Economic Summary for the week ended 9th Nov 2012

China - China has reported encouraging economic data this week, indicating that growth in the world's second-largest economy may be rebounding. Industrial production, retail sales and fixed-asset investment all rose more than expected in October, from a year earlier.

Meanwhile, the inflation rate fell, giving room to policymakers to employ stimulus measures to support growth. The numbers come as China's growth rate has hit a three-year low.

Factory output rose 9.6%, while retail sales jumped 14.5%, indicating that domestic demand was holding up.

China - China's President Hu Jintao has said the country will deepen its economic reforms and boost domestic demand to spur a new wave of growth. Opening the Communist Party congress, Mr Hu added that China needed to work towards a more "market-based" exchange rate for the yuan.

"We should step up efforts to transform to a new growth model and work hard to improve the quality and efficiency of the economy," Mr Hu said. "We will continue to deepen our economic system reform and stick to the policy of expanding domestic demand."

U.S. - The U.S. trade deficit has fallen to its lowest level in almost two years, as exports reached an all-time high, official figures have shown. The deficit in goods and services narrowed to $41.5bn in September, raising hopes of increased strength in the U.S. economy.

The figure was 5.1% lower than August's $43.8bn deficit and the lowest since December 2010. Exports rose 3.1% to $187bn, driven by sales of aircraft and heavy machinery. Imports also increased in September, rising 1.5% to $228.5bn, led by consumer goods, clothing and toys.

U.S./Greece – U.S. markets posted heavy losses for the second successive day of trading on Friday, amid fears Greece is set to default on a EUR5bn debt payment due next week. According to the Financial Times, Greece, which was granted a EUR174bn bailout by the European Central Bank, is struggling to meet the EUR5bn debt obligation.

With Greece stalling, eurozone leaders now face a new round of negotiations on how to reduce Greece's high debt levels.

As well as worries in Europe, U.S. lawmakers warned growth in the world's largest economy would drop by 3% next year if the Bush-era tax cuts are not maintained or extended.

Europe - The European Commission has sharply cut its growth forecast for the eurozone, warning that the "difficult process of rebalancing will last for some time".

It now projects the bloc will narrowly avoid recession next year, growing by 0.1%, compared with its previous estimate of 1% growth, and thinks the EU economy will shrink this year. Unemployment would also continue to rise next year, the Commission said.

"Having been fixated on the U.S. election and the preferred market outcome of an Obama victory, the initial morning feel good bounce (has fizzled out), as markets quickly moved on to the next potential banana skin," said Michael Hewson at CMC Markets.

Companies - Sony Corp, the Japanese electronics maker reeling from four straight annual losses, had its credit rating cut to the lowest investment grade by Moody’s Investors Serviceb this week, citing falling demand for its televisions and cameras.

The long-term credit rating was cut one level to Baa3 from Baa2, Moody’s said in a statement on Friday, assigning a negative outlook. Sony, which unexpectedly reported a seventh straight quarterly loss earlier this month, had its short-term rating cut to Prime-3, also the lowest investment grade, from Prime-2.

“Overall earnings will stay weak due largely to prolonged operating losses in TVs and mobile phones, as well as significant declines in earnings from digital imaging products and games,” Moody’s said in a statement. “The company is not expected to reduce debt significantly without resorting to cuts in capital expenditure or the sale of non-core assets.”

Commodities - Gold traders are the most bullish in 11 weeks and investors accumulated record bullion holdings on speculation U.S. policy makers will add to stimulus following President Barack Obama’s re-election.

Twenty-five of 33 analysts surveyed by Bloomberg expect prices to rise next week and three were bearish. A further five were neutral, making the proportion of bulls the highest since Aug. 24. Investors boosted assets in gold-backed exchange-traded products to an all-time high of 2,596 metric tons on Thursday, valued at $144.9bn, data compiled by Bloomberg show.

Obama won the Nov. 6 election against Mitt Romney, who had criticized the Federal Reserve’s policies and said he’d replace Chairman Ben S. Bernanke, whose second term expires in January 2014.

Spotlight on: What Obama’s re-election means for markets

Barack Obama led the Democrats to victory in the U.S. elections this week, being appointed for a second four-year term as President, defeating his Republican opponent Mitt Romney.

Despite a close contest that saw many predict Obama would lose out - thanks to the high unemployment, sluggish economy and polls suggesting a lack of confidence in his leadership - he managed to edge out the Republican nominee.

Winning votes in Ohio and other industrial states in America were thought to have clinched the final vote for Obama, after the President announced he would bail out the Detroit car industry, to demonstrate economic fairness.

Even though Florida's electoral vote are still undecided, Obama won by a comfortable margin with 303 votes to Romney's 206.,

Asian markets barely responded to the news overnight as concerns over whether Obama and Republican-dominated Congress will be able to avoid a fiscal cliff, which will see nearly £375bn of tax increases and spending cuts his the U.S. economy in January.

The Nikkei 225 index ended the day flat, down 0.03% to 8,973 points, the Shangahi index was flat and the Hang Seng made a gain of 0.28% to 22,006.

President Obama's second successive election win is a positive for both bond and equity investors, industry commentators have said.

Cormac Weldon, manager of the £2bn Threadneedle American fund, said: "President Obama has emerged victorious from one of the most polarised presidential campaigns of recent years.

"But despite the electoral rhetoric, Obama knows his scope for manoeuvre in the face of the 'fiscal cliff' and the budget deficit is limited. He has little choice but to address these challenges (as would a President Romney) by raising taxes and cutting spending.

"While markets may be volatile post-election, we believe over the longer term, U.S. equities will gain support from the fundamental strengths of the economy. America is benefiting from a revival in the housing market and an industrial renaissance based on relatively cheap energy supplies.

"Mitt Romney had pledged to remove Ben Bernanke as chairman of the Federal Reserve and was opposed to quantitative easing, which has proven supportive of both equities and the housing market."

