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Kawash Capital Advisory, London (2026)

23/03/2024

Yesterday we talked about why companies would execute share buybacks. In light of all the news around the Yen and the Bank of Japan's rate hikes, it's timely to explore currency-hedged ETFs as a strategic approach for international investors facing fluctuating currency markets.

What are Currency-Hedged ETFs?
Currency-Hedged ETFs are a specialized type of exchange-traded fund that invests in foreign stocks or bonds while employing financial instruments to hedge against currency risk. These ETFs provide investors with exposure to international markets, effectively neutralizing the impact of currency movements on investment returns. This characteristic is particularly valuable in periods of significant volatility in the forex markets, allowing investors to concentrate solely on the performance of the underlying assets without the added concern of currency depreciation affecting their returns.

How Currency Hedging Works
The process of currency hedging utilizes financial derivatives, such as forward contracts or options, to secure future exchange rates. When a Currency-Hedged ETF implements a hedging strategy, its goal is to safeguard the investment from potential losses that could arise if the currency of the underlying investments depreciates against the investor's home currency. For example, a UK-based investor with a Currency-Hedged ETF in US stocks would not suffer losses if the pound were to strengthen against the dollar, as the hedging strategy would compensate for any currency-related losses.

https://www.marketwatch.com/story/investors-push-a-japanese-etf-to-fresh-highs-seeking-protection-from-a-falling-yen-f8dbd8b9?redirect=amp

https://www.bloomberg.com/news/articles/2024-03-18/how-to-invest-in-japan-which-etfs-to-buy-for-japan-stock-market

Image Credits: Bloomberg

22/03/2024

Understanding Share Buybacks: Strategy and Benefits for Businesses

Today, we're delving into share buybacks and the rationale behind their implementation by corporations.

Known also as share repurchases, share buybacks have become a key strategy for companies aiming to refine their financial framework and boost shareholder value.

What Are Share Buybacks?
Share buybacks take place when a company opts to reacquire its own shares from the shareholders. This action decreases the number of shares in the open market, altering the company's ownership structure while keeping its operational dynamics unchanged. Companies may resort to using their excess cash reserves or acquiring debt to facilitate these buybacks, which can be executed via open market purchases, tender offers, or direct negotiations with shareholders.

Reasons Behind Share Buybacks
One of the main goals of share buybacks is to enhance the Earnings Per Share (EPS), a crucial measure of a company's profitability on a per-share basis. Reducing the total number of outstanding shares typically boosts the EPS, presenting a stronger financial image to investors and market analysts.

Share buybacks also play a vital role in adjusting a company's debt-to-equity ratio, aligning the capital structure with its broad financial objectives. This adjustment is critical for investors who gauge a company's risk level by examining the proportion of debt used to finance its assets in comparison to its equity.

Moreover, initiating a buyback can signal to the market the belief of the company's leadership that the stock is currently undervalued. This perception can enhance investor confidence and potentially elevate the stock price.

https://www.investopedia.com/terms/s/sharerepurchase.asp

Image credits: Investopedia, https://davidyarrow.photography/collections/wall-street/

21/03/2024

Insights: Quantitative Tightening (QT)

In a recent discussion led by Jerome Powell, Chair of the Federal Reserve, the topic of Quantitative Tightening (QT) has been on everyone's mind. Powell said that it would "fairly soon" be appropriate to begin slowing the pace of quantitative tightening, or QT.

So what is QT?
QT is a monetary policy tool employed by central banks to diminish the amount of money circulating in the economy. This approach is typically utilized to manage inflation or to bring the central bank's balance sheet back to a more normalized state after periods of QE (Quantitative Easing). During QT, the central bank sells off its holdings in government bonds or other securities to public entities or financial institutions, a stark contrast to QE where securities are purchased to infuse money into the economy.

The Mechanics of QT
When these securities are sold, the purchasing parties provide cash in exchange, withdrawing this cash from the broader banking system. This action effectively reduces the reserves that banks hold at the central bank, limiting their capacity to lend and potentially leading to increased interest rates. As a result, borrowing becomes more expensive, and saving is incentivized, potentially leading to a decrease in spending and investment.

