gateway against widespread opposition.
The hot air referred to the global warming that is claimed to have been created by industrial nations at the expense of non-industrial ones. Under the original Kyoto agreement of 1997, rich nations were given a total quota of greenhouse gas emissions, or “hot air”, but did not use them. With a replacement to Kyoto due to come into force in 2020, far too late according to many climate scientists, delegates left the Qatari capital without the comprehensive solution for which they came.
So far, most global climate change talks such as those in Copenhagen in 2009 have been criticised for generating their own hot air and the latest round was no exception. With a grand total of 17,000 delegates attending including a number of protesters from various ginger groups, it did not escape the notice of sceptics that Doha has the largest carbon footprint per person in the world.
Most of the issues on the agenda immediately ran into trouble. Of the 12 days scheduled for debate, several of them were spent in deadlocked committees. A significant stumbling block was how much, if any, compensation the rich, industrialised nations would give to victim countries to repair damage from climate change and help pay for greener energy.
Although a maximum pool of $100bn was eventually agreed, or more than three times the current $30bn, many of the most polluting nations withheld their signatures. The stand-outs included Russia, China and India.
However some experts believe donor nations will only use existing aid funds under a different name. “Developed countries will promise climate compensation….because it is politically expedient,” predicts geographer Sam Barrett of Trinity College Dublin, an authority on climate-change justice in a letter to the Financial Times.
Another issue of massive future importance, especially to island nations whose very existence is threatened by rising sea levels, involved targets to reduce greenhouse gas emissions. After angry exchanges, only a handful of countries signed up. They included the European Union, UK and Australia, representing just 15 per cent of total global emissions between them. Russia, China, India, Japan, Canada and USA walked away from any commitments.
That leaves a 43-strong coalition of island and low-lying nations such as Fiji, the Maldives, Mauritius, Cuba and the Bahamas, which came to the talks with high hopes, highly vulnerable to industrial nations’ emissions. Many experts agree, including Ed Davey, Britain’s climate change secretary, who said: “I do think we have a duty to help people who are losing their countries below the waves.”
So what did Doha produce after its 12 fraught days? At least, say delegates, they agreed in principle to extend Kyoto beyond this year, its official expiry date. As the only binding pact on the reduction of greenhouse gas, the agreement is considered a vital platform for global action. “With concern growing that the two-degree target [global temperature increases] could soon be out of reach, this issue can only grow in importance,” assesses Richard Gledhill, climate expert with PricewaterhouseCooper.
And after 17 years of debate, Doha achieved in principle the need for a mechanism to compensate those countries that have suffered from global warming. But that’s only in principle. If a formal process is agreed by the deadline of 2015, it will have taken 20 years to get there.
Qatar’s government has launched a new initiative to roll out fibre-optic networking across the country: the first of its kind in the Middle East. The broadband segment is already expanding rapidly – it grew 21.5 percent in 2011 – so how will the new network enhance the industry? Mohammad Al Mannai discusses the potential impact that QNBN will have on Qatar’s economy.
Since 2008, assets allocated to the managed futures industry have increased by more than 50 percent. Despite the difficult trading environment of the last few years, CTA assets today total more than $325bn. Tim Holmes describes how the strategies employed by Genesis’s managers are designed to beat the high-speed trading algorithms on the market, explains his philosophy of “win by not losing,” and considers possible market movements for the next quarter.
Let’s face it; managed futures have not been a productive investment over the past three years. Many managers and multi-manager funds have been posting disappointing returns. Within multi-manager funds, diversification has helped reduce drawdowns, but each month the gains of some managers have been offset by uncharacteristic losses by others.
Recent poor performance of managed futures, meanwhile, has challenged the management methodology of multi-manager funds.
The good news is that, historically, managed futures have come out of negative periods and returned to impressive profitability. Success lies in surviving the bad times and preparing for the good times. Genesis Multi Manager Futures Fund has prevailed with principles drawn from our experience as commodity and financial futures traders, futures options market makers and trading firm owners. Through all kinds of market conditions, we have learned what it takes to survive and thrive.
Protect capital from drawdowns
Our experience has taught us that, in managed futures, losses are more detrimental than gains are beneficial. Large drawdowns make fewer assets deployable when markets improve. Better days will come, and when they do, a fund needs its capital base whole and ready to perform. Often not considered, but of equal importance, large drawdowns inflict trauma. Managers lose confidence, which can lead to under-allocated assets, impaired judgement, dissatisfaction, departures of good traders and degraded performance. By limiting drawdowns, managers recover more quickly and allocations retain their return capacity.
A multi-manager fund manager must evaluate trades and trading strategies throughout the trading day and after the markets close
At Genesis Multi Manager Futures Fund, we employ four principles when managing traders in difficult markets. First, difficult markets increase complexity and require the fund manager to work harder. Second, the market morass identifies truly great traders and provides a stress test for weaker traders. Third, strategies that do not mimic the crowd represent opportunities. Fourth, the right perspective on loss can limit drawdowns.
During unproductive periods, fund managers cannot lessen their efforts. Instead, they must work harder. Difficult environments increase the need for trade and manager scrutiny. Trading in complex futures markets requires active monitoring. A multi-manager fund manager must evaluate trades and trading strategies throughout the trading day and after the markets close. When traders are struggling, analysis becomes very particular – even down to individual trades and the trade execution. The fund manager must not only watch manager performance, but also analyse the elements of that performance.
