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  • A to Z of Bonds | Thinking Aloud
    more when interest rates rise A bond s maturity is the length of time before the original loan amount must be paid back Negative interest rates Numerous European governments now sell negative yielding bonds Why would investors buy these Government bonds can make up in security what they lack in yield The alternatives even cash carry some costs and or risks Some investors are obliged to hold high quality assets such as government bonds Other investors hold these bonds because they believe rates will fall further or currency movements will make returns positive Oil International oil prices have fallen off a cliff since mid 2014 This is effectively a tax cut for consumers that will boost long term global growth The price is currently so low that some U S companies exploiting shale gas may become unprofitable A number of high yield bonds in the energy sector have suffered as the perceived risk of default has grown We argue that this is an indiscriminate knee jerk reaction Not all companies will be affected and blind selling is never wise Peripheral Europe What goes up must come down Mario Draghi firmly ensured that the laws of gravity apply to Peripheral European bonds For example Ireland now yields under 1 for its 10 year debt Greece is currently and pretty severely testing these physical laws and the chance of contagion and thus violent spikes in yields can t be ruled out Mario s done his bit though so it s over to the politicians now Quantitative easing QE has made the extremely rare journey from the darkest depths of economic theory and textbooks to everyday language Ask your cabby for their views on the economy and the response will no doubt include reference to potentially irresponsible money printing Its effects are notoriously hard to calculate as no one can say with any real certainty what would have happened without it QE has made the extremely rare journey from the darkest depths of economic theory and textbooks to everyday language Ratings If you were going to buy a car would you make the purchase based on a review that Top Gear gave it Or would you want to see the car for yourself take it for a test drive and do your own research Similarly the work of the credit rating agencies can be a useful guide to bond risk but the opinion of others can only get you so far This is why we work so hard to understand the companies who issue the bonds Strategic Bonds Typically bond funds are constrained by a requirement to invest in a small or explicit universe For example in investment grade corporate bonds only This leaves investors exposed to market risk After all different types of bonds perform more strongly at different phases of the economic cycle But this risk can be mitigated by investing in strategic bond funds With a wider remit such funds can invest among a wide range of sub asset classes Trade weighted indices The weighted average of a country s exchange rate based on volume of trade with other countries Low interest rates and aggressive QE measures have led the Eurozone and Japan in particular to depreciate their currencies as they seek to preserve their competitive edge in export markets Meanwhile the U S and UK where quantitative easing is a distant memory and rate rises are on the cards have seen their currencies appreciate significantly Currency returns can constitute a large portion of total returns for international bond investors U S dollar Since the end of World War II the U S dollar has been the de facto world reserve currency The U S still dominates the bond market accounting for around 44 of global issuance mainly Treasuries and corporate and mortgage related debt Many EM economies issue U S dollar denominated debt Several countries use the dollar as their official currency and others notably China link their currency to it at a fixed exchange rate Recently we ve seen a large appreciation of the U S dollar resulting from expectations of a U S Federal Reserve Fed rate rise later in 2015 Volatility Not to be confused with risk Something that most financial institutions forgot in the run up to 2007 Bond price volatility is the market s response to expected monetary policy economic and for corporate bonds company changes The end of QE in the UK and U S and the looming likelihood of interest rate increases in the U S later are likely to bring more volatility to these markets Willingness To Pay A key consideration particularly for investors in EM sovereign debt Governments may not be willing to repay debt owed to investors even if they can but this is rare and usually occurs in countries with unstable or corrupt governments Political risk is thus high and investors should be wary A country s willingness to pay is different from its ability to pay which relates to its economic health debt burden and demographics Xi Jinping China s president is spearheading a rapid transition from an investment led to a consumption led economy The path of long term reform and urbanisation will reap large rewards for China in the long term The current slowdown in growth has worried some China nearly experienced two domestic bond defaults last year Thus far Jinping s government has provided confidence to bondholders that it will guarantee them against default Yellen As chair of the Fed Janet Yellen has to be a master of subtle nuances Dramatic announcements can lead to big moves in bond yields so to avoid this any change in Fed policy has to be managed carefully Yellen s monthly guidance is pored over for hints as to the Fed s future actions For example for months now she has said the Fed will be patient when it comes to normalizing monetary policy In March patient was dropped from the guidance Does this presage an early rise