Implementing QT through tapering:
This involves the gradual reduction in the pace at which the central bank sells its securities, aiming to carefully manage the decrease in the money supply and the normalization of the central bank's balance sheet. QT tapering is a crucial strategy to avoid market disruptions and economic shocks that might arise from more abrupt changes in monetary policy.

The discussions led by Powell on QT provide crucial insights into the Federal Reserve's approach to decelerate the pace of QT, which should lead to less potential for financial market stress.

https://lnkd.in/dRKjpNQS

Image Credits: Reuters

20/03/2024

Capitalizing on Market Trends: The Rise of MOMO Stocks

Understanding MOMO (Momentum) Stocks:
MOMO stocks stand out due to their remarkable performance over recent periods, showcasing a consistent upward trajectory that captures the attention of investors seeking growth opportunities. These stocks are often driven by strong fundamental factors or positive market sentiment, propelling them to higher valuations. The core principle of momentum investing—buying high and selling higher—is epitomized in the selection and trading of MOMO stocks.

Nvidia:
Nvidia, a titan in the technology sector, renowned for its groundbreaking advancements in graphics processing units (GPUs) and artificial intelligence (AI) technologies, has recently emerged as a textbook example of a MOMO stock. The company's stock has experienced a significant upsurge, attributed to its innovative product offerings, strategic market positioning, and burgeoning demand for AI and gaming technologies.

Nvidia's ascent in the stock market serves as a compelling case study for MOMO stocks, offering valuable insights into how momentum can be leveraged to enhance investment portfolios. Nvidia's performance signifies more than just the success of a single company; it reflects broader market trends, such as the increasing reliance on technology and the rapid expansion of the AI sector.

Strategic Considerations:
While the allure of MOMO stocks like Nvidia is undeniable, investors must approach momentum investing with a strategic mindset. It involves continuous market monitoring and a readiness to act swiftly on buy or sell signals. Nvidia's story, while inspiring, also serves as a reminder of the inherent risks associated with high-growth stocks and the need for a balanced and well-thought-out investment approach.

https://finance.yahoo.com/news/nvidia-nvda-great-momentum-stock-160007209.html

Image Credits: https://www.bbc.co.uk/news/business-68603198

19/03/2024

The Delicate Dance of Currency Strength and Trade: Insights for Global Markets

In the intricate ballet of global economics, the strength of a nation's currency plays a pivotal role in shaping its trade landscape. When Japan, recently raised its interest rates for the first time in over two decades it marked a significant pivot in monetary policy and carries considerations for the nation's currency and trade activities.

Interest rates are a powerful tool in a country's economic arsenal, influencing the value of its currency. Higher interest rates typically bolster a currency's strength by offering better returns to investors, increasing the demand of the currency which should strength it.

Imports, Exports, and the Currency Seesaw

A stronger yen has a duality of impact on Japan's trade. On one side, it makes imports cheaper. Consumers can rejoice as foreign goods and services become more affordable, easing the cost-of-living pressures. For businesses that rely on imported materials, the cost savings could be significant, potentially leading to lower prices for consumers and higher margins for businesses.

On the flip side, a robust yen can weigh on exports. Japanese goods become more expensive for foreign buyers, potentially dampening demand. Export-driven sectors could face headwinds, challenging businesses to adapt their pricing strategies or find efficiency gains to maintain their competitive edge.

https://www.reuters.com/markets/asia/japan-poised-end-negative-rates-closing-era-radical-policy-2024-03-18/

Image Credits: nytimes.com

18/03/2024

Navigating the Shift: U.S. vs European Equities

In a notable shift within the global financial markets, U.S. equities, which have long outperformed their European counterparts, may soon see their lead narrow. This perspective emerges from recent analyses by JP Morgan that highlight several factors potentially buoying European stocks in the near term.

Historically, U.S. stocks have enjoyed a robust performance, often outpacing European equities. However, the landscape appears to be changing. The Eurozone's markets, after lagging behind Wall Street and experiencing significant outflows, now trade at a more attractive valuation, with a forward earnings multiple significantly lower than that of the U.S. markets.

A critical factor in this dynamic has been the growth-over-value trend, which has significantly benefited the tech-heavy U.S. market. However, this trend shows signs of reaching its peak, raising concerns about a potential reversal.