Tim Drayson, an economist for Legal & General Investments, said the election result matched his expectation, even if it was a bit more conclusive than he had anticipated.

"Attention now turns to the fiscal cliff, where a decision is really needed before Christmas. What we need is co-operation, but the political wrangling could get ugly.

"We still expect fiscal tightening of around 2%, which will materially effect the economy," he said. Co-manager of the Henderson Horizon American Equity fund, Nick Cowley, said Americans have voted for the status quo.

"Obama's victory does provide stability, particularly with respect to the Federal Reserve, and thus the risk of Romney meddling with Ben Bernanke's loose monetary policy can now be eliminated.

"The recent quarterly earnings reports from U.S. companies have highlighted that the fiscal cliff is freezing the decision making process and thus holding back capital spending and new job creation. This runs the risk of derailing the positive progress that the U.S. economy is making, with notable signs of recovery in both the housing and auto sectors. Avoiding the fiscal cliff would allow this progress to continue and result in a compelling outlook for U.S. and global markets."

Richard Lewis, head of global equities at Fidelity Worldwide Investment, said we will see some very intense negotiations pre-Christmas around the budget deficit and the negotiating stance of the two parties will start off poles apart.

"After a lot of wailing and gnashing of teeth, we are hopeful of a budget agreement along the lines of the Bowles-Simpson proposal which is based on a ratio of 3-1 spending cuts versus tax increases. Q4 activity levels will be low as a result and this will be exacerbated by the impact of Hurricane Sandy.

"On the basis that there will be a resolution before the first of January, we can expect a decent bounce-back in both economic activity and confidence early in the new year," he added.

Economic Summary for the week ended 3rd November 2012

U.S. - The U.S. economy grew by 2% during the third quarter, the U.S. Bureau of Economic Analysis has revealed in its first estimate.

The growth in the economy was an improvement on the 1.3% GDP growth reported during the second quarter of the year.

According to the Bureau of Economic Analysis, the economy benefited from positive contribution from personal consumption expenditure (PCE), federal government spending and residential fixed investment.

Capital Economics chief U.S. economist Paul Ashworth says: "With less than two weeks to go before the election, the conspiracy theorists will be up in arms about the reported 9.6% surge in Federal spending, which contributed as much as 0.7% to overall GDP growth.

U.S. - In addition to the unfortunate growing number of human lives claimed, the economic toll on the U.S. of Hurricane Sandy is still uncertain. Figures supplied to Citywire Global by Wells Fargo estimate that damage following the storm is likely to exceed $30bn, with only around $10-20bn of this figure likely to be insured.

The actual economic activity through closer of businesses and Wall Street could amount to a further $50bn in loss.

Brazil - Brazil is to grant a tax exemption to foreigners who buy mortgage-backed securities or invest in funds that purchase them, after sales of new debt supported by real estate loans fell almost 50% this year.

The tax break only applies if proceeds of the debt are used on "investment projects" and the bonds have an average maturity of at least four years, Pablo Fonseca Pereira dos Santos, deputy secretary of economic policy at the Ministry of Finance, said in an interview from Brazil.

The tax incentives are designed to develop local debt markets and help raise about 1tn reais ($493bn) for roads, factories and airports. Local long-term funding is provided mainly by the nation's development bank, known as BNDES. The government is seeking to develop the real estate and construction industries to boost employment as economic growth slows.

India - India's central bank has kept interest rates unchanged, despite signs that the country's economy is being hit by a global slowdown. However, in an effort to boost lending, it cut the amount of money that banks need to keep in reserve.

It said cutting the cash reserve ratio to 4.25% from 4.5% would inject 175bn rupees ($3.2bn) into the market.

Critics have called for more stimulus measures, and the Indian rupee and stocks fell on the news on Tuesday.

"There was definitely lot of expectations in the markets for a rate cut, but people will have to wait for some more time," said Srividhya Rajesh, fund manager at Sundaram Mutual Fund.

South Korea - South Korean exports have risen for the first time in four months, raising hope that the economy could be starting to recover. Overseas shipments rose 1.2% in October from a year earlier, the Ministry of Knowledge Economy said on Thursday.

South Korea, an export-led economy, has seen global demand for its cars, electronics and ships slump in recent months. Analysts, however, were cautious that the numbers heralded a recovery while the global economy was still struggling.

"Until the U.S. overcomes the risk of a possible fiscal cliff [higher taxes coupled with spending cuts] and China decides to partake in more easing policy, trade will tread water," said Park Hyung-jung from Meritz Securities.

Commentary - Bill Gross, who runs the world's largest mutual fund (a link to which is available via CO3 in both Hansard International & Hansard Europe) at Pacific Investment Management Co., said there is no evidence that investment is being spurred by the Federal Reserve's quantitative easing program.

"All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production," Gross wrote in a monthly investment outlook. Furthermore, lower interest rates are being used "to consume as opposed to invest," he said.

Commodities - Slumping energy and metal prices sent commodities to their biggest monthly loss since May, lagging behind stocks, bonds and the dollar, as the global economy grew at the slowest pace since the 2009 recession.

The Standard & Poor's GSCI Total Return Index (MXAP) of 24 raw materials fell 4.1%, erasing gains for the year. The MSCI All-Country World Index of stocks slid 0.6%, including dividends, while the U.S. Dollar Index slid 0.02%. Bonds of all types gave positive returns, according to Bank of America Merrill Lynch's Global Broad Market Index.

Investor optimism dimmed as the International Monetary Fund cut its global growth forecast and the Federal Reserve said strains on the world economy present "significant downside risks." China reported the seventh straight quarter of slowing growth, while services and manufacturing in the 17-nation euro area last month contracted more than economists forecast.

