Newton's Markham Recommends International Equities (Audio)

investors worry about the health of the US economy. A report reinforced concerned that American consumers are losing power as wage gains remain as sluggish. We check the markets every fifteen minutes throughout the trading day. Dow industrial leverage is down eighty two points four tens of a percent trading at eighteen thousand, three hundred twenty two S and P five founded down twelve point six tents of a percent at eight then AZDAC is down thirty nine points three

quarters of a percent at fifty four. West Texas intermediate crude oil down forty six cents of barrel one point one percent to spot gorolled up twelve dollars fifty cents announced at ten year treasury down five thirty seconds with the yield of one point five four percent. And that's a Bloomberg business flash. Catherine Calderie, thank you so very much. It is time now for the e t F report, brought to you by Sector Spider et F S. Why by a single stock when you can invest in the

entire sector. Visits sector spdrs dot com or called one eight six sector e t F crops, our, cultural commodities and rainfall. Maybe there's an e t F that can help you make a bed house on All of that is going to work out. Catherine Cawtery is back with the day's et F report. Investors have turned against three of the largest US crops, betting a timely rainfall will further increase supplies of corn, wheat, and soybeans. Hedge funds and other money managers are now holding a record wager

on further declines for weight. Sal Gilberti, president of two Griam Trading, recommends taking a longer term view of agricultural commodities through the use of his firm's exchange traded products. Long term trends and corn, along with soybeans and wheat, are the usage continues to increase. It's it's primarily driven by population growth. Globally, the population expands by roughly seventy

five seventy eight million people per year. It's the equivalent of the population of California doubling every year as new added population on the planet Earth. Gilberti makes a case for corn, saying it's used for fuel to fill up your tank, is also an animal feed, and is used to make paper and those recyclable plastic cups. Gilberti maintains that E T N s that focus on agricultural commodities should be included in a diversified portfolio. That's ther Bloomberg

ETF Report. I'm Catherine Colderie. You're listening to Taking Stock with Kathleen Hays and pimp Box on Bloomberg Radio. What do drug and discount stores in Japan, real estate in Germany and a global food company based in Switzerland all

have in common? While they're the focus us of our next guest, Paul Markham, Global Equities portfolio manager of the Newton dry Fuss International Equity Fund symbol there s N I e X and he is from Newton Investment Management, helping to manage more than one billion dollars of customer assets. He's based in London and he joins us now. Paul, thanks very much for being with us. Tell us the strategy that you mean that you that you use to manage this fund because it is global in nature and

it covers a wide variety of companies. Yes, that's right, good afternoon, and it's a pleasure to be to be with you. Um. Yes, the fund is essentially an international equity portfolio, which means that it invests around the world, excluding securities or equities in the US. We try to divertify the portfolio and have a wide range of geographies,

um and sectors represented. But we do use a thematic backdrop of those big changes which we see socially, politically and economically that we think will influence markets over time, and we allow that to drive our stock selection, and we have a fairly focused portfolio around sixty stocks on the fund. You have a lot of big trends to help you now. Of course, with the US Fed Reserve maybe starting to continue on a path of tightening, and

the Briggs that vote in the Bank of England. I'm just fascinated by the Bank of Japan and this big, big turnaround we've seen in Japanese government bonds, the Bank of Japan not going pedal to the metal on more monetary stimulus, and we're going to think about what we're doing. We've got the details on the fiscal plan from Prime Minister Abby. What do you make of what's going on Japan? What does it mean for the markets there and basically

your your global portfolio strategy. Well, I think that's you're You're very right to put Japan in the context of what could happen globally, because what we've seen quite often with many developments in the macro economy is Japan really leading because it's been the first major economy to really have the problems of demographics really coming into play, for example. And so what we're seeing is the Bank of Japan really throw the ball back into the court of the