Moreover, recent data suggest a resurgence in Europe's economic activity, which could reinvigorate the region's stock markets. This resurgence is timely, as China's economic indicators also point towards improvement, potentially boosting the Eurozone given its export-oriented economy.

Monetary policy divergence may further play a role. While the European Central Bank (ECB) traditionally aligns with the Federal Reserve's direction, the current cycle might witness a departure, with the ECB possibly adopting a more aggressive stance. Such a shift could lend additional support to European equities.

Miriam Financial remains committed to providing its clients and readers with up-to-date analyses and insights, helping them make informed decisions in an ever-changing market landscape.

https://www.marketwatch.com/story/u-s-stocks-have-beaten-european-equities-but-not-for-much-longer-says-jpmorgan-f935903d?mod=jamie-chisholm

Image Credits: www.reuters.com

16/03/2024

What are Money Market Funds?

At Miriam Financial, we delve into the realm of Money Market Funds (MMFs), a specialized category of mutual funds designed for investors seeking a blend of high liquidity and minimal risk. MMFs primarily invest in highly liquid, short-term instruments such as cash, cash equivalent securities, and debt-based securities with high credit ratings and short-term maturities, including U.S. Treasuries.

Characterized by their safety and ease of access, MMFs are an attractive option for those looking to park funds temporarily. They offer the dual benefits of regular income generation through interest, akin to the returns from a savings account but typically with better yields, and the convenience of easy withdrawal, making them a go-to option for managing short-term financial needs or as a holding ground for funds awaiting investment in longer-term opportunities.

The recent influx into Money Market Funds (MMFs) can be attributed to investor caution in anticipation of central bank policies and governmental financial needs. Money market funds saw significant inflows due to investor wariness ahead of Central Bank policies.

This trend suggests that investors are seeking safe havens amidst uncertainty regarding interest rates and economic policies. The preference for MMFs indicates a strategy to preserve capital and maintain liquidity, allowing investors to quickly respond to changing financial landscapes and central bank decisions.

https://www.trustnet.com/news/13407751/the-chart-that-shows-why-money-market-funds-have-had-their-day-in-the-sun

Photo Credits: www.investopedia.com

15/03/2024

Navigating Global Waters: How Federal and Bank of England Rate Cuts Shape the Yen's Journey

In an ever-interconnected global financial landscape, the ripples from monetary policy shifts in powerhouse economies like the United States and the United Kingdom are felt across the world. The recent decisions by the Federal Reserve and the Bank of England to implement rate cuts have sent waves of speculation and analysis through the financial community, with one of the focal points being their impact on other currencies, particularly the Japanese yen.

The Importance of Currency Strength
The strength of a currency is a barometer of a nation's economic health and influences international trade and investment flows. A stronger currency can reduce the cost of imports but may harm exporters by making their goods more expensive abroad. Conversely, a weaker currency can boost exports but increase the cost of imports, potentially leading to inflation.

The Federal Reserve's Influence
A lower interest rate in the U.S. decreases the yield on dollar-denominated assets, making yen-denominated investments more appealing. This shift can lead to an influx of capital into Japan, buoying the yen's strength. Moreover, as global investors recalibrate their portfolios in search of more attractive returns, the yen may appreciate due to increased demand.

The Yen in Focus
The Japanese yen, known for its stability and safe-haven status, can experience appreciation due to these external monetary policy shifts. However, it's essential to recognize that the yen's response is not solely dependent on these actions. Japan's domestic economic policies, trade balances, and investor sentiment play crucial roles in determining the yen's strength.

For investors, changes in currency strength can affect the returns on international investments. Appreciation of the yen against the dollar, for example, would increase the dollar value of Japanese investments for U.S.-based investors.

https://www.boj.or.jp/en/mopo/outline/index.htm

Image Credits: www.investopedia.com

14/03/2024

📈 Understanding the Pulse of Our Economy: The Role of Central Bank Policies

🔍 Why Central Bank Policies Matter

At its core, inflation denotes a rise in the prices of goods and services over time, which might seem innocuous. However, when prices surge unchecked, the purchasing power of currency diminishes. This erosion means that individuals and businesses can buy less with the same amount of money, affecting everyday living and operational costs, respectively.

