ONLINE SECURITY – CYBER RANSOMING A GROWING PARASITICAL BUSINESS FOR UK HACKERS

‘There are minimal overheads and profits can be limitless’

Cybercriminals are increasingly targeting UK workers files and data, and the Metropolitan Police have warned that “no one is safe”.

The FBI, Metropolitan Police, and security experts all agree that cyber ransoming has fast become one of UK’s biggest economic crimes.

Unpredictable, unstoppable and potentially fatal to a business, the rapid emergence of ransomware has become a threat to people across the nation.

August Graham, the editor of the Sentinel, arrived at work one morning last summer to find a note pop up on one of the computer screens. It informed him that all the files on the firm’s server had been encrypted and were being held ransom.

He was told he had to pay £500 to get them back, or they’d be destroyed.

Last year, 54 per cent of businesses in the UK were hit by ransomware attacks, according to a survey by Osterman Research on behalf of Malwarebytes. In 20 per cent of the cases, it stopped business operations immediately.

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The average ransom demanded is £520, but some can be enormous. Three per cent of UK companies that have been hit by ransomware reported a charge of over £50,000 to recover their data.

Gary Miles, the detective chief inspector of FALCON (Metropolitan Fraud and Linked Crime Online) described cyber ransoming as “the crime of choice” right now.

“For a criminal, the cyber ransoming business model is very attractive,” he said. “There are minimal overheads and profits can be limitless.”

If you measure risk against reward, it’s no wonder ransoming has doubled each year since its 2012 emergence. Robbing one computer at a time violently using a knife or gun doesn’t scale well.

However, one hacker can rob thousands with the click of a button.

What is ransomware?

In the first stage of a ransomware attack, a target will receive an email appearing to contain a legitimate attachment, such as an invoice or link to a website. Most people will have come across one of these infected messages.

In the past, they’ve tended to be written in broken English and easy to spot, but hackers have skilfully refined their techniques.

If the victim takes the bait and engages with the content, the second phase begins. The malicious code in the attachment will then be released onto the victim’s machine and spread fast.

It will encrypt all files and folders in local drives, attached drives, backup drives and other computers on the same server. In no time, all files will become corrupt and inaccessible.

The ransom note will then appear on the computer screen. Demands can range from a couple of hundred to several million, depending on how much the hacker thinks the organization will pay.

What to do if you’re targeted

Ransomware attacks are not just proliferating, but becoming increasingly targeted too. Blocking one is extremely difficult. Defenders are like the batters in a cricket game, who need to deflect every ball thrown at the wicket. Hackers just need to knock the bails once to win.

A survey by Trend Micro found that 65 per cent of UK businesses hit by ransomware last year paid the ransom, despite all security agencies and police forces advising against complying with attackers’ demands.

Explaining why victims should not pay up, Pascal Geenens, Radware’s security evangelist for the EMEA region said, “Firstly, there is no guarantee that you will recover your data and secondly, even if you do recover your data, hackers may come back at a later date demanding an even larger ransom.”

Geenen says companies must place an emphasis on prevention by educating employees and putting protective technologies like firewalls, antivirus software and intrusion detection systems into place.

On top of that, companies are encouraged to establish a disaster recovery plan. So if a breach happens, there is a plan to minimize the damage. A company must concentrate on strengthening those things in order to make themselves less susceptible to ransomware. Once it happens, it’s too late.

Cybersecurity firms also encourage companies to back up their systems frequently.

“It should be done at least every hour,” said Mr Geenens. “That way, if an attack happens a company need only reboot their systems to the last point of backup.”

Tokyo bike tours: A TOUR, ASAKUSA, SKYTREE & OLD TOWN QUARTER

This tour takes you to the shitamachi and its surrounding areas including Asakusa and Yanaka, where you can still feel an old town ambience. Riding through residential areas and local shopping streets, you will get a glimpse of Tokyoites’ daily lives. Tour starts and ends in Akihabara.

Our tour begins with a ride around the Shinobazu Pond and through Tokyo University campus. We ride through serene Yanaka Cemetery ground and across Ueno Park. We see Yanaka Ginza, a shopping street which best represents local people’s ordinary life styles and the shitamachi nostalgic flavor.

