Practical analysis for investment professionals
25 February 2016

Weekend Reads for Global Investors: Abenomics, Brexit, and Credit Bubbles

Posted In: Weekend Reads

The clock has started ticking. The UK government has set the date for a referendum on Brexit, the British exit from the European Union. Recent polls are actually rather close.

The Financial Times, in its usual thorough manner, has already published an analysis on the economic consequences of Brexit. You can read it through carefully; chances are, though, that the analysis won’t actually change your opinion.

Neil Govier, my closest British friend (he is my office colleague), thinks the “leave the EU” sentiment is driven more by political rather than economic considerations — in other words, irrational rather than rational considerations.

That shouldn’t surprise any market veterans, I suppose. When was the last time you came across a rational investor? And if people are not rational with their own money, why would you expect things to be any different when it comes to their other decisions? Chances are that most people have already made up their mind about Brexit, one way or the other. No analysis or fact in the world could change their opinion.

Another clock is ticking, at least according to Edward Altman (of the Altman Z-score fame). He thinks we are in a global credit bubble that could pop at any time. We sat down in Hong Kong recently to discuss his insights into how the Altman Z-score model works and what he has learned over the past five decades about how the model can best be applied.

The conversation naturally veered toward where Altman thinks we are in the credit cycle today versus in 2008. Each of these benign credit cycles in history apparently has not lasted longer than seven years. And we are now in the seventh year.

Last, I wanted to highlight a great article I came across on the current state of Abenomics. Three years have passed since Japan’s Prime Minister Shinzo Abe took office at the end of 2012. As Henny Sender aptly pointed out, “Despite Shinzō Abe’s boasts about the ‘three arrows’ of his Abenomics programme, there has been only ever one missile in the prime minister’s quiver: yen depreciation.” The clock seems to be running out on that one.

Following is a list of links from the previous paragraphs, as well as some of the other interesting reads I have come across in recent weeks. Happy reading, and enjoy the weekend.

Markets

Investing

Emerging Markets

The Soft Side of Business

And Now, Some Reads That Truly Are for the Weekend . . .

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Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.

Photo credit: ©iStockphoto.com/Photoevent

About the Author(s)
Larry Cao, CFA

Larry Cao, CFA, senior director of industry research, CFA Institute, conducts original research with a focus on the investment industry trends and investment expertise. His current research interests include multi-asset strategies and FinTech (including AI, big data, and blockchain). He has led the development of such popular publications as FinTech 2017: China, Asia and Beyond, FinTech 2018: The Asia Pacific Edition, Multi-Asset Strategies: The Future of Investment Management and AI Pioneers in Investment management. He is also a frequent speaker at industry conferences on these topics. During his time in Boston pursuing graduate studies at Harvard and as a visiting scholar at MIT, he also co-authored a research paper with Nobel laureate Franco Modigliani that was published in the Journal of Economic Literature by American Economic Association. Larry has more than 20 years of experience in the investment industry. Prior to joining CFA Institute, Larry worked at HSBC as senior manager for the Asia Pacific region. He started his career at the People’s Bank of China as a USD fixed-income portfolio manager. He also worked for US asset managers Munder Capital Management, managing US and international equity portfolios, and Morningstar/Ibbotson Associates, managing multi-asset investment programs for a global financial institution clientele. Larry has been interviewed by a wide range of business media, such as Bloomberg, CNN, the Financial Times, South China Morning Post and the Wall Street Journal.

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