Spotlight on: Why investors cannot ignore political risk

Investors who base asset choices simply on economic data could be making faulty decisions over the balance of risk and reward, according to one fund group, which views the global political outlook as increasingly unstable. Potential sources of risk include regime changes and even, some fear, a major war.

Economic data is too shallow of an analysis of market trends and geographic risk/rewards, according to Hermes Fund Managers (a U.K. fund manager with GBP24.8bn of assets under management). Today's world is heavily influenced by the political stage - in both developed and emerging nations - and understanding the implications of political actions, is key to assessing value in asset classes and markets, the group asserts.

In a paper published this autumn, Hermes chief executive officer and head of investment, Saker Nusseibeh, notes it has been at least two generations since investors actively looked at the problem of political risk in the context of developed markets."They need to start."

"Today, growing unrest brought on by anger over austerity, worries about resource scarcity and threats of increased taxation has refocused attention on national problems as opposed to international concerns. In such an environment politics can have as much impact on the attractiveness of different markets as GDP figures,"he says.

Keith Wade, chief economist at Schroders, says the long period of political stability in the West has perhaps made investors complacent as to the risks it can pose and that the situation today is merely a return to normality.

Nusseibeh says it is, noting that in the history of developed markets political risk was once quite prevalent but faded as an investment consideration post World War II. He and Wade agree the presence of the Cold War played a part in creating such stability as it polarized developed nations and allowed them to focus their attention on common threats. Since its end and the subsequent onset of the global financial crisis, more nationalistic interests have arisen.

Andrew Parry, Hermes Sourcecap, observes:"Economic strife can and does bring, historically, a whole legion of tensions. Recovery requires a long period and political intervention is necessary. Unfortunately, the steps needed do not necessarily sit comfortably with election cycles. Welcome to the political economy."

The European crisis may be a prime example of a step up in national interests and tension, but it is not the only political field managers have to watch, nor is sovereign debt the only asset class that is affected. Political events in China, the US as well as those in the Africa and the Middle East are all front-page news these days, impacting a range of asset classes to varying degrees.

Commodity prices are the obvious fall-out from Middle Eastern conflicts but there is also the rise of gold owing to the uncertain climate; downtrodden financials are being affected by stiffer regulations; real estate investments are focused on safe haven regions; and Capital expenditure spending of companies in some countries is hampered by uncertainty over the prevailing and potentially changing tax climate. Consumers, worried over the state of unemployment and disgruntled over respective home politics, remain unconvinced of market opportunities and reluctant to invest.

James Bateman, the head of manager selection at Fidelity Investments, says investors remain inherently nervous, with the scars from the events of 2008 a long way from healing. This has led to a greater emphasis on the analysis of risks, including geopolitical ones.

Nusseibeh adds:"Some may argue the much heralded era of globalisation minimises political influence on a stock or securities selection basis. Not necessarily. As national interests and protectionism increase, this will have significant impact on companies and corporate interests.

"Also, consider the debt levels of many countries compared to the strength of corporate balance sheets. How long will indebted nations allow companies to reap such profits without taking more of the pie for themselves? Will they tax the companies or the shareholders? What if political change affects the way companies pay dividends?"

Economic Summary for the week ended 19th Oct 2012

China - China's economy has slowed for a seventh quarter as problems in Europe and the U.S. dented demand for its goods. The annual rate of growth was 7.4% in the third quarter, down from 7.6% in the previous three months.

However, there are signs that the world's second-largest economy is now stabilising and rebounding.

That would be good news for China, which is facing a leadership change, and the rest of the world, which has benefited from its recent boom.

"Clearly, concerns over continued slowdown can now be put to rest," said Dariusz Kowalczyk, senior economist at Credit Agricole. "The last month of the quarter brought acceleration of industrial output, retail sales and fixed asset investment in year-on-year terms, highlighting the fact that improvement of momentum of the economy was particularly strong in September."

Japan - Japan's Prime Minister, Yoshihiko Noda, has ordered his cabinet to draw up fresh stimulus measures in a bid to spur economic growth.

Japan's growth has suffered due to falling demand for its exports amid a slowdown in key markets such as the U.S., eurozone and China. At the same time, domestic consumption in Japan continues to remains subdued.

Mr Noda ordered the stimulus package to be compiled by next month, but did not give details on how big it would be.

"Considering what the government and the central bank are forecasting, I doubt we can simply stand by and let the economy continue as it is," Finance Minister Koriki Jojima said.

U.S. - New homes were constructed at the fastest pace since July 2008 in September, official figures show.

The Commerce Department said single family homes and apartments were started at a seasonally adjusted annual rate of 872,000 in September, which was up 15% from the previous month, but it is still well below the 1.5 million seen as a healthy 'pre-recession' figure.

The big U.S. banks reporting third-quarter results in the past week have referred to a housing market recovery. JP Morgan Chase chief executive Jamie Dimon said last week: "Importantly, we believe the housing market has turned the corner."

Applications for building permits, which are an indicator of future building activity, jumped 12% to an annual rate of 894,000 in September.

Germany - The German government has slashed its forecast for economic growth in 2013 from 1.6% to 1%. "We are still talking about 1% growth [for 2013], so there's no talk about a crisis for Germany," said Economy Minister Philipp Roesler.

The economy ministry also raised its forecast for 2012 to 0.8% from the 0.7% it predicted in April. The cut brings the government in line with a group of four leading think tanks, which cut their forecasts last week.

"Although growth of 1% is weak in absolute terms, it still leaves Germany outperforming the rest of the euro area," James Ashley, European economist at RBC Capital Markets said.

Spain - Spain sold EUR4.6bn of bonds on Thursday, slightly higher than its maximum target and at a lower cost to the treasury, as investors positioned themselves for widely expected central bank intervention in the country's bond market.

Spanish borrowing costs have tumbled since the European Central Bank said it would intervene in the sovereign bond market of any eurozone country that applied for aid and accepted the conditions attached.