Ueno is a culture-rich district with its many museums, higher education institutions, and Ueno Park is a verdant oasis of locals.

Just before we ride across the Sumida River is Asakusa where an atmosphere of the Tokyo of yesteryear survives. We ride past Sensoji Temple and bustling streets lined with theaters, eateries and souvenir shops.

LUNCH BREAK You can sample local foods from food stands or relax in a cozy restaurant here.

Tokyo Skytree, the world’s tallest free-standing broadcasting tower.
(Please note that the tour does not include a visit to the observation deck of the tower.)

Before returning to Akihabara, we ride through Ryogoku where the sumo stadium and many sumo stables are located. If you are lucky, you may be able to spot some sumo wrestlers.

Cycling tours Tokyo: CUSTOMER REVIEWS

The Fringe Tour was awesome! And I would definitely do another tour with Y&Y. They were a sweet couple that showed us a bunch of little known sites in Tokyo and even though it rained it didn’t stop us :)smile They were fun, informative, helpful, patient, and accommodating. The Japanese Garden, city zoo, and aquarium were only a few of the great places we visited. For beginner bikers (like myself) the bikes might take some getting used to but the route is so safe you can take your time – I always felt comfortable. I would recommend this to all my friends and visitors to Tokyo to get away from the typical Tokyo sites and experience something off the beaten track. I can’t wait to do another tour!

(Kalai, Toronto, Canada)

 

I wasn’t quite sure what to expect on my first Tokyo bike tour, but after participating in the Fringe Tour, I would definitely do it again! The bike route, pace and length were all accommodating for an infrequent bike rider like me. And, even though I have lived in Japan for seven years, it was fun to see a whole other side of Tokyo that I have never seen before. Yasushi and Yoko, our guides, were wonderful! I felt well taken care of during the entire ride. Also, the tour offered me a wonderful chance to make several new friends from Japan and Canada. I would so recommend this tour to anyone who wants to experience something fun and different in Japan.

(Susan, Seattle, US)

 

I’m from neighbor city, Yokohama and joined the tour with my friend. However, it turned out I could see the side of Tokyo I’ve never seen before! 6hours bicycle tour sounded long first, but roads were well chosen and I had fun the whole time. Also we made several stops with fun things to see. Personally, I had fun biking riverside and visiting Japanese garden where we fed Koi. I definitely recommend the tour not only to tourists but locals also.

(Hiroko, Yokohama, Japan)

 

I joined the tour from Tsukuba. On joining this tour, I expected three things. Discovering something new about Tokyo, brushing up my rusty English and slimming down in my waist size. I really enjoyed walking around the Japanese garden, feeding Koi and watching cute animals. I especially like the river side cycling road with excellent view. It was also wonderful that I met some new friends from overseas. I had a really great time with Y&Y. Thank you and I definitely will join other tours!

(Tatsuya, Tsukuba, Japan)

 

I have been visiting Tokyo for over 10 years. A Japanese friend of mine, who was born and raised in Tokyo, asked me to going on a bike tour exploring Tokyo. The city has many areas specifically designed just for cycling and with my schedule, I rarely get a chance to enjoy the recreational areas that Tokyo offers.  So, I said, Yes. At the start of the tour, we were met by Yasushi and Yoko, owners and operators, of Y & Y Cycling. As I found out, to my surprise, both had studied English for three years abroad, so communicating in the English was simply not an issue. Moreover, both have done their homework, along the tour at several stops, such as the zoo and aquarium, they explain exhibits and augment explanations with informative pictures and maps. The cyclist need not worry about lunch, water, or entrance to sites. Additionally, sites of interest are pre-planned and well thought-out.  Just bring your camera and energy for a fantastic day of cycling. I recommend this tour not just for visitors, but also locals, my friend remarked, Although she had lived in Tokyo for many years, she discovered a few secret view spots and cool places that she had not known.

