Implications of bear steepening

Interest rates are in focus, with long-term Treasury yields rising steadily, the curve steepening and implied volatility moving higher.

We have previously considered the effect of these trends on equity relative value performance. How about the impact on corporate merger activity? (more…)

By |2021-03-12T11:51:08+08:004 March 2021|Thought leadership|

Holding the floor

We have recently written about the potential turning point for Value versus Growth which occurred in mid-November.

To recap, we identified a sharp spike in the volatility of the Value / Growth ratio as resembling a similar event in the year 2000, which at that time marked the start of a long period of Value out-performance.

What do we need for the turning point thesis to hold? (more…)

By |2021-02-24T16:36:34+08:003 February 2021|Thought leadership|

Why are volatility spikes significant?

In our last post we highlighted a volatility spike in the Value / Growth ratio as a potential sign that the multi-year under-performance of Value might be coming to an end.

More specifically, we looked at the 10-day volatility of the MSCI Asia-Pacific ex-Japan Value index divided by MSCI Asia-Pacific ex-Japan Growth index, which in November spiked to 30 for the first time in twenty years.

The last time this happened marked the start of a long period of Value outperformance.

Volatility spikes are often associated with market turning points. Why? (more…)

By |2021-02-24T16:36:52+08:006 January 2021|Thought leadership|

A turning point?

We may finally have seen a turning point in the under-performance of Value.

The volatility of the Value / Growth ratio in Asia-Pacific surged to 30% on 6 November. The last time we saw a similar level was just over twenty years ago, on 10 April 2000:

This is significant because (more…)

By |2021-02-24T16:37:31+08:003 December 2020|Thought leadership|

Worst performance of value since 1926

We continue to have a strong conviction in a strategy of buying companies at 80-90% discount to NAV, with an expectation of a catalyst for value realisation.

While over the long-term this has proven to be a very effective strategy, it has performed poorly over the past year.

What could be the cause? We believe the global underperformance of the value factor is the main culprit.

We have previously illustrated this using benchmarks from MSCI and Russell Investments. However, to show just how extreme the current moves are, (more…)

By |2021-02-24T16:39:02+08:004 November 2020|Thought leadership|

Engagement update

We have two situations which are public. The first is NBI Industrial Finance in India, a company which owns shares of a major listed cement company worth almost five times its market cap and which carries on almost no other business.

This month, we sent an open letter to the board which we also released to the press and uploaded to a dedicated website (link).

The letter was structured as a list of questions, in line with our policy of first seeking explanations for corporate behaviour before making our own suggestions.

In the first instance, we are asking: (more…)

By |2020-08-12T14:52:09+08:005 August 2020|Thought leadership|

Deal activity still resilient in Asia-Pacific

Recent headlines such as “With M&A Hit, Wall Street Bankers Keep Busy With Stock Sales” (Bloomberg, 28 May), “Bankers fear sustained M&A slump: ‘It’s impossible without face-to-face meetings’” (Financial News, 8 June) and “Pandemic fears grip M&A as deal making slumps to 23-year low in Europe” (MarketWatch, 30 June) suggest a very depressed market for corporate transactions this year.

However, the numbers in Asia-Pacific tell a different story: (more…)

By |2020-07-17T15:42:19+08:006 July 2020|Thought leadership|

Current trends in Asia-Pacific M&A

We look at the current opportunity set in Asia-Pacific M&A, and how it has changed since the onset of the pandemic.

The figure below shows the cancellation / completion ratio of Asia-Pacific deals going back twenty years. The chart shows how this year has been a huge outlier, with the ratio moving well above two times, compared with a historical range rarely exceeding one. In other words, in 2020, more than two deals have been cancelled for every deal that has completed. This indicates the scale of the disruption in the M&A space this year.

M&A cancel / complete ratio (x)

What does this imply for M&A investment returns for the rest of the year? We think they will be strongly positive for the following reasons: (more…)

By |2020-06-01T10:19:38+08:0027 May 2020|Thought leadership|
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