The rally was given further impetus by Moody's unexpected decision to affirm Spain's investment-grade rating, when a downgrade to "junk" had been widely expected.

Commodities - Gold traded flat on Thursday, retaining gains from the previous two days, as investors looked for fresh leads from a European Union summit after shrugging off data showing China's economy slowed for a seventh quarter, as expected.

"In the short term, the $1,730 support level will continue to feel a lot of pressure as investors focus on the euro zone summit, but beyond that, gold's outlook is still bullish thanks to support from the easing measures by central banks." said Chen Min, an analyst at Jinrui Futures in China.

Spotlight on: Good news for India-focussed funds

Sanjiv Duggal, senior portfolio manager, India equities, at HSBC Global Asset Management, takes a look at the recent announcement from the Indian government & its' likely impact for investors that allocate their portfolio to the emerging market.

The Indian government surprised the markets with a series of new reforms in September 2012. It is hoped that the reforms will encourage foreign direct investment to the country, which has been accused in the past of being closed to the outside world.

The government sharply raised prices of diesel (a heavily subsidised transport fuel), capped cooking gas subsidies, and opened up its Retail, Aviation and Power Exchange sectors to foreign direct investors. Divestment in various government-owned entities has also been announced. Most significantly for India's critical infrastructure story, a National Investment Board has been proposed, which should speed up decision-making for projects above USD200m and bring it directly under the supervision of the Prime Minister. Unlike Great Britain which punched well above its weight in the recent Olympics, India has been performing well below the levels it needs to perform at, in the crucial infrastructure sector. The Prime Minister estimates India's infrastructure needs at least USD1tn in spend over the next five years. A starting point is the USD90bn Delhi-Mumbai Industrial Corridor, India's largest ever project, which could help in transforming infrastructure in India.

These measures were particularly significant, as they marked India emerging out of its 'INDertIA'. Since October 2010, India has faced questions involving the Commonwealth Games, telecom spectrum and coal mine allocation amongst others. A newly activist national auditor looked at pricing policies on 2G telecom spectrum and now more recently, on coal mine allocations, and alleged that these had been mispriced. While the higher level of transparency to processes and policies should be beneficial in the longer term, they were initially greeted by a paralysis in decision making.

This inaction over an almost two-year period, persistently high inflation over the past two years, coupled with a very weak start to the monsoon season, brought the pessimism on India to a head - until now.

These moves - a mix of structural reforms and urgent ad hoc measures - have awed the markets, and should restore investor confidence. These steps are a starting point to address the important issues of the fiscal deficit (reducing the subsidy burden), inflation (global retail giants are expected to lower cost to the consumer) and currency weakness (more foreign investor inflows should boost the strength of the Rupee). The government has already implemented some of its recent decisions, in contrast with its record over the past couple of years. We expect more measures in the next few weeks as India attempts to maintain its investment grade sovereign rating.

Meanwhile, long-term investors continued to bring capital into India. BP, Coca-Cola, Ikea, Nippon Life, Starbucks are amongst the names which have committed investments towards India. Institutional investors too brought in funds in 2012, bringing in USD 12.4bn (to 31 August).

In the market, we see domestic cyclicals in a sweet spot. Cyclicals are at a 12-year low compared to defensives. The government's announcements in the second week of September coincided with the heaviest rains this year, and now the 2012 monsoon season is forecast to be near-normal. The central bank has made supportive noises and we expect rate cuts in the coming months to support the re-rating of India. When it rains, it does indeed pour.

Economic Summary for the week ended 29th Sep 2012

Global - Christine Lagarde has warned that the International Monetary Fund (IMF) will probably cut its global growth forecast in the coming weeks.

Speaking at the Peterson Institute for International Economics, the IMF managing director warned that global growth is likely to be "a little weaker" than in its most recent forecast.

In July, the IMF's World Economic Outlook predict that global output will expand by 3.5% this year and by 3.9% in 2013. The group is due to publish its updated forecast in next couple of weeks.

Lagarde said: "We continue to project a gradual recovery, but global growth will likely be a bit weaker than we had anticipated even in July, and our forecast has trended downward over the last 12 months."

Spain/Europe - European stock markets fell on Wednesday amid concerns about Spain and as trade unions hold a general strike in Greece. Spain's Ibex index was down 3.5%, while markets in London, Paris and Frankfurt were down up to 2%.

The Bank of Spain said in a report that the Spanish economy had continued to shrink at a "significant rate" in the third quarter of the year.

Spain is currently in a deepening recession, with the unemployment rate at its highest level since the 1970s. Worries about Spain also caused the country's borrowing costs to rise, with the yield on 10-year Spanish bonds traded on international markets rising to 6.02% from 5.67%.

On Thursday, the government will unveil a new budget, its latest attempt to get its borrowing under control. Then on Friday, independent auditors will tell the world the extent of the country's banks problems.

China - Some of China's richest people have felt the effects of economic slowdown in the country, with their wealth reducing in the past year, according to the Hurun Rich List.

China has 251 people worth $1bn or more, 20 fewer than last year. However, the number is still a huge increase compared with 2006, when there were only 15.

It is the first time in seven years that the number of billionaires in China has fallen.

India - Foreign investors are showing renewed interest in India following reforms recently announced by the government, but further steps are needed to improve the environment for economic growth, experts say.

According to a research report by Bank of America Merrill Lynch, there has been a sea change in interest in India post the reforms announced last week that included allowing Foreign Direct Investment in multi-brand retail and the civil aviation sector.

"Clients sensed a change in the political environment in India and some investors who earlier were staying away from India were keen to meet and understand the shape of things to come," Bank of America - Merrill Lynch Research Analyst Jyotivardhan Jaipuria said.

China - The Chinese central bank has injected a record amount of money into the financial system this week to alleviate a cash crunch that had driven up borrowing costs.