(Mofiz, San Francisco, California and Yokohama, Japan)

 

The first thing I would like to say is awesome! I am not a kind of person who is into outdoor activities, but I do enjoy exploring local stuff; things that typical guidebooks do not pick up. If you are looking for something not too touristy and something new, you should definitely try this tour. It is like wandering around the area with your good friends who live there. That makes you feel like you know the real Tokyo. I did find a lot of new things even I have lived in just half- an- hour from the area (Kasai and Urayasu) all my life. Parks we visited are not the major, famous ones, but they are beautiful and there were many local people, which made me feel like I was one of them. It was kind of cool. Bike ride was not a problem at all even though I am not that athletic. Biking along the river was great! And, our guides, Yasushi and Yoko, took a really good care of us. They answered all of my trivial questions that popped up in my mind (I didn’t mean to challenge them.) This is a definite advantage of having a guide who actually lives in the area where you are touring. The coffee break at the end of the tour was so exclusive and so special. I would definitely take my friends on one of these tours if they come visit me from somewhere out of Tokyo area. Yes! I even want to take my Japanese friends living in Kyoto on this tour. Thank you for such a wonderful experience. Cheers!

(Michiko, Funabashi, Japan)

 

TOKYO FRINGE tour” was pleasant cycling for me. I could see many animals and plants around Tokyo Bay and also the guides were very kind. I visited Gyousen Park, zoo, Kasai Sea Life Park and Tokyo Disney Resort. Especially, the lunch I had under the clear sky at Kasai Seaside Park tasted delicious. 🙂 In the afternoon, I saw the sunset at Tokyo Bay. The view was so nice that I took many pictures with my reflex camera. Thank you for giving a wonderful day to me. If I have another chance, I would like to join their tours again.

(Masami, Yokohama, Japan)

 

I had a great time with Y&Y cycling tours! I can’t believe I had so many exciting discoveries in the Shitamachi area in just one day! It’s difficult to choose, but I have three things that I really like about the tour. First, our guides Yasushi and Yoko took us not only to just some sightseeing spots but they gave us the history behind them, which makes the tour more meaningful! Next, we could take a very unique picture of skytree! If you just visited there by yourself you would never find it! You can go to areas that only locals know or even ones they don’t know! I felt so lucky to find this tour!!! And, lastly and my most favorite part of the tour, the people in Shitamachi. They are true Tokyoites, friendly and cheerful, very talkative (and loud but) you can’t help loving them. The Shitamachi Mom at the leather museum is awesome! You’ll feel so much energy. In addition, you can get nice leather goods there. I’m so thrilled to take another tour with them! Thanks, Yasushi and Yoko!

(Akiko, Ichikawa, Japan)

 

It was a very enjoyable tour! Unlike other guided tours, the group was small and the course was very unique. Yasushi and Yoko are fun, friendly, informative, and helpful guide. Although I hadn’t ridden a bike for a long time, I had no trouble catching up. The bike was easy to ride and I could borrow a helmet. I have visited Shitamachi area many times before, but there were many new discoveries. I really enjoyed feeding koi inside the Japanese garden. Riding beside Sumida River was also nice. I would recommend this guided tour to those who is traveling Japan for the first time as well as those who have already visited Japan many times.

(Yuki, Kawasaki, Japan)

 

I joined Odaiba Tour mid-November. Though I am from Tokyo, I could see things that I’ve never seen before. It was full of excitement and new discovery thanks to the kind and informative guides. The route is well-considered so it is easy to follow the guide by bike and you will come across something fun every few minutes, sometimes it’s a great scenery from the bridge, and sometimes it’s tasty local snacks at a lively market. I think it’s ideal for those who want to collect interesting pieces of Tokyo by your own pace.

(Akiko, Tokyo, Japan)

 

It was a lovely beautiful day! I didn’t expect I could feel such a crisp fresh sea breeze in Tokyo. We rode along ODAIBA beach(so cool!) and had a soft served icecreme on the beach terrace. The friendly guides took us to the Tukiji fish market(they know the maze there). I usually drive, not ride a bike, but just hopping on the bike and riding for 5 minutes reminded me of how to. If you are tired of temples and shrines packed with people, please refresh yourself for a change by this tour. I recommend this tour even to Japanese. You will find another side of Tokyo and definitely have a wonderful day!