Central Banks, including the Bank of England, play a crucial role in our economy by setting monetary policies that influence inflation, employment, and overall economic growth. Their decisions on interest rates can have a domino effect on various sectors, impacting everything from the borrowing costs for businesses and consumers to the returns on savings and investments.

📉 The Anticipation of Interest Rate Decisions

Currently, there's a widespread anticipation for Central Banks to lower interest rates. But why? Lower interest rates can stimulate economic growth by making borrowing more affordable, encouraging spending and investment. In times of economic uncertainty or slowdown, a cut in interest rates can be a much-needed boost to revitalize the economy.

📊 The Importance of Inflation Reports

Month-on-month inflation reports are also critical. They provide a snapshot of the economy's health, indicating whether prices are rising too quickly or too slowly. Central Banks closely monitor these reports to decide on interest rate adjustments. A high inflation rate may prompt a rise in interest rates to cool down the economy, while a low rate might lead to a cut to spur growth.

https://www.reuters.com/markets/europe/bank-england-set-start-path-towards-interest-rate-cuts-2024-01-23/
https://www.xtb.com/en/education/uk-interest-rates-projections-in-the-next-5-years

Image from: https://www.scottishchambers.org.uk/

13/03/2024

📉 Navigating Economic Shifts:

Japan's Journey from Deflation to Dynamic Policy Adjustments

In the economic sphere, deflation and inflation stand as opposing forces, shaping monetary policies and national economies. Deflation, marked by a general downturn in prices, may seem advantageous at first glance, yet it harbors the potential to entrench economies in a cycle of reduced spending, production cutbacks, and escalating unemployment. This cycle can deter businesses and consumers from making purchases, anticipating further price drops, which, in turn, intensifies the economic slowdown.

Japan's protracted battle with deflation has significantly influenced its monetary strategies over decades. The nation's extensive engagement with deflationary pressures prompted the Bank of Japan to adopt comprehensive monetary easing tactics, including maintaining minimal interest rates and introducing yield curve control measures. These policies aimed to foster borrowing, spending, and investment, thereby invigorating economic growth.

Recent times, however, have witnessed the Bank of Japan fine-tuning its approach. Adjustments to its yield curve control and a pivot towards a more adaptable interest rate policy reflect a response to evolving economic conditions, such as the rise in inflationary pressures and shifts in the global financial landscape. These policy modifications are designed to carefully transition Japan from the grip of deflation towards a path of more sustainable economic expansion.

Japan's market is a cornerstone of the global economy, with its monetary policies and economic health having widespread implications. As Japan continues to navigate its path from deflation to sustainable growth, its strategies offer insights into economic resilience and adaptation in a complex world.

https://lnkd.in/dce_ufdA
https://lnkd.in/d2ajGREg

Image from Yahoo Finance

12/03/2024

Unveiling the Impact of Bitcoin ETFs on Market Dynamics

In the financial sphere, the buzz around Bitcoin ETFs has reached a crescendo, promising a new era for cryptocurrency investment.

The introduction of Spot Bitcoin ETFs in the U.S. is poised to usher in a transformative phase for Bitcoin, mirroring the trajectory of gold following the advent of gold-backed ETFs. Our analysts project that the approval of these ETFs could significantly broaden Bitcoin's investor base, notably attracting institutional players, thereby enhancing market liquidity and potentially dampening the asset's famed volatility.

Drawing lessons from the gold market, the initial years following the launch of gold ETFs witnessed a substantial surge in demand, a trend that Bitcoin is likely to emulate. Estimates suggest that Bitcoin ETFs could command a significant portion of Bitcoin's supply, thereby exerting upward pressure on its price.

The implications of this development extend beyond mere price appreciation. The inclusion of Bitcoin in traditional investment portfolios has already demonstrated the potential for remarkable performance enhancements, even with minimal allocations. The advent of Bitcoin ETFs is expected to catalyze institutional adoption, potentially precipitating a wave of inflows and setting the stage for a significant price uplift in the initial year following the ETFs' launch.

At Miriam Financial, we remain at the forefront, navigating these evolving tides to equip our esteemed clientele with strategic insights. As the landscape of cryptocurrency investment undergoes this monumental shift, we are here to guide you through every twist and turn.

Kawash Capital Advisory

23/03/2024

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