Japanese government. So what we're seeing is the potential of monetary policy perhaps not being as strong an emphasized tool of of economic policy going forward, and maybe more of an expansion on the fiscal side, and what that means in the near term and what we've been seeing over the last few days is that the market has anticipated that the b o J will no longer be buying as many government bonds, and also potentially that the fiscal burden for the Japanese government will expand. The bond yeld

to have really become far less negative. We had a very significant move in Japanese government bonds over the last few days, and that's been positive for the end and we suspect that will also be negative for the market going forward, given the Japanese market tends to be dominated by exports oriented companies. Up the performance of the fund, it's up about the two and a quarter percent in

one month. You're to date, though, down about the two and in the context of Japan and wondering if you could maybe give us a little thought about why some of these holdings are in the fun Japan Tobacco, don Quixote holdings. You've also got a holding in Japan Airlines. Are you betting that the Japanese economy will continue to

prosper despite this lackluster stimulus package. What we've really tried to do on the portfolio is to let the thematic backdrop, which we see as being continued very sluggish chronic sluggishness in the Japanese economy and indeed across many of the developed markets. And what that's led to is us to believe that in many cases, companies which are firstly perhaps focusing on the lower end consumer or companies which have

exceptional return characteristics will prosper in this environment. So Don Dyuxote, for example, is the Japanese equivalent really of a dollar store UM, and it's run very much for profit, with very much more efficient operating metrics than it's petitors domestically in Japan, much more like a Western company, if you will.

On the for example, Japanese Airlines investment case, this is a company which is very different to Global Airlines, has twice the operating profit operating margin of many of its global competitors, as a high dividan yield. The government took it out of bankruptcy and made sure that it's pension liabilities no longer we're on its balance sheet. So this is something which we see as being very much a

special situation UM. And finally, companies such as Japan Tobacco for many years a company with substandard returns relative to competitors in the US or in the UK, for example, but a company with exceptional global brands, we think of

very strong management team and rising cash returns. And I think in this environment of financial repression and very low bond yields, I think high dividan the yield will continue to be the global investors an attractive phenomenon, even if in the near term we may see some other pressure on bond yields, which may see some of those yielding stocks do a little bit less well in the market. Bank of England big meeting on Thursday, they passed on the rate cut in July many I mean, smalt pent.

They've got to do it and then give us more details about their plan um equities companies in the UK. Is that an area to stay away from? How do you deal with that right now if you don't know how Brexit is going to play out? Well, yes, absolutely, I mean the Bank of England's um sort of quandary

is pretty clear. I think what we've been seeing in the last couple of days is some comments from former Monetary Policy Committee members at the Bank of England who have suggested that Governor Carney doesn't have too much possible further monetary stimulus to to to create UM, I guess that's you know, current policy rate half a per cent. We could potentially, and we did originally expect post Brexit

to see a cut to zero. UM. What I think is becoming clear is that the post Brexit data has got worse, but we haven't yet seen enough data to justify that full jump down to zero interest rate repost zero interest rate policy. So what I think will be bothering the Bank of England is the idea that they could cut rates completely to zero and then we see a deterioration in real estate and the consumer economy further down the line, and that will then mean that they

have very little room to cut rates any further. So what I suspect may happen is that they may go halfway. They could go for a twenty five basis point cut or maybe something you know, unorthodox, like a ten basis point cut. But at this moment it does seem that the the market is rather betting on a disappointing rate cup from Bank of England, given the strength of sterling

over the last few days. On the subject to the equity markets in the UK, it is interesting to see that we've had a really strong rally posts the sort of Brexit collapse, and largely I guess that is to do with the fact that the particular oriented towards exports UM and that's something which has been very helped by much help by a weaker sterling. However, looking forward UM, it certainly seems that the prospects for the UK economy

in the near term are uncertain. It may be over a much longer period of time that the UK is able to establish itself once again as a very major player on the world stage. And certainly we've seen so far quite a lot of interest from many major international trading partners to put some sorts of trading agreement in place, but that can't happen until the Brexit process is finished, and that could take some time to do so. I think the UK economy will be um, you know, certainly

in a doubtful place for a period of time. The market, I suspect will act quite cyclically. It may will be a kind of risk on market for the next year or two, and in the in the near term it does feel that maybe there is scope for a little bit of disappointment after a strong run. Paul marcam thank you. So very much. Was looking at a global macro pictures such a big factor for global equity markets and also

some of the individual holdings in his portfolio. He's Global Equities portfolio manager for the Newton Drivers International equity fund. Well movers and shakers are coming up on Bloomberg taking stock Dave Wilson our Stock said it will be joining in on Kathleen Hayes along with pim Fox and this is Bloomberg h