(Naoko, Tokyo, Japan)

 

I joined the Odaiba tour last month with my husband and really enjoyed it. The weather was lovely and I could feel a gentle breeze in Tokyo. The biggest reason why I chose the Odaiba tour was that I wanted to try Rainbow Bridge walk. I’ m from Tokyo and familiar with all places that are included the Odaiba tour; however, I’ve never tried to go there by bicycle. (It was fun to cycle beside business people in a city.) I often see the Rainbow Bridge from a faraway place, so I was excited to walk on the bridge on my foot. Also, I really enjoyed the snacks that our tour guides introduced us such as Yakitori, soft ice cream and Temakizushi. They gave us great hospitality,too!! I recommend this tour to everyone even Japanese. You can easily see a lot of interesting places in Tokyo by this cycling tour in a day. Thank you very much !!!!!!

(Mami, Tokyo, Japan )

The capital group inc singapore: Improving fundamentals boost emerging market debt

Emerging market (EM) debt has seen a sharp sell-off since the US elections. What is your outlook for the asset class? EM debt needs growth, and in theory strong US growth (i.e. fiscal expansion) should be positive for the asset class. The uncertainties around a Donald Trump presidency are well known, especially on the global trade front, and this explains some of the sell-off that we’ve seen in EMs since the US elections. However, I think the markets may be overestimating the extent of trade protectionism by pricing in potential moves such as the North American Free Trade Agreement (NAFTA) being cancelled, but the important thing to note is the fact that EMs benefit from strong global growth and we should see this in 2017, especially with stabilising commodity prices.

 

This is particularly good news for local yields, which are around 6.5%-7%, and in some of the higher yielding dollar universe, for example Argentinian US dollar-denominated debt. EM debt is also less affected by rising bond yields than traditional fixed income. Another concern is that if US interest rates move significantly higher, then EM debt won’t look as attractive as an asset class. Finally, higher US interest rates will also directly increase borrowing costs for EM countries – although US dollar debt is becoming a smaller portion of overall EM borrowing and dollar debt levels are in general more manageable now.

 

Despite all this uncertainty, it is important to note that EM countries are actually in pretty good shape. Overall fundamentals for EM as an asset class are stabilising, and this is after a number of years when fundamentals were deteriorating. This has been driven by external factors, such as the dissipation of the commodity price shock and the improving global growth picture. It has also been driven by the improving credit stories of countries like Brazil, Argentina and Russia.

 

Overall, I am quite optimistic and I think 2017 will be a year where we can take more opportunities and less of a defensive stance, with the p

 

What could be the impact of fiscal expansion in the US?

 

President-elect Trump intends to give the US economy a shock of fiscal stimulus that I do not think it needs at its current point in the financial cycle. There could be a boost to growth, from around 2% to 2.5%-3%, but because of the tight labour market there is an inflation risk. However, the hope is there will be enough global spare capacity that prevents this from becoming an issue – if not, the US Federal Reserve (Fed) would have to raise rates faster than the markets anticipate.

 

How do you see current valuations in EM debt?

 

Local yields are, in absolute terms and relative to developed market yields, attractive. Inflation is coming down, which should also support EM bonds. This is because EM central banks can now ease monetary conditions; something they haven’t been able to do in a long time.

 

With hard currency bonds, we’re seeing more of a bifurcated market. You have the high-quality investment-grade countries, like Mexico and Brazil, where you get very little yield. If the US Treasury curve normalises further, these countries will have very little yield cushion to protect against a rise in US interest rates, which is not particularly attractive. However, in the dollar space, there are some higher yielding bonds, such as Argentina and some Sub-Saharan African countries, where yields are significantly higher. We see these as more attractive because you take a lot more credit risk, or spread risk, rather than underlying US interest rate duration risk.

 

What is your outlook on EM currencies?

 

If we look at our fundamental equilibrium value exchange rate (our internal fair value exchange rate model), overall, EM currencies still appear undervalued, and they have very attractive carries because of high inflation rates. Even those fair valued currencies like the Brazilian real have large carries, which provide lots of cushion, even if the currencies depreciate slightly. Whether or not we see EM currencies appreciate from here, however, will again depend on what a Trump presidency looks like. We may see the dollar move higher if we have meaningful fiscal expansion in the US, but I think it will be different from when the Fed was withdrawing quantitative easing or planning its first rate hike. At that time, this was done in an environment of disinflation and a lack of growth in the rest of the world. Now we have a recovery in Japan and Europe, with strong employment growth. I do believe that EM currencies are cheap enough to allow for some uncertainty.