The People's Bank of China has poured Rmb365bn ($58bn) into money markets over the past three days through reverse repurchase agreements, the largest weekly amount in history.

With the Chinese economy grinding to its slowest growth in three years, analysts and investors have been looking to the central bank to intensify its monetary easing by cutting the portion of deposits that commercial banks must hold in reserve.

Trends - Global mergers and acquisitions slumped this quarter to a level not seen since the aftermath of the financial crisis, amid increasing concern that the economic recovery is deteriorating.

Companies have announced $446bn of takeovers since June 30, the smallest amount since the third quarter of 2009, according to data compiled by Bloomberg.

Cross-border takeovers have accounted for about half of all announced deals this year, while chief executive officers worldwide are reluctant to spend an estimated $3.4tn in cash reserves Europe's sovereign-debt crisis drags on and some signs suggest that China's economy is slowing.

Commodities - Gold prices edged higher on Thursday, recovering from the previous day's two-week low in line with stock markets and other commodities, but uncertainty over when Spain would request a rescue program limited investors' confidence.

Spot gold was up 0.2% at $1,755.69 an ounce, while U.S. gold futures for December delivery were up $5.00 an ounce at $1,758.60.

Gold is on track to end September with its largest quarterly gain in more than two years, of nearly 10%, after the Federal Reserve unveiled a third round of 'bullion-friendly' monetary stimulus measures earlier this month.

Spotlight on: Investing with a social conscience

Sarah Mumford, marketing director at Alquity Investments, says the recent debacle at Barclays serves as a reminder that considering a company's corporate social responsibility principles is something investment providers should be doing as a matter of course.

Over the past few weeks, the goings on at Barclays (colluding in the fixing of the LIBOR rate) have illustrated perfectly how poor behaviour within a company towards the outside world (or how seriously it takes its corporate social responsibility (CSR) obligations), can have devastating consequences for both that organisation and its stakeholders, be they employees, suppliers, customers or indeed shareholders.

The long-term impact on the bank's reputation, and in turn its share price, can only at this point be guessed at, but the outrage felt by many at the behaviour of members of the banking fraternity, will live on.

And for those of us involved in the marketing of investment funds, we can be sure that many more questions will start to be asked about what safeguards are taken to ensure that our investors' money is not going into companies whose actions could lead to reputational damage, and in turn, to a loss in company value.

Noted business strategist, Michael Porter, recently argued in the Harvard Business Review that ensuring genuine and strong CSR credentials is now something that should be a part of every business's long-term planning.

There has also been plenty of research done which shows consumers not only understand the importance of a genuine CSR policy, but are more and more frequently considering this as a part of their purchasing process.

Sustainable practices

Ethical or sustainable investing (which is really what the consideration of CSR policy amounts to) is becoming more and more important to the consumer.

Investment management marketing material generally focuses on either performance, the fund manager's skills or the size and strength of their businesses, and no doubt some of these factors are important to the end consumers.

But independent research, along with fund sales data, show this is not all the consumer care about.

An EIRIS survey recently showed that 44% of consumers want to look seriously at ethical financial products and that a massive 75% of them intended to act on this interest the next time they buy.

Combine this with the fact in the UK, the amount of money in ethical investment funds has trebled to over GBP11bn in the last ten years, and this demand has to be taken seriously.

So how does this consumer need for a good CSR agenda marry up with a widespread perception that sustainable or ethical funds perform poorly in comparison to those managed without screening? Well the answer is this perception is a false one. Investing sustainably does not detract from portfolio returns. In fact, quite the contrary.

Environmental, social and governance (ESG) screening as a part of an investment process considers the reality behind a company's CSR policy, including the impact that the business has on the local community, its employees, health and safety record, and its record/approach to corporate governance.

If ESG standards had been applied to British Petroleum (BP) prior to the April 2010 Gulf of Mexico disaster, they would have highlighted the fact that in the three years up to that point the company had been fined 760 times by U.S. Health and Safety Executives for safety violations, while Exxon had been fined once.

Over the three years to the end of June 2012, the share prices of BP and Exxon have fallen by 15% and risen by 22% respectively.

Boosting returns

So all of this points to one conclusion. Poor CSR standards are likely to hit the value of the company and consumers are becoming more and more aware of this.

There is a large market out there for 'ethical' funds, and as the consumer continues to increase its awareness of the impact of businesses' actions on their world, this market is likely to get bigger.

If we add into the mix the potential for increasing returns to investors by actually applying sustainable principles, then we can really start providing products for investors that tick a lot more than just the 'performance' box.

Alquity Investment Management offers a new model for investment management built around three core principles: attractive returns, sustainable investment and transforming lives.

Economic Summary for the week ended 14th Sep 2012

Europe - Germany's top court rejected calls to block the permanent eurozone rescue fund (the European Stability Mechanism (ESM)) and the European fiscal treaty, on Wednesday. European markets hit a 14 month high in reaction to the news.

But the Constitutional Court imposed conditions including a cap on Germany's contribution, which it said could only be overruled by the German parliament.

Critics had argued that the ESM commits Germany to potentially unlimited funding of debt-ridden eurozone states. Some 37,000 people had signed a petition to the court asking it to block the ESM, and make it subject to a referendum.

U.S. - The U.S. trade deficit grew slightly in July as exports fell at a faster pace than imports.

The Commerce Department said the trade deficit widened to $42bn, 0.2% more than June's gap of $41.9bn. However, the deficit was still lower than many analysts' forecasts of approximately $44bn.

U.S. exports fell 1% to $183.3bn, lowered by weaker sales to eurozone nations. Imports fell 0.8% to $225.3bn, with oil imports falling 6.5%.

But imports from China hit a record $37.9bn in July, pushing the trade gap with the country to a record $29.4bn.

U.S. - Moody's will strip the U.S. of its AAA rating if a deficit reduction deal is not agreed in Congress, it has warned.