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  • Bond bubble: an unhelpful analogy | Thinking Aloud
    as quickly as anticipated causing the expected maturity of a security to increase Ref 23211 010715 1 Social media Download share or print this page Copy link Email link Print this page Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www aberdeen asset ca en thinkingaloudus investment clarity bond bubble an unhelpful analogy Select Article URL Close Bonds Fixed Income Global Interest rates Related Articles Like the US the UK needs infrastructure capital Paradox for emerging market positivity ECB action kitchen sink or leaky tap for hedge funds Creating value through effective stewardship Central banks and broken promises Bonds Fixed Income Global Interest rates Related Links Learn more about Aberdeen Contact Us This Content Component encountered an error Send us feedback First Name Last Name Email Address Comments Thinking aloud Internal Links About Thinking aloud Privacy and Cookies Policy Accessibility Help Keep in touch twitter LinkedIn google facebook More about Aberdeen Asset About Aberdeen Asset Management Aberdeen Asset Management Copyright 2015 IMPORTANT INFORMATION PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS The views and opinions expressed are provided for general information only and do not constitute specific tax legal or investment advice to or recommendations for any person We suggest that you consult your financial or tax advisor accountant or attorney with regard to your specific situation The details contained here are for information purposes only and should not be considered as an offer or solicitation to deal in any of the investments mentioned herein Aberdeen Asset Management AAM does not warrant the accuracy adequacy or completeness of the information contained herein and expressly disclaims liability for errors or omissions in such information and materials Any research or analysis used in the preparation of the information has been procured by Aberdeen for its own use and may have been acted on for its own purpose Some of the information may contain projections or other forward looking statements regarding future events or future financial performance of countries markets or companies These statements are only predictions opinions or estimates made on a general basis and actual events or results may differ materially This information does not provide financial or investment advice and does not take into account the particular financial circumstances of individual investors Before investing investors should seek their own professional advice Neither Aberdeen nor any of its employees associated group companies or agents has given any consideration to nor have they or any of them made any investigation of the investment objectives financial situation or particular need of the reader any specific person or group of persons Accordingly no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader any person or group of persons acting on any information opinion or estimate contained herein Aberdeen reserves the right to make changes and corrections to any information at any time without notice Third party websites provided by hyperlinks are

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  • Un-shocking shock of emerging market bonds | Thinking Aloud
    developing one of the largest consumer markets in Asia No single policy event such as a rise in U S interest rates is going to leave all emerging markets licking their wounds The need for diversity also reinforces the argument for a blended approach to investing which includes both local and hard currency debt and both corporate and sovereign bonds Emerging market currency moves can be nerve wracking but should not be that way if one particular sovereign s local currency debt is balanced by dollar debt from around the world and by the local currency debt of other sovereigns Some currencies form a natural balance because they are pulled upwards and pushed downwards by opposite factors Take oil rich Russia s rouble for example which will gain from the potential eventual resurgence in the oil price As a second instance there is the oil poor Indonesia s rupiah which is being supported as the current low price of oil shrinks the country s current account deficit There are always some troubles ahead in emerging markets but we should not forget that at any given moment most emerging bond markets are not in a state of crisis because they are not all equally affected by the same phenomena No single policy event such as a rise in U S interest rates is going to leave all emerging markets licking their wounds No single economic event such as a rise or fall in oil prices is going to leave all emerging markets in trouble One of the skills of emerging market debt investing lies in buying debt at those moments when other investors do sell all in response to such events unwisely pausing only later to ask the right questions Important Information Fixed income securities are subject to certain risks including but not limited to interest rate changes in interest rates may cause a decline in the market value of an investment credit changes in the financial condition of the issuer borrower counterparty or underlying collateral prepayment debt issuers may repay or refinance their loans or obligations earlier than anticipated and extension principal repayments may