 

What’s your view on commodity prices?

 

Based on the views of our commodity specialists, I would expect commodity prices to be well-supported and rangebound. There is still a lot of supply, but with a better growth picture, demand should not only stabilise but also increase somewhat.

 

Could you share your outlook for China?

 

There are several interesting things happening in China. Firstly, the government is working to depreciate the renminbi because it does not want the currency to appreciate any further against the Japanese yen, which the Japanese government is also trying to weaken. Plus, there is a slightly stronger US dollar outlook, at least for the next 6-12 months.

 

Secondly, Chinese growth received another artificial boost earlier in 2016 through fiscal stimulus, but this is now beginning to run out, meaning growth is coming down to its structural run rate of around 4%-5%.

 

Finally, the very positive news is that China has come out of its deflation trap – producer prices have been positive for the first time in three and a half years – which has increased its nominal GDP growth. So, yes, there is a structural slowdown, partially due to poor demographics, and we don’t expect any further stimulus, but the presiden

 

What about the problem of nonperforming loans in China?

 

There are lots of non-performing loans in China, which could be problematic, but because the country has a closed capital account and a banking system that is state-owned, then it should take a lot longer to become a problem, if at all. With time and money, you can defer those issues or just remove them through inflation; if your economy is growing well in nominal terms, these non-performing loans become a lot less of a problem.

 

What are your most compelling investment opportunities right now?

 

Brazil and Argentina are both examples of countries where, following a decade or so of economic mismanagement, we are finally seeing some change. Brazil has a strong technocratic caretaker government, with a president that is not planning to run for re-election.

 

This means that President Michel Temer can do the hard work and put the country on a much better footing, including cutting the budget deficit, which should also allow for lower interest rates. Hopefully, by the time of the next election in 2018, the economy should be doing better and the population might be in a better position to elect a government that will have a mandate to really improve the country’s economy

 

Argentina is in a similar position. After 12 years of Kirchner governments, the country finally has a conservative, orthodox centre-right government in place, which is looking to undo the distortions in the economy (although this will take time).

 

With Russia, while the political landscape has not changed much, the government has at least been very pragmatic in its economic approach by letting the rouble fall to compensate for declining oil prices. India is also delivering nicely on some reforms. Growth has been good and inflation is coming down.

Capital group intermediaries consultants Hong Kong: Municipal and Global Bonds

Revenue bonds tend to offer higher yields and entail risks that are typically more straightforward than general obligation bonds (GOs) for research-driven investors to analyze.

 

  • Local government issuers face practical constraints on raising revenue, while large pension liabilities put a heavy strain on their balance sheets. These represent significant and sometimes difficult-to-assess risks for investors in local GOs.

 

  • This has led yields offered by local GOs to now often match or exceed those of the broader municipal bond market — a sea change in muni bond pricing.

 

The muni market seemed to take Donald Trump’s victory in stride in the days following the November 8 presidential election. We’ll see what happens down the road, but the president-elect’s agenda for tax reform and infrastructure — by itself — appear unlikely to have a dramatic nearterm impact on munis. Understandably, the focus on how the environment for munis may develop under the next president is quite intense. However, today’s spotlight on possible longer term changes makes it all the more surprising that a recent structural change has received little fanfare. Not so long ago, general obligation bonds were viewed as the “safer” part of the U.S. muni market. Because of a state or local government issuer’s ability to increase revenues by raising taxes or fees, the argument went, many bond investors assumed that there would be little problem for these issuers to make coupon payments and return bond principal. For many years, investors were willing to receive about 10% less income, because they viewed local GOs as less risky than most other comparably rated muni bonds. From the end of 2008 to the start of 2014, for example, the average yield for investment-grade (rated BBB/Baa and above) local GOs was about 2.8% — roughly 30 basis points below the broader investment-grade muni market.