The ratings agency made the threat ahead of the U.S. elections in November, where the national debt will be critical in negotiations and swaying votes.

Moody's said tax increases and spending cuts, due in early January, may not be enough to prevent a downgrade and an agreement on the debt over the medium term will need to be met.

China - China's Premier, Wen Jiabao, has told the World Economic Forum in Tianjin that his country is on track to hit growth targets for this year. He also called on international leaders to strengthen co-ordination and oppose trade protectionism during the global economic slowdown.

His address comes amid signs that China's economy may be slowing faster than previously thought. Manufacturing and export growth have slowed, while imports have dipped.

This has raised concerns about a decline in both external and domestic demand, in turn sparking fears that Beijing may miss its growth target for 2012.

But Mr Wen said: "We are fully confident that we have the conditions and capability to overcome difficulties on the way ahead, maintain fast and stable economic growth and realise development at a higher level and with better quality.

India - Indian stocks rose to the highest level in more than six months on Wednesday, on speculation the central bank will cut interest rates next week and as German authorities cleared the way for a permanent euro-area rescue fund.

The BSE India Sensitive Index, or Sensex, increased 0.8%, the highest close since Feb. 23. The gauge climbed 4% in the previous six days, the longest streak since January.

South Korea - South Korea has unveiled a fresh stimulus plan, its second in four days, in an attempt to revive growth in its economy. Its central bank will inject 1.5tn won ($1.3bn) into banks, which will use it to provide low-interest rate loans to small businesses.

South Korea's growth has been hurt by slowing global demand for its exports.

Exports account for almost half of South Korea's economic output and the central bank warned the sector may remain sluggish amid economic uncertainty.

"The Committee considers the economic recovery in the U.S. to have weakened somewhat and the sluggishness of economic activities in the euro area to have deepened," the bank said in its monetary policy statement.

Commodities - Gold climbed for a second day on Wednesday, prior to a Federal Reserve policy meeting on Thursday that may introduce more stimulus to boost the world's largest economy.

Gold rose as much as 0.3% to $1,736.45 an ounce. Holdings in bullion-backed exchange-traded products expanded to a record 2,487.361 metric tons on Tuesday, data compiled by Bloomberg show.

Spotlight on: The insatiable demand for luxury goods

The reporting season has demonstrated the luxury goods industry's resilience, according to Caroline Reyl, senior investment manager of the Pictet-Premium Brands fund.

On the surface, it would certainly seem like investors in premium brands should be concerned about a China slowdown. Luxury goods companies rely on Asia for 40% of their sales, with Chinese consumers accounting for around two thirds of that total. So, with China's growth rate having recently weakened to 7.6%, its slowest pace since 2009, luxury goods companies would understandably have cause for concern.

However, looking at the majority of the earnings reports released recently, such fears look overdone for now.

Although there is evidence of a moderation in demand for luxury goods, sales growth in emerging markets eased from an average of 21% in the first quarter to 16% in the second. We believe companies in the sector remain on track to post a healthy 15%-20% rise in revenue from developing economies this year.

Indeed, we have seen resilience across many sub-sectors in the luxury goods industry. The world's largest luxury goods company, LVMH, owner of brands such as Louis Vuitton, Moet & Chandon champagne and Tag Heuer watches, said expansion in Asia Pacific boosted sales by 13% in the second quarter, while Hermes, the most exclusive handbag maker, reported sales up 27% in the region over the same period.

Swiss watch group Swatch, meanwhile (owner of Omega and Breguet and Blancpain) said it was still seeing overall growth rates of more than 20% in China, and stood by its forecast for record worldwide annual sales of 8bn Swiss francs in 2012.

The reporting season also confirmed that luxury goods companies continue to enjoy strong earnings momentum. In 2011, margins on earnings before interest and tax stood at 22.6% for the luxury sector against 12.8% for the MSCI Consumer Discretionary segment, helped by strong pricing power and cost discipline.

This quarter, Swatch Group and PPR's luxury division were still able to report operating margins of nearly 25%, and 20.5% for LVMH. Although the sector's exceptional sales and margin growth of the past two years is normalising, margins for the full year look set to remain healthy.

Lust for exclusive brands

These encouraging developments in part reflect the fact that Asian consumers are not as sensitive to shifts in the economic climate as shoppers in other regions. They tend to be more selective, preferring very exclusive goods to "masstige" products (so-called mass-market prestige brands).

Another bright spot in the luxury goods earnings season was Asian consumers' strong propensity to shop while holidaying abroad. Asian shoppers accounted for half of luxury goods sales in Europe last year, and this trend continued through into the second quarter of 2012 as tourists from the region took advantage of favourable price differentials and a strong yuan.

Long-term growth drivers

Longer term, while China will continue to be key in shaping the prospects of luxury goods companies, it will not be the only source of growth. A ramp-up of consumption from Brazil, Russia and India, the largest emerging markets after China, looks set to take place over the next decade: as duties are lowered and restrictive import regulations are relaxed, prestige brands can be expected to gain a firm foothold here too.

Whether it is luxury leather goods, fine cognacs or luxurious tourism, demand for luxury goods will remain strong throughout the emerging world for years to come. And with luxury goods stocks trading at levels equivalent to 14.6 times forward earnings, well below their historical average of 19.89 times, investors have the opportunity to capitalise on these trends at an attractive price.

Economic Summary for the week ended 8th Sep 2012

Europe - European stocks advanced on Thursday as investors waited for ECB President Mario Draghi to give details of his plan to stem the region's debt crisis. U.S. index futures and Asian shares also gained.

The Stoxx Europe 600 Index advanced 0.3%. The measure has surged 14% from this year's low on June 4 as Draghi pledged to do everything possible to preserve the euro. Standard & Poor's 500 Index futures also climbed 0.3% on Thursday, as did the MSCI Asia Pacific Index.