not occur as quickly as anticipated causing the expected maturity of a security to increase Foreign securities are more volatile harder to price and less liquid than U S securities They are subject to different accounting and regulatory standards and political and economic risks These risks are enhanced in emerging markets countries Diversification does not ensure a profit or protect against a loss in a declining market Ref 23211 220515 1 Social media Download share or print this page Copy link Email link Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www aberdeen asset ca en thinkingaloudus investment clarity un shocking shock of emerging market bonds Select Article URL Close Bonds Developing Emerging Markets Fixed Income Related Articles Like the US the UK needs infrastructure capital EM corporate bonds what happened to the apocalypse Asian property seeking excitement without

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  • Are Brazilian women going to stop washing their hair? | Thinking Aloud
    market noise and look directly at our individual holdings to try to measure how we will perform in down or sideways markets We look at the management of the companies the balance sheet strength and any trends in the industry We then ask ourselves something as simple as Are Brazilian ladies going to stop washing their hair because of the crisis in Ukraine The answer reassuringly is usually Probably not 1 It may be an exaggeration to say that Brazilian ladies wash their hair twice a day but research published in 2010 by Euromonitor International Ltd a London based market researcher identified the Brazilian cosmetics market as one of the fastest growing on the planet with compounded annual sales growth of 14 between 2003 and 2008 Brazil has more Avon Ladies 900 000 than soldiers in its army and navy put together according to a 2013 paper by professors at the Maria Curie Sklodowska University in Poland Global Beauty Industry Trends in the 21st Century Important Information Fixed income securities are subject to certain risks including but not limited to interest rate changes in interest rates may cause a decline in the market value of an investment credit changes in the financial condition of the issuer borrower counterparty or underlyling collateral prepayment debt issuers may repay or refinance their loans or obligations earlier than anticipated and extension principal repayments may not occur as quickly as anticipated causing the expected maturity of a security to increase Foreign securities may be more volatile harder to price and less liquid than U S securities They are subject to different accounting and regulatory standards and political and economic risks These risks are enhanced in emerging markets countries Concentrating investments a particular region or country subjects a portfolio to more volatility and greater risk of loss than a more geographically diverse investment Ref 18653 101114 4 Social media Download share or print this page Copy link Email link Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www aberdeen asset ca en thinkingaloudus investment clarity are brazilian women going to stop washing their Select Article URL Close Behavioural finance Central banking Economics Emerging Markets Equities Europe Related Articles Japan why faltering reforms shouldn t hide corporate achievements Like the US the UK needs infrastructure capital EM corporate bonds what happened to the apocalypse Lesson from Germany the value of hybrid property Paradox for emerging market positivity Behavioural finance Central banking Economics Emerging Markets Equities Europe Related Links Learn more about Aberdeen Contact Us Send us feedback First Name Last Name Email Address Comments Thinking aloud Internal Links About Thinking aloud Privacy and Cookies Policy Accessibility Help Keep in touch twitter LinkedIn google facebook More about Aberdeen Asset About Aberdeen Asset Management Aberdeen Asset Management Copyright 2015 IMPORTANT INFORMATION PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS The views and opinions expressed are provided for general information only and do not constitute specific tax legal or investment advice to

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  • The “delightful” debt dynamics of emerging markets | Thinking Aloud
    higher yields for emerging than for developed market businesses The horizon beyond quantitative easing Skeptics argue that putting money in EM debt is like having a picnic in a hurricane a textbook case of the right idea at the wrong time They suggest that yields will rise and currency values will plunge in EMs when the U S Federal Reserve begins raising interest rates as American money returns home in reaction to monetary tightening It is however hard to see those EMs with current account surpluses such as the UAE or Venezuela suffering financial crises as U S rates tighten they do not need foreign capital We also believe many other emerging markets including Mexico have sustainable current account deficits small and largely based on stable foreign direct investment Others with wide deficits could be more vulnerable This divergence in the fortunes and financial positions of emerging market countries underlines the need for intensive research to differentiate between good and bad investments Some investors may want to put money in emerging market bonds as a convenient risk on risk off play on global economic conditions It is our view that EM bonds do not however work in this way because they are not monolithic and are in fact more diverse than developed markets For