 

What a Difference Two Years Make Gradually, this benign perception has given way to a harsher reality. Starting in 2014, the market began to question whether local GOs actually entailed more risk than previously thought. Recent concerns over Chicago’s stability and bankruptcies associated with Detroit and Puerto Rico have helped crystallize a more unforgiving view. As a result, the yield discount of local GOs to the broader market has largely disappeared. What explains the dramatic repricing of local GOs, which account for 17% of the total issues and about 58% of the GOs in the investment-grade Bloomberg Barclays Municipal Index? Investors may be demanding greater return potential from local GOs, because they have recognized that local governments have:

 

  • Potentially limited flexibility to increase revenues

 

  • Large fixed costs

 

  • Insufficient political will to address substantial and growing pension liabilities

 

For Local Governments, Reality Bites Although these risk factors have become more widely appreciated and better reflected in bond prices, they are not actually new. The extent to which specific issuers suffer these vulnerabilities also varies widely. For example, cost cutting may prove difficult to implement due to contractual arrangements and fixed costs in some municipalities, while others may face far fewer impediments. Similarly, the ability of local governments to increase revenues in a challenging fiscal environment may be severely limited in some cases but not others. Flexibility is dependent on the overall health of the local economy and the nature of the revenue sources in place. Additionally, the political will to seek greater revenues through taxation or fees may be lacking — particularly in challenging times when increasing the financial burden on individuals and businesses could prove highly contentious. Many local governments also have to clear another major political and legal hurdle, in that they must first gain state approval before enacting any changes.

 

Pensions Are the Elephant in the Room For muni bond investors, local government pension liabilities are a major risk that shouldn’t be ignored. Pensions for municipal workers are often the largest liabilities on local government balance sheets, and the health of many plans has deteriorated over the past decade. At the end of 2015, local and state governments had an overall funding gap of 28%. Depending on the discount rates used, recent estimates suggest US$1 trillion to US$3 trillion in unfunded commitments need to be addressed (through additional contributions and investment returns) in order for these plans to meet their financial obligations to current and future retirees.

 

Forward investment return expectations play a critical role in determining whether or not a plan has a funding gap. Therefore, it’s important to note that many local and state pension plans still assume investment returns in excess of 7%, but are likely to moderate those expectations over time. As a consequence, lower return expectations could cause widespread increases in pension funding gaps among local and state governments.

 

Another Good Reason to Focus on Revenue Bonds Clearly, local and state GOs entail some significant risks, and bond prices have begun to better reflect this reality. However, in many cases, assessing whether or not a bond investor is being adequately compensated for these risks can be quite tricky. For GOs, an issuer’s willingness to repay its debt is a key variable in the investment decision. On the other hand, the situation with revenue bonds is quite different. Revenue bonds (which account for 60% of issuers in the investment-grade muni market) are backed by specific revenue streams from various entities such as water and sewage plants, toll roads, airports and toll bridges. Credit research can provide a well informed assessment of what a revenue stream for a toll bridge could be, whether the project will be successful and whether the associated bond represents an attractive investment.

 

Revenue bonds typically offer a yield advantage over local and state GOs, without the aforementioned funding, political and pension-related vulnerabilities. Assessing the ability of an issuer to pay on a revenue bond is a straightforward analytical problem for an experienced, research-driven muni investor like Capital Group. These factors have often influenced our portfolio managers to steer their muni-focused investments toward revenue bonds.

 

Global Bonds Can Help Investors Meet Varying Goals

 

  • One way to protect purchasing power is through exposure to foreign currencies.
  • Although the U.S. dollar’s value has risen in recent years, it could be poised to fall if the U.S. is in the late stage of its economic cycle.
  • A global bond fund can help investors diversify away from U.S. credit risk, as well as protect purchasing power through foreign currency exposure.

 

Of the many objectives investors establish for their portfolios, capital preservation and protection of purchasing power typically sit alongside requirements for income and growth of assets. Purchasing power protection basically means generating returns at least equal to the rate of inflation. Bonds such as Treasury Inflation-Protected Securities (TIPS) offer a direct hedge against inflation. Yet a portfolio of TIPS may not address the income and growth objectives of many investors. Meeting these various goals may be possible through a more diversified portfolio that includes an exposure to assets denominated in currencies other than the U.S. dollar. Such assets, like global bonds, not only help to diversify income and returns, but also provide some protection for purchasing power against currency-related volatility.