It is thought likely that Draghi will propose a blueprint to lower borrowing costs in Spain and Italy which will involve unlimited buying of government debt, with maturities of up to three years.

Greece - Greece's international lenders have suggested measures which include increasing the maximum working week to six days.

This is thought to be one of several unofficial proposals to liberalise the labour market and increase government revenue, such proposals were not included in the original bailout agreement signed with the Greek government.

Greece needs the next payment of EUR31.5bn to allow it to continue servicing its debts.

Proposals in the document from the troika included:

• Setting a single rate statutory minimum wage
• Reducing regulatory burdens
• Making work schedules more flexible
• Setting a minimum daily rest of 11 hours
• Eliminating restrictions on the minimum and maximum time between morning and afternoon shifts.

China - The China Development Bank will sell USD1.6bn in asset-backed securities this week, the country's biggest securitisation deal, and its first in three years.

China had barred the sale of asset-backed securities in 2009 when the global financial crisis dampened their reputation & popularity.

But after a boom in lending over the past few years, Chinese banks need to free up balance sheet space, and parcelling loans to investors via securitisation is likely to be an important part of this process.

Chinese regulators remain cautious, placing sharp limits on how banks can operate. They will be able to convert no more than Rmb50bn of assets into securities this year, less than 0.1% of outstanding loans in the banking system.

The resumption of securitisation, however small, is seen by analysts as an answer to many bottlenecks in China's financial system.

India - Indian equities are attracting the highest foreign flows in the emerging market regions, as investors speculate that the worst may be over for the nation's biggest companies after profitability slumped to an eight-year low.

Offshore funds have invested a net USD12.3bn into Indian shares this year, the most among 10 Asian markets outside China, tracked by Bloomberg. The average profit margin before interest, taxes, depreciation and amortization of the 30 companies in the BSE India Sensitive Index, or Sensex, narrowed to 19.5% in the June quarter, the lowest since December 2003, data compiled by Bloomberg shows.

"With China's growth slowing, India looks the best among BRIC countries year to date," Taina Erajuuri, a fund manager in Helsinki at FIM Asset Management overseeing about USD1.2bn of emerging-market assets, said. "India's economy is less dependent on exports to Europe than China and Russia." Erajuuri said she's been a buyer of Indian equities this year.

Brazil - Brazil sold USD1.25bn of bonds in the Latin American country's first international dollar debt sale since January, the government sold the 2.625% bonds due in January 2023, Brazil's Treasury announced.

Brazil returned to international markets as record low interest rates in Europe, Japan and the U.S. spur demand for higher-yielding assets.

"There's demand out there for higher-quality emerging- market paper," according to David Bessey, who helps manage about USD16bn of emerging-market debt including Brazilian bonds at Prudential Financial Inc.

Trends - Equities will be the most popular asset class for advisers in 2012/13, that's according to research from Neptune Investment Management.

60% of advisers interviewed believe equities will be the favoured asset class for investors, this is followed by 23.5% for fixed income, with commodities and property gaining 3.5% and 2.4% of the votes.

The news contrasts strongly with figures from the U.K.'s Investment Management Association (IMA), which show fixed income funds continue to dominate sales. The latest figures from the IMA show fixed-income funds witnessed GBP480m of net retail sales in July, which is the 11th month running fixed-income has been the bestselling asset class.

Commodities - Gold topped USD1,700 an ounce for the first time since March on Thursday, as speculation that the European Central Bank (ECB) will announce unlimited purchases of government bonds to defuse the region's debt crisis boosted the euro.

"The ECB action today is going to be beneficial for gold," said Walter de Wet, the head of commodities research at Standard Bank Plc.

Meanwhile, it has been suggested that gold will be at USD1,840 an ounce by the end of 2012, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. told Bloomberg.

Spotlight on: Being best-placed for the next equity bull run

Pessimistic investors are overlooking signs that the global recovery is already underway and should increase their exposure to equities now if they don't want to miss out on the next bull run, according to Bob Doll, senior adviser to BlackRock.

Doll claims that policymakers have upped their game and are providing reflationary support to the world's markets, meaning that stocks should continue to grind unevenly higher.

"On balance, we believe that the cyclical outlook is improving and that the near-term dangers may be receding instead of intensifying," he said.

"If our outlook is correct, global financial markets may currently be discounting an overly pessimistic economic outlook, suggesting that risk assets may have more room to run.

BlackRock predicts growth of 2% in the U.S. economy and says the market is in reasonable shape. "Given better relative economic and earnings growth levels as well as highly accommodative monetary policies, we continue to favour U.S. stocks vs global benchmarks," he commented.

He also claimed that a third round of quantitative easing (QE3) would be positive for the country and said he was unconcerned about the threat of a "fiscal cliff" as he believes policy makers will once again reach an agreement at the last minute to prevent this.

"Although the sides remain far apart and statesmanship is sorely lacking in Washington DC, we still think there is a better-than 50% chance that we'll see an eleventh- or twelfth-hour agreement to enact a temporary extension of the Bush-era tax cuts and a delay in scheduled spending cuts with real and hopefully long-term action being taken in early 2013," he explained.

Although the U.S. unemployment rate isn't coming down, Doll says there are signs of a recovery.

"We have been seeing signs of improved business investment levels, increases in consumer spending and a recovery in the housing market, but the labour market remains troubled and the recent rise in energy prices will weigh on sentiment and spending levels."

On the prospects for the eurozone Doll is also cautiously optimistic.

"This Thursday, the ECB will meet and expectations are high that president Mario Draghi will clarify plans to purchase distressed bonds and help repair Europe's financial markets."

"The outlook for Europe remains murky, but we expect that policy-makers' pro-growth policies should help the region's economy to recover (although peripheral European countries will likely remain in recession into next year)," he said.