macro risk on risk off investors this is an inconvenient truth If they are so diverse should we avoid talking about EMs at all in the same way that we no longer talk about the Third World or the civilized world or the Warsaw Pact countries In the end EMs do have one extremely important characteristic in common they are most of the time high growth This rapid economic expansion will likely continue to support their debt dynamics increasing the tax revenue on which bonds creditworthiness is ultimately based In other words time is on their side 1 Trading Economics as of September 3 2014 2 CIA World Factbook September 2014 3 Trading Economics September 2014 Important Information Foreign securities may be more volatile harder to price and less liquid than U S securities They are subject to different accounting and regulatory standards and political and economic risks These risks are enhanced in emerging markets countries Concentrating investments in emerging markets subjects investments to more volatility and greater risk of loss than more geographically diverse investments Fixed income securities are subject to certain risks including but not limited to interest rate changes in interest rates may cause a decline in the market value of an investment credit changes in the financial condition of the issuer borrower counterparty or underlying collateral prepayment debt issuers may repay or refinance their loans or obligations earlier than anticipated and extension principal repayments may not occur as quickly as anticipated causing the expected maturity of a security to increase Ref 18653 101114 3 Social media Download share or print this page Copy link Email link Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www

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  • The world is flat: a case for investing globally | Thinking Aloud
    prosper over the long term In our view we no longer live in a sheltered world and an equity portfolio shouldn t either The rate of change in the world appears to have accelerated over the past decade Stronger relations have been developed between countries many former single pillar companies now operate as a network of subsidiaries throughout the world and most recently the internet has enabled information to be shared anywhere with the click of a button In line with Friedman s theory barriers have been broken down In our view we no longer live in a sheltered world and an equity portfolio shouldn t either Important Information Foreign securities are more volatile harder to price and less liquid than U S securities They are subject to different accounting and regulatory standards and political and economic risks These risks are enhanced in emerging markets countries Equity stocks of small and mid cap companies carry greater risk and more volatility than equity stocks of larger more established companies Ref 18653 111114 2 Social media Download share or print this page Copy link Email link Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www aberdeen asset ca en thinkingaloudus investment clarity the world is flat a case for investing globally Select Article URL Close Active management Developing Economics Equities Global Related Articles Japan why faltering reforms shouldn t hide corporate achievements Asian property seeking excitement without danger Paradox for emerging market positivity Fighting off China s cold Creating value through effective stewardship Active management Developing Economics Equities Global Related Links AberLearn more about Aberdeen Contact Us Send us feedback First Name Last Name Email Address Comments Thinking aloud Internal Links About Thinking aloud Privacy and Cookies Policy Accessibility Help Keep in touch twitter LinkedIn google facebook More about Aberdeen Asset About Aberdeen Asset Management Aberdeen Asset Management Copyright 2015 IMPORTANT INFORMATION PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS The views and opinions expressed are provided for general information only and do not constitute specific tax legal or investment advice to or recommendations for any person We suggest that you consult your financial or tax advisor accountant or attorney with regard to your specific situation The details contained here are for information purposes only and should not be considered as an offer or solicitation to deal in any of the investments mentioned herein Aberdeen Asset Management AAM does not warrant the accuracy adequacy or completeness of the information contained herein and expressly disclaims liability for errors or omissions in such information and materials Any research or analysis used in the preparation of the information has been procured by Aberdeen for its own use and may have been acted on for its own purpose Some of the information may contain projections or other forward looking statements regarding future events or future financial performance of countries markets or companies These statements are only predictions opinions or estimates made on a general basis and actual events

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  • Mexico – the worm has turned | Thinking Aloud