 

Why Exchange Rates Matter When a country’s currency exchange rate rises or falls, there can be a direct impact on the price of imported goods in that country. That so-called pass-through rate will vary from country to country, but some studies indicate that the long-term pass-through rate for the U.S. dollar is around 40%. That means if the dollar’s value fell by 10%, then prices of imported goods would broadly rise by about 4%.

 

In today’s global economy, much of what we consume is produced in whole or in part in other countries. Our foreign consumption basket might include things as expensive as a car or as cheap as a T-shirt. If we want to maintain purchasing power relative to our future consumption basket — the things we expect to buy in the future — then an allocation to assets denominated in foreign currencies makes sense.

 

Is Now the Right Time to Initiate or Add to Non-dollar Holdings? Over the past few years, the U.S. dollar has strengthened broadly against other currencies and now looks relatively overvalued. The chart on page 3 looks at the trade-weighted dollar index, which is the weighted average of the dollar’s exchange rates with its trading partners, against our internal estimate of its fair value. Since 2012, we have seen the dollar move from being very cheap to fair value to expensive. Currencies tend to be volatile and can diverge significantly from their fair values. However, ultimately they tend to revert to the mean: as relative valuations become extreme, they tend to move back toward fair value.

 

Today, there are indications that the dollar could be poised to turn. Historically, we have seen turns in the trade-weighted dollar precede turns in the financial cycle. Momentum loss is driven by a halt in the acceleration of house price inflation and private credit growth.

 

Financial cycle models, which are very slow moving, effectively reflect leveraging and deleveraging stages in the economic cycle. Our model indicates that we are now seeing late-cycle behavior as house price inflation and private credit growth are both decelerating. Typically the deleveraging part of the cycle is characterized by slowing growth, improving external balances and a weaker currency. If the U.S. cycle loses momentum, the U.S. dollar should fall.

 

Look to a Global Bond Fund Whether or not the dollar turns in the near term, relative valuations suggest that this could be a good time to initiate or add to non-dollar-denominated assets. Actively managed global bond funds can help. They enable investors to gain discrete exposure while relying on the fund’s managers to assess the risk and return opportunities across global bond and currency markets.

Capital group emerging market tokyo japan: Global Currencies Outlook, The Strong Dollar Is Losing Steam

Currency movements often produce a wild ride for investors, but 2016 was a year for the ages. The pound sterling tumbled to a 30-year low, the euro declined sharply in the fourth quarter, and the U.S. dollar staged a remarkable bull run.

 

What’s in store for 2017? In my view, the roller coaster won’t stop, but the ride should be less bumpy. That’s important because currency fluctuations can have a big impact on investment results. In 2016, for instance, European stocks enjoyed a robust 7% gain in local currency terms. But for dollar-based investors, currency movements eliminated all of those gains, producing a loss of –0.4%.

 

Here are my thoughts on the outlook for select global currencies this year:

 

U.S. Dollar Nearing a Peak

 

A strong acceleration in U.S. economic growth — perhaps influenced by the policies of the new U.S. president — could drive the dollar a bit higher, but probably not by more than 5% or so. The dollar is on the last legs of a multiyear bull run, in my opinion, after rising more than 30% since 2011. Calling a peak is always difficult, but it’s obvious that a lot of good news on the U.S. economy is already baked in to the current dollar price. The dollar is overvalued by about 10%, in my estimation, so there are limits to how much further this bull can run. I think the dollar entering a consolidation phase this year would not be surprising.

 

Euro Recovery on the Horizon

 

If one accepts the premise that the dollar is expensive, then that means some other currencies are undervalued. The euro has been cheap for several years, in my view, but the stage is set for a recovery. Growth in the euro-area economy is starting to firm up. And inflation is beginning to rise, albeit from very low, deflationary levels. If these trends continue, then the European Central Bank is likely to start reducing its bond-buying program, which should allow the euro to appreciate. However, I think this won’t happen until the second half of 2017, after the French and German elections. Once the political uncertainty declines, the euro will be in a good position to rise.