Economic Summary for the week ended 31st Aug 2012

U.S. - U.S. shoppers spent a little more in July compared with June, according to the U.S. Commerce Department, raising hopes that the country's economy is continuing to recover.

Consumer spending rose 0.4% in July, the largest increase for five months and following no change in June.

On Wednesday, figures showed that the U.S. economy grew at an annualised pace of 1.7% in the April-to-June period.

Brazil - Brazil's central bank has cut its benchmark interest rate to a record low of 7.5% in an attempt to reignite a stalled economic recovery.

The cut, from the previous level of 8%, in the main Selic rate follows recently unveiled government stimulus measures.

The central bank move is the ninth cut in a row since August last year, as the Gross Domestic Product (GDP) growth rate has fallen dramatically from the 7.5% recorded in 2012.

Trends - Japanese equities have seen huge inflows over the past year as money has been sucked out of Europe, the U.K. and the U.S., according to U.K.'s Investment Management Association (IMA) figures.

Money has also been flowing into emerging market, Asian and globally focused funds, but Japan is the surprising addition to that list, as a developed market with well-known demographic and debt-related issues.

Richard Troue, investment analyst at Hargreaves Lansdown, said: "The country has been hit by everything that has been going on in Europe, but it is sheltered to some extent because a lot of Japanese companies are managing to capture growth in Asia."

"Approximately 60% of Japanese exports are going to Asia and emerging markets rather than Europe or the U.S."

India - India's economy grew faster than expected in the three months to the end of June, easing some fears about a sharp slowdown in Asia's third-largest economy.

Annualised growth was 5.5% in the April to June period, most analysts had forecast a rate of 5.2%.

"Whilst an upside surprise at 5.5%, the pace of growth is undeniably below potential and validates the need for the government to address sluggishness in investment and external sector activity," said Radhika Rao an economist at Forecast Pte.

China - China's top banks are stepping up their lending activities in the U.S. as large U.S. companies diversify their funding sources and seek to penetrate more deeply into the world's second-largest economy.

Chinese banks' share of U.S. syndicated lending has risen to 6.1% of the total market so far in 2012, up from 5.1% last year, according to data from Dealogic. So far this year, the total value of syndicated loans from Chinese banks into the U.S. has reached $51bn.

Liao Qiang, Chinese banking analyst at Standard & Poor's, said: "Many global banks have been deleveraging as a result of the 2008 global financial crisis and the debt crisis in Europe. Their retreat in lending markets provides opportunities for Chinese banks to deepen relationships with the multinational companies and steadily increase their international presence."

Philippines - A hefty rise in government spending on infrastructure and private investment in durable equipment helped the Philippine economy continue to grow in the second quarter, albeit at a slower pace, despite slowing exports and weak farm output.

GDP grew 5.9% in the second quarter year on year, the National Statistical Co-ordination Board said on Thursday. This was above analysts' average forecasts of 5.3% but below the first quarter's surprising 6.3%.

Euben Paracuelles, south-east Asia analyst at Nomura in Singapore, downplayed the fears. "While the Philippines, like many export-dependent countries, was affected by the global slowdown" he said "it had strong domestic drivers of growth such as government spending and private investment."

"There is no question that the export sector is going to be a drag, but it's a question of what happens to domestic demand. Domestic demand is the bigger offset in the Philippines," said Mr Paracuelles. He recently upgraded his forecast for the country's 2012 growth from 5.1% to 6%.

Commodities - Global food prices have leapt by 10% in the month of July, raising fears of soaring prices for the planet's poorest, the World Bank has warned.

The bank said that a U.S. heatwave and drought in parts of Eastern Europe were partly to blame for the rising costs.

The price of key grains such as corn, wheat and soybean saw the most dramatic increases, described by the World Bank president as "historic".

Spotlight on: A key development for Russian equity funds

Russia's entry into the World Trade Organisation (WTO) is likely to result in a significant boost for economic growth and direct foreign investment, according to BlackRock's David Reid.

Reid, head analyst of the BlackRock Eastern European Investment Trust, believes this "historical reform" will be a big help to fund managers focused on the region, who are already encouraged by strong fundamentals and cheap valuations across a number of sectors.

"Almost all the countries that have joined the WTO in the past have experienced sustained improvements in foreign direct investment and economic growth," he explained.

"China's entry in 2001 is often held up as one of the big success stories, but the eastern European region can also boast a record of success including countries like Poland, Hungary and the Baltic states."

"Many sectors stand to benefit from this accession. For example, many export industries where Russia has a competitive advantage, such as steel and chemicals, will have easier access to foreign markets."

"The consumer sector will also benefit from higher employment and wages as foreign investment in the economy takes effect."

"Greater competition and lower tariffs will improve the quality and cost of goods and services, freeing up resources across the whole economy for additional investment and consumption."

"Perhaps the most important point to note is that Russia's accession comes after 18 years of talks, which could easily have dragged on for longer."

"Russia's leadership has decided now is the time to send a signal to the world that it is finally serious about engaging with global commerce, a key message to take away from these events."

While Reid believes this is a long-term trend, he says historically cheap valuations in the Russian market imply a good entry point.

According to Financial Express data, the MSCI Russia index is down 14.09% over six months, compared with a gain of 0.74% from MSCI World.

"This is a historic development, but we are not anticipating miracle results in the short term," Reid said. "Only a certain proportion of reforms are immediate, with the rest being phased in over a period of several years. Ongoing work by the government is required, but the WTO accession agreement is a powerful 'anchor' for policy that should ensure the direction of travel is firmly positive."

"The Russian equity market is very close to historic lows in its valuation, both compared to its own history and to other emerging markets. This is in spite of the fact that the economy has been growing steadily since the crisis and has achieved record low inflation and unemployment levels this year."

"WTO accession will help to highlight the country's strong investment fundamentals and the market deserves renewed consideration from investors," he finished.