The transparency of futures markets, along with our extensive trading background, enables us to monitor and interpret trading decisions and market conditions. It could be argued that such a micro managed approach is not needed. However, if loss reduction and asset protection are the manager’s first priority, then it is important to have the knowledge and awareness required to react rapidly and effectively. During difficult markets, traders and their strategies experience stress. If a fund manager detects stress, the next steps are to assess whether the trader is responding appropriately and whether the strategy can withstand the stress. The fund manager may decide to contact the trader to offer expertise or provide them with information on current market conditions.
The fund manager must gauge expectations of a trader and understand the limitations and strengths of a strategy
In addition to active monitoring, we use mathematical monitoring of our managers and overall portfolio. Our dual approach is more rigorous than active or mathematical monitoring alone. Mathematics can confirm what the fund manager observes, but active monitoring can detect problems before mathematics. Mathematics tends to be slower as the models need to accumulate data points before flagging up problems. In struggling markets, mathematical monitoring often fails because the issues are outside of historical, empirical observations. Mathematics can run in the background, but the time and attention of active monitoring is required. In periods of poor performance, the fund manager needs market experience, trading knowhow and strategy clarity to control loss.
Stress testing talent
During difficult markets, traders experience the trauma of drawdowns, especially if a loss is large. Traders who can manage and capitalise on adversity are hard to find. Yet adversity has a way of highlighting the exceptional. In good markets, marginal traders profit. In difficult markets, even good traders struggle. Often, the poor performers appear great on paper but fail without the support structure of trading desks. The best traders have had ultimate responsibility for trading decisions and the ability to function autonomously. In our experience, traders who recover from loss and even profit possess sheer talent and self-reliance.
To resource rare talent and address trader attrition, the fund manager must increase trader evaluations. Difficult markets add a stress test dimension to the due diligence process. The fund manager must gauge expectations of a trader and understand the limitations and strengths of a strategy. Beyond that, market stress can reveal trading talent. The art of discovering talent during bad times prepares the fund for better times.
Don’t mimic the crowd
Currently, the crowd consists of systematic strategies – primarily trend followers. Over 80 percent of assets under management in managed futures are in systematic strategies. In addition, most of the money has been placed with large managers. As former traders, we know that a concentration of assets with managers utilising similar strategies creates exploitable opportunities for professional traders. Market makers and traders take advantage of crowd conformity, which increases price slippage for the crowd. Strategy and asset concentration also increases execution costs. To offset these costs, long-term trends must materialise.
For a multi-manager fund, opportunities exist with managers who trade in smaller markets, such as agricultural products. They utilise experience and discretion and focus on trading implementation. They generally receive little attention from institutions. Yet these managers provide market-specific expertise and offer novel approaches.
Smaller, experienced traders utilise relative value or relationship-driven strategies. For example, common relationship trades are the soybean crush, inter-commodity spreads, and calendar spreads in the energy quadrant. We believe hiring these managers creates a lower risk portfolio while providing a more consistent return profile. Mathematical systems are valuable, but the complexity of commodity futures and options markets, and the traders who understand them, offer numerous ways to make money.
Perspective on loss
All managers attempt to limit drawdowns, but not all managers have the right perspective on loss. The perspective of a professional trader or options market maker is fundamentally different than that of systematic strategies. A professional futures options market maker’s margin to equity ratio is often at 100 percent. Losses and risk are treated with great urgency. Losses tend to impact a trading firm more profoundly than profits.
In the perspective of a systematic strategy, losses and gains are considered symmetrical. A systematic trader will accept a larger drawdown if the system forecasts higher average gains. But in the dynamic futures markets, theoretical future gains are not always realised. We treat loss as professional market makers and will sacrifice theoretical statistical gains in an effort to limit large drawdowns.
Managed futures returns come in short time periods and are unpredictable. Even astute, mathematically savvy managers have not been able to model their equity curve
Furthermore, traders are not machines; they are people whose emotions are negatively impacted by losses. Drawdowns portend loss of performance, mental clarity and discipline. Even mathematicians experience the trauma of losses, but many systems do not take traumatic effects into account.
Drawdowns are part of the business, but we take many measures to limit the depth of drawdowns. We place tight acceptable loss maximums on our managers. We construct a team-based portfolio in which each manager functions to lessen volatility and control risk. We contract with market experts that have a history of low drawdowns. We pay attention to the daily activity of our managers and address potential issues quickly. Protecting assets is our first responsibility.
Genesis Multi Manager Futures Fund is a managed futures fund that ‘treads water’ well: one that preserves capital during unproductive periods and stands ready for full functioning when markets are good. By protecting assets, we enable investing in managed futures without regard to timing. Managed futures returns come in short time periods and are unpredictable. Even astute, mathematically savvy managers have not been able to model their equity curve. Therefore, to profit from managed futures, an investor needs to be invested before market opportunities arise. Our ‘win by not losing’ mentality helps investors to invest with confidence.
For more information: Tel: +1 312-339-6042; email: email@example.com
Mexico has one of the highest growth rates of broadband services among OECD countries in the last 10 years. Telmex, the main fixed-line telecoms provider in the country, has prompted this growth by investing $34bn in its network in the last 22 years. Chief Financial Officer Carlos Robles discusses the company’s wide range of services and initiatives which are bringing high-speed broadband within reach of the entire population.