Bifm, the titanic fund managers’ offshore investment advisors, said last week that there are still dark clouds hanging over the American economy but urged investors to look in the long term.
The largest local fund management outfit with assets worth P 15 billion had a conference which was aimed at giving stakeholders an insight of what is happening both on the global and local scenes.
“Sub-prime issues are not over and we are still going to see some earning pressures on some corporate earning. We see less growth in the USA going forward,” said Colin Graham, head of equities and alternative investment at London-based BlackRock, told the conference in Gaborone on Tuesday.
“The US is no longer a buy and hold market and we believe that the world has changed now,” he said adding that they expect corporate earning to slow.
The concerns over the USA economy were also raised by the Bank of England on Thursday saying the impact of credit crunch is not yet over.
Sub-prime mortgage market credit crunch has wiped returns on investments in United States, across Europe and Asia during the northern hemisphere summer time. BlackRock is in the ivy league of fund managers globally and is one of the fund managers which Bifm uses to deal with global investment opportunities apart from Templeton.
The sub-prime mortgage crisis was largely prompted by financial institutionsÔÇöbanksÔÇö which were lending to clients who were not credit worthy. The banks shares were sold in Asia, Europe and USA as securities instruments following high ratings from credit rating agencies but when interest rates were adjusted upwards most of their clients who were not credit worthy defaulted on their loan sparking the biggest financial crisis since the September 11, 2001 when Al Qaeda terrorists attacked New York and Washington.
The move hurt the USA housing market which has been the driving force of that country’s economy since 2001.
“The USA corporate used to be more efficient than the rest of the world but that is beginning to change. We are now seeing growth rates in Brazil, China and India,” Graham said, adding that “money is following where growth rates are.”
Further, he pointed out that BlackRock still maintains that USA’s bonds are expensive and have tight margins of returns.
Octane, a hedge fund outfit which manages Bifm’s funds told of how it got its hands burnt in July but said it is now recovering from the wounds.
“Over the last 12 months, Octane had positive results except for one month. We started to recover in September,” head of research at Octane, Lara Price, who is based in New York, said.
She ascribed the painful experience to the sub-prime mortgage crunch whose prior experience they did not have but assured Botswana pension members that they were now well equipped to deal with the situation.
“The mortgage stocks were badly hit because it has been sold to Europe and Asia. And these ripple effects affected the banking and consumer stocks. The US investors embarked on a massive sell-off,” she said, adding that this led to a plunge of a number of bourses around the world.
On the back of an envelope calculation, the July crisis is thought to have wiped out US $ 300 billion.
“There are still some concerns in the market but we believe that hedge funds are well positioned now,” she said. “I think banks were irresponsible buy lending to people who were not credit worthy.”
The sub-prime mortgage credit crunch was originally thought to be the mortgage lenders problem but it quickly spread to the banks and the entire consumer stocks as investors went on a stampede of exiting the USA, Europe and Asian markets.
The sub-prime mortgage credit crunch also affected the currency market as the investors were selling their US dollar investment in an attempt to duck-out of the global financial inferno.
Sanlam Multi Management International (SMMI), a division of Salam Group which holds 54 percent in Botswana Insurance Holdings ÔÇô parent company to BifmÔÇösaid it was indirectly hit.
“Our exposure was more on currency floatation but not on sub-prime mortgage markets,” Nerson Naidoo who is based in London said.
SMMI currency trading is heavily skewed towards the US dollar felt the pinch when the dollar came down against other major currency during the debacle.
However, the company said it made money on Information Technology, financial and energy stocks during the third quarter of this year.
“We had to do a lot of stock picking because the bonds were weak due to the turbulences in the market,” Naidoo said.