    a mayor in Guerrero state We do not believe time is on Peña Nieto s side to fight this particular war but the sheer zeal and foresight of his reform agenda so far bodes well It is worth acknowledging too how enlightened they are His energy reforms for example should not be fully realized for at least a decade long after he has left office We believe introducing competition into Mexico s oligopolies will actually harm the country s stock exchange in the short term as these companies see competition squeeze margins Much needs to be done to make sure the reforms lead to the change everyone wants but it takes enlightened political leadership to have gotten this far Mexican politicians have also shown a laudible ability to work together that those north of the border would do well to emulate Mexico s problems are far from solved but in our view the outlook is good We also believe the reforms will bear fruit Wage costs are relatively competitive so jobs should be created as China s wages continue rising and manufacturers stand to benefit from the U S recovery The trick for Mexico is to abstain from the bottle and focus on the task at hand Important information PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS Foreign securities may be more volatile harder to price and less liquid than U S securities They are subject to different accounting and regulatory standards and political and economic risks These risks are enhanced in emerging markets countries Concentrating investments in emerging markets subjects investments to more volatility and greater risk of loss than more geographically diverse investments Fixed income securities are subject to certain risks including but not limited to interest rate changes in interest rates may cause a decline in the market value of an investment credit changes in the financial condition of the issuer borrower counterparty or underlying collateral prepayment debt issuers may repay or refinance their loans or obligations earlier than anticipated and extension principal repayments may not occur as quickly as anticipated causing the expected maturity of a security to increase Additionally high yield securities may face additional risks including economic growth inflation liquidity supply and externally generated shocks Ref 18653 050115 12 Social media Download share or print this page Copy link Email link Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www aberdeen asset ca en thinkingaloudus investment clarity mexico the worm has turned Select Article URL Close Developing Economics Emerging Markets Fixed Income Global Latin America Monetary policy Politics Related Articles Japan why faltering reforms shouldn t hide corporate achievements Like the US the UK needs infrastructure capital EM corporate bonds what happened to the apocalypse Asian property seeking excitement without danger Paradox for emerging market positivity Developing Economics Emerging Markets Fixed Income Global Latin America Monetary policy Politics Related Links Learn more about Aberdeen Contact Us Send us feedback First Name Last Name Email Address Comments

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  • The Last Man on the Moon: a cautionary tale | Thinking Aloud
    that Cernan is ungrateful far from it At times he struggles to find words grand enough to convey the surreal opportunity that life presented to him Standing in London s Science Museum looking at the scorched command module that brought him home back in 1972 Cernan asks himself whether he dreamt such an incredible journey But for his family work was far from over with the return to Earth Like all the returning Apollo astronauts Cernan then began a relentless global PR campaign a life of private jets hotel rooms endless drinks receptions speeches interviews and grip and grin handshakes for the cameras It was this campaign more than the mission itself that cost him his marriage I just wanted to go back to being normal explains his ex wife The divorce rate among Apollo couples was 60 As one of the world s three fastest humans his re entry into the Earth s atmosphere topped speeds of 24 000 miles per hour Cernan on the other hand has never quite learnt to slow down He now has a ranch where he seems to have found some solace although his schedule of conventions and publicity meet and greets is only marginally less hectic than ever He needs to start taking it easy says a concerned friend and former fighter pilot colleague Throughout all of this director Mark Craig presents us with a cautionary tale Few of us will ever be burdened with the kind of pressure under which the Apollo astronauts worked But we can all get too caught up in our own ambitions our work and the details and complexities of modern life Sometimes we need to slow down take a step back It s certainly well worth taking time out to watch Craig s film an artful combination of heart stopping footage and touching personal reminiscence Sometimes we need to slow down take a step back and appreciate the simple things in life the love of our family and friends Take it from an 80 year old former astronaut one of just 12 people to stand on another celestial body and look back upon the Earth Even initials carved in Moon dust are no substitute for time spent with the ones we love Ref 23211 070416 1 Social media Download share or print this page Copy link Email link Print this page Share on twitter Share on LinkedIn Share on Google Share on Facebook Copy URL http www aberdeen asset ca en thinkingaloudus culture and inspiration the last man on the moon a cautionary tale Select Article URL Close Simply being Related Articles The sun a stick and a well for a scientific breakthrough Science shows simple is smart Biology could be simpler than we thought Beauty and the brain why we love Beethoven How giving has become a core business Simply being Related Links Contact Us Learn more about Aberdeen This Content Component encountered an error Send us feedback First Name Last Name Email Address Comments Thinking

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