Going Global

Going Global
This year's conference examined the risks and opportunities of investing internationally
by James Helik
Special Report: The 1999 Global Investment Conference
March 24-27, 1999

The 1999 Global Investment Conference was the fourth conference co-hosted by the Canadian Investment Review and the Bureau of Asset Management at the University of British Columbia. Held at Lake Louise, Alberta, this invitation only event brought together plan sponsors, money managers, academics and custodians. The two days included presentations, panel discussions, commentary and group exercises. It was sponsored by Alliance Capital Management Canada Inc., Altamira Management Ltd., Barclays Global Investors Canada Ltd., Baring Asset Management, Merrill Lynch Mercury Asset Management, Murray Johnstone International Ltd., PanAgora Asset Management Inc. and Royal Trust Corporation of Canada.

Some recent developments in the arena of international investing are large and newsworthy: the handover of Hong Kong and the new Euroland come to mind. Sometimes, though, the news comes from what didn't happen--specifically the breakdown of the global economy from the massive losses associated with Long Term Capital or from the continued problems of the emerging market economies. Many of the discussions at this year's Global Investment Conference, held in Chateau Lake Louise in Alberta last March, focused on the results of these bearish events that, while important, did not spread to encompass the world. Participants were taking the opportunity to re-examine their exposure to different global markets, and trying to understand and live with the role that volatility plays.

Global Opportunities

Investment opportunities never stand still, as yesterday's hot market can become today's laggard. Europe was one of 1998's strong picks, but can it continue to be? There is still potential in Europe, according to Rupert Tate, senior fund manager, Merrill Lynch Mercury Asset Management in London and a speaker at the conference. Mergers and acquisition activity is increasing dramatically, resulting in restructured companies and profitable opportunities. Interest rates have come down, with this trend still having a way to go, according to Tate. And personal savings throughout Europe are still not widely invested in equities, presenting a further boost to the stock market as this trend changes. In short, the new Europe is far more than a political event, but also a change to the financial system, which is already paying dividends to companies and their investors.

Of course the market with the longest ongoing bull market is the United States. Whereas some view the rapid rise of technology stocks as indicative of a coming bear market, Ian Ainsworth, vice-president and portfolio manager, equities, Altamira, Toronto, sees the positive impact of technology change. "We are going into a new business model environment that will have a major impact on productivity in the United States and around the world," he says. This e-business model brings companies closer to their clients, to the benefit of both. The result is a series of firms who concentrate on their core skill-sets, and outsource the rest. And what does this mean for U.S. equity markets? "If you can lead in the application of new business models, your stock market should benefit," says Ainsworth.

As for the rest of the world, James Clunie, chief investment officer, Murray Johnstone International Ltd., Glasgow, Scotland, sees possibilities in a much maligned market--Japan. He argues that the speculative bubble of the past years has been mostly erased, and that the short-term performance has been promising--a widely under-reported event. Traditional valuation measures, such as price-to-book, are also relatively attractive. Cash savings are also high, providing eventual fuel for a market rally. However there are real risks, including the economy which so far is showing no signs of recovery. The Yen is also weak, and if it were to collapse, it would cause a widespread turmoil. However the greatest difficulty may come not from events in the country, but from human nature. It is very hard to go against the pack, and buy countries at the bottom when they are out of favour, notes Peter Rathjens, chief investment officer, PanAgora Asset Management in Boston. He points out that value investing, while profitable, is intrinsically uncomfortable, as you are perpetually selling winners and buying losers.

Managing Risk
Risk management is key in these rapidly shifting global environments. "One can't get away from monitoring the different types of risk, and working to ensure that there are plans in place, and that these plans are reviewed on an ongoing basis to ensure that the risk that an investment brings is constantly measured and managed," according to Rajiv Silgardo, chief investment officer, Barclays Global Investors Canada Ltd., in Toronto. He notes the differing ways of measuring risk--from information ratios to Value at Risk, but concludes that it is still an evolving field, and one that has yet to be widely implemented. Securities lending, where specific securities are exchanged for primarily fixed income securities, are another approach to risk management, and is a process which can also bring stability to an otherwise volatile marketplace, according to Fred Francis, vice-president, global securities lending and finance, Royal Trust in Toronto.
It's the Economy

Discussion at the conference also focused on the economic environment affecting both countries and individual stocks. Specifically, participants debated whether economic scenarios should include either inflation or deflation, and ultimately a continued economic expansion or a depression. "We don't believe that we are heading for global depression," says Nicholas Carn, senior vice-president, Alliance Capital Management in London. He notes that the falling prices that accompany deflationary periods, and lead to depressions, are quite rare, even when looking at price series spanning several hundreds of years. Rory MacLeod, leader, global fixed income and currency team, Baring Asset Management, London further notes the positive demographics in most parts of the world. The results are generally stable prices and rising, but unsteady and unequal, gains in prosperity.

The actions of government are key when trying to assess what economic scenario will take hold, according to Maurice Levi, professor of international finance, University of British Columbia, Vancouver. He agrees that a major deflationary period is unlikely, as deflation comes with serious political consequences--including depression. On the flip side, major inflation is unlikely as "we (the voters) want to know what our money is going to be worth, and we're not going to tolerate inflation."

The regions presenting the best economic opportunities continue to change. Risk and volatility will always be with us. On the larger front, the economic environment looks conducive to further growth. So there are continued reasons for going global.

Our Place In The World

Peter C. Newman, senior contributing editor at Maclean's magazine, provided insight on Canada's financial elite and their global role during his dinner presentation at the conference.

Gerry McGoey, a corporate gunslinger with many notches in his belt, got a taste of this country's insignificance while he was raising money for BCE in California, late in 1996. "We saw a number of the important pension funds, and weren't getting too far when I remembered there was a small fireman's fund running about $150 billion in a San Francisco suburb, on the second floor a strip mall," he recalls. "We introduced ourselves and they said, "Well, we don't know why you're down here.' And I told them that I wanted to talk about raising some money. So they summoned a fellow from the far corner of the office, a young kid in his thirties who had his tie undone, and they said, "Well, this is Bill. He's in charge of Canada. How much money do you run overall, Bill, including Canada?' 'About $6 billion,' he said. They apologetically explained that Bill was just learning. Then they asked Bill what he knew about our company. 'Bell is the biggest business in Canada,' he replied. 'Well,' they said, 'we wouldn't invest in you fellows up there anyway because, first of all, we'd have to make the decision, do we want to be in Canada? and secondly, do we want to be in a regulated industry? and thirdly, we'd have to know about the government's position on monopolies. There are too many decisions involved, so we don't bother with Canada."

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