 

Pound Sterling Bottoming Out

 

There is still a high degree of uncertainty surrounding the U.K.’s departure from the European Union, a process that is expected to take two years. The current value of the pound, which is down 15% against the dollar since last summer, already incorporates some “hard Brexit” risks. As long as this uncertainty continues, there isn’t much reason for the pound to move a lot higher, but I also don’t see it falling much more from here. The pound’s valuation is attractive today, but there is little reason to be optimistic until we know how the U.K. will be treated outside the EU.

 

Yen Remains Undervalued for Now

 

The yen experienced a true roller-coaster ride in 2016, essentially making a round trip and ending up close to where it started. The yen’s valuation is cheap, but it is trading at such levels due to the Bank of Japan’s very aggressive asset purchase program, combined with yield curve control measures. Given the upward pressure on global interest rates, the risk is that markets will test the central bank’s ability to keep Japanese interest rates low. Any sign that the BOJ’s willingness and ability to keep rates low is fading will quickly trigger a stronger yen.

Capital group financial advisor Tokyo japan: Markets Can Take Time Adjusting to the Policy Fog

Key Takeaways

 

There is an interesting disconnect these days between political uncertainty and market volatility.

When history seems to offer little guidance, financial markets take time to adjust and have a bias toward not changing.

The key to successful investing in these times is for active managers to maintain enough portfolio flexibility to respond rapidly when the uncertainty starts to resolve.

 

In the short time since the new U.S. presidential administration was installed, there has been a flurry of policy announcements, and even more policy speculation, spanning a multitude of areas. In the process, an interesting disconnect has emerged between the political and financial worlds.

 

Much of the political news gives an impression of chaos and uncertainty, whereas financial markets have remained liquid and orderly, risky asset prices have remained well supported — and in most cases have actually strengthened — and market-based measures of uncertainty, such as the VIX, have remained low. (The Chicago Board Options Exchange Volatility Index, or VIX, measures the implied volatility of the Standard & Poor’s 500.)

 

This disconnect exists at a more granular level, as well. For example, the so-called “border adjustment tax,” which in effect subsidizes exports and penalizes imports, should play a central role in a revenue-neutral corporate tax reform package, and would in theory have a significant impact. It should lead to a substantial appreciation of the U.S. dollar, it should be detrimental to low-end retailers who rely heavily on global supply chains, and so on.

 

The Role of Active Management

 

But financial markets do not incorporate these expectations. Equity prices reflect a high probability of corporate tax reform, yet forward exchange rates have not adjusted much, and retail stocks have not underperformed a great deal either. There are several other examples of the market’s underreaction to policy announcements that should in theory have a significant impact on specific groups of companies.

 

It would not be quite right to conclude that markets are not efficient. Rather, in periods of high policy uncertainty, and when history seems to offer little guidance, markets take time to adjust. In the meantime, they have a bias toward not changing until uncertainty is resolved – either because policy is clarified, or because an adverse shock materializes.

 

This tendency toward inertia is exacerbated by the inclination of many active managers to focus on peer risk rather than absolute risk. There is little incentive to take large portfolio positions with limited information, which may be hard to justify to clients, when the costs of being wrong are potentially high.

 

In other words, especially in an environment of regime change and high policy uncertainty, market efficiency is not instantaneous, but a process. This creates room for active management to add value. However, that should not imply that all active managers will succeed. In fact, there has been a gradual rise in the dispersion between active managers since mid-2015.

 

Investment Implications

 

The key to successful active management in periods of elevated uncertainty is not to stake everything on single-point forecasts. Rather, it is the ability to apply detailed policy analysis to a range of scenarios, and to maintain enough portfolio flexibility to respond rapidly and with high conviction as soon as uncertainty starts to resolve itself toward a specific outcome. Furthermore, the ability to populate the portfolio with diversified investment ideas, rather than a few macro positions, is essential if managers hope to generate alpha while keeping active risk under control.

 

Market liquidity has been good. Investor flows can be invested rapidly and efficiently. But can they be invested wisely when we know so little about the future? They can – but only through an investment process that is solidly grounded in fundamentals, granular enough to generate diversified ideas, forward- rather than backward-looking, and not too strongly anchored to preconceptions about how economic policy and financial markets must function. Investors should ensure that they have exposure to a broadly diversified set of investment themes and can benefit from active management that can respond with agility and flexibility to a rapidly changing policy environment.