Offshore Investment Advice

Mixed news this month from the bond markets with a number of commentators pessimistic about the US market whilst expressing more confidence in Europe.

Largely, as you might expect, this is because of the pressure on interest rates.

HSBC, in its Investment Update newsletter, summarises the global situation thus: “We expect that the US Federal Reserve will increase rates by the end of the year. In the UK we maintain the belief that interest rates are likely to rise over a 12-month horizon, albeit modestly, with the outlook fairly similar in continental Europe. In Japan, the overnight call rate is expected to stay close to zero as the Bank of Japan holds its accommodative monetary line.

Offshore Investment Advice - Offshore Investment Report

“Increasing flows of positive economic news and rising commodity prices are essentially negative for bond markets and we seen no chance of further interest-rate cuts from any central bank in the medium term.” Perpetual makes the point that corporate bond spreads remain wide, and emerging market debt is facing multiple challenges in the form of over-supply of new issuance, concerns over Y2K’s impact on emerging-market financial systems and economies. And Ecuador’s debt default has done little to boost sentiment.

“We see little chance of a meaningful rally in government bonds until there are convincing signs of slower economic growth, the best chances for which are probably in the USA,” it says. Pictet points to inflationary pressures in the US. “Though lending growth has been speeding up, this demand has not fed through into higher finished product prices,” it writes. “But inflationary pressures are building upstream due to spikes in oil, food and intermediate goods prices.

Offshore Investment Advice & The Fed Funds Rate

“The Fed’s probable move is weighing on the bond market which has already taken it for granted. Over the summer months, Treasury yields rose by 10 basis points on all maturities over one year. However, around the year end, the yield curve may well become deformed and distorted as a result of probable Y2K-related liquidity problems.” In the UK, Pictet expresses surprise that the Bank of England’s Monetary Policy Committee chose to be pre-emptive with its latest rates rise.

“This very ‘activist’ MPC will certainly tighten monetary screws further but, with inflation to remain muted - at least for the foreseeable future - market anticipations seem too pessimistic. We think rates will only rise to 6.25 per cent next year,” it says.

Offshore Investment Advice - Long Term Rate

Pictet suggests recent economic developments have shown that the pound is probably less overvalued than generally thought. “We still think that when the euro appreciates further against the dollar, it will also gain ground against sterling. However, the movement is likely to be much more limited than widely expected a few months ago.”

BT Funds Management, in its Pyramid newsletter, remains fairly negative US bonds, due to its expectation that activity data will remain strong. It believes that the neutral tone accompanying the interest-rate rise understates these risks.

Offshore Investment Advice - The ECB

Whilst the group realises it has a job on its hands convincing investors. many of whom still regard bonds as “exotic creatures”, it stresses that the supply of corporate bonds is also growing, a result of the rising cost of alternative forms of finance such as bank loans, advances in technology, greater deregulation and intensifying corporate activity.

Cayman Offshore Banking

Cayman audits its banks overseas
The first onshore inspection of overseas subsidiaries of Cayman Islands’ banks has taken place in Central America.

The inspection was carried out by the Cayman Islands Monetary Authority (CIMA), the islands’ financial regulatory authority, to help assess banks’ risk-management practices, establish first-hand knowledge of banking and business practices in Latin America and to implement CIMA regulations.
Senior specialists from CIMA visited Panama, Costa Rica and Nicaragua, while a local team also met with the banks’ external auditors from Puerto Rico.

Offshore Investment Advice & The Inspection Unit

Luxembourg gets
Y2K all-clear
Operators in the Luxembourg banking sector have announced their readiness for the Year 2000.
The Duchy’s Financial Sector Supervisory Commission (CSSF), the Luxembourg Central Bank (BCL) and the Luxembourg Bankers Association (ABBL) began preparations two years ago, setting in motion a series of measures to avert problems of Year 2000 transition.
Prominent bodies involved in the process included the international securities clearing house Cedel, the electronic payment agent Cetrel and the Luxembourg Stock Exchange.

Offshore Investment Advice - From Manx Cat To Tiger

From Manx cat to tiger
The Isle of Man has been dubbed the new ‘Celtic tiger’ following the announcement that it has the fastest growing economy in Europe.
GDP grew by 8.5 per cent and GNP by 9.5 per cent in real terms during 1997/1998, outstripping the UK, France and Germany which had growth rates of 3.5 per cent, 2 per cent and 1.8 per cent respectively.
The greatest economic expansion was in the financial services industry, which grew by 15 per cent. Corporate profits rose by almost 20 per cent in cash terms over the year and personal income by 6.5 per cent.
Chief minister Sir Miles Walker attributed the growth to the expansion of domestic business and the introduction of major international business to the island.