1. Analysis: Equities recast as “new bonds” after tough decade


    Despite their billing as attractive long-term investment, world stocks have had a rough ride in the past decade.This year alone they lost 26 percent at one point after hitting a 3-year high in May, and over the last 10 years the total return on equities is 26 percentage points less than on bonds on a rolling basis, Reuters data shows.Fund managers have increasingly moved to low-yielding bonds, but they cannot afford to invest everything in fixed income and cash if they are to retain some sort of diversification.As a result, many are looking at dividend yields on stocks, some of which fetch 7 or 8 percent, as a sustainable source of income that bears fruit if you hold on to shares in the medium term to ride through a volatile period on stock markets.Dividend strategy has been popular for some time, but focusing mainly on the yield perspective of stocks may help give the underperforming asset class a new place in investment portfolios and potentially shield the market from the ebb of risk-on, risk-off flows.”Investors are looking at equities more as a dividend-paying play than a capital growth story. This is a particularly attractive strategy for pension funds for a longer-term horizon,” said Alan Higgins, head of investment strategy in the UK at private bank Coutts.”We have become more defensive, focusing on high-yielding equities. High-yielding equities tend to be very defensive.”Coutts’ strategy involves underweighting equities and overweighting bonds, but it likes high-dividend stocks such as Vodafone, Royal Dutch Shell and Glaxo SmithKline, whose dividend yields are above 5 percent.The MSCI developed world dividend yield stands at 3.1 percent, much higher than core government bond yields from the likes of the United States, Germany or Britain.Higgins said income strategy is more attractive for investors with a 10-year plus investment horizon.”On a 3-5 year horizon, while it is still attractive, the advantage from income approach is more marginal when you shorten your time horizon. This is a strategy recommended for an investment horizon of 10 years plus,” he said.According to Credit Suisse, companies including Pfizer, Kraft Foods, Philip Morris and Merck have credit default swaps below government’s and dividend yields above risk-free rates.GROWTH AND RETURNSThe prospect of slower global economic growth in the next few years argues against strong capital appreciation in stocks, whose returns are closely correlated with world output.The IMF said in its latest forecast that it expects the global economy to grow 4 percent in 2011 and 2012 compared with 5.1 percent in 2010. Advanced economies are expected to expand an unimpressive 1.9 percent this year.”In the … past 20 years or so, investing in equities was mostly about finding high growth companies. Now we think steady cash flow — often evidenced by high dividend rates — is a better way to find value in equities,” said Kevin Lecocq, chief investment officer at Deutsche Bank Private Wealth Management.”In developed markets, equities are becoming more like a cash cow, back to where we started: What can they return to shareholders? In the lower growth environment which we are in now you want profit returned to shareholders.”Deutsche PWM recommends that investors “shorten duration” in equities, or move away from cyclicals and look at high-dividend stocks. The focus on the equity income stream allows investors to earn money in the shorter term than waiting for capital growth to come back.The growing trend of treating equities almost like a bond may also be attractive for those who want to keep exposure in emerging and frontier markets, many of which have underperformed their developed counterparts this year.Qatar’s stock market, for example, previously one of the best-performing frontier markets, has fallen 4.5 percent this year. But its expected dividend yield stands at 4.3-5.4 percent, the highest in the Gulf region after Oman, with some companies paying as much as 6-7 percent.”Dividend payment is becoming very important, and a high yield play is already there in Qatar,” said Sandeep Nanda, fund manager of Qatar Investment Fund PLC, which is 10 percent owned by the Qatari sovereign wealth fund.”It’s a sustainable dividend growth story.”

  2. RPT-US mortgage bankers grapple with consumer outrage


    * Industry “under siege,” bankers say* Industry coping with new regulationsBy Joe RauchCHICAGO, Oct 11 (Reuters) - U.S. mortgage bankers attending an industry conference in Chicago this week received something they did not originally bargain for — a heavy dose of the consumer anger against the financial system that has boiled into protest rallies across the country.The Mortgage Bankers Association’s annual conference in Chicago this week coincided with a protest march against joblessness and income inequality that drew about 3,000 demonstrators to downtown Chicago on Monday evening.And while many of the attendees of the MBA event, which ends on Wednesday, say they sympathize with the protesters, others think their industry is being used as a scapegoat for deeper economic woes.To some mortgage executives, the message is clear: the industry is under siege. “I think anyone who thinks we aren’t under siege is kidding themselves,” said one bank executive as he watched anti-banker protests outside the conference on Monday along with other participants who snapped pictures.Four years after the U.S. housing bubble burst, mortgage banking executives say their business is under attack from angry homeowners and lawmakers who view the industry as the culprit behind the 2007-2009 financial crisis and subsequent recession.Some mortgage bankers said the public criticism has begun to intrude on their personal lives.One former senior industry executive, who declined to be named, said he was confronted at a recent charity event.”A woman asked me how I could sleep at night, and (said) she was glad that Lehman Brothers and Bear Stearns failed,” the executive said. When asked how often he is confronted, he said it happens “all the time.”Others believe their industry has become a scapegoat, and that they are being punished for loose lending practices that that have long since been rectified.”We’re easy to blame,” said Hank Cunningham, president of Greensboro, North Carolina-based Cunningham & Co, a mortgage banking company.TRUST DEFICITThroughout the first two days of the conference, attendees said they sympathized with the millions of U.S. borrowers who face foreclosure and, in light of the protests, the MBA issued a statement that amounted to a mea culpa.”We all recognize that our industry faces a trust deficit with policymakers and the public and that people in our industry contributed to the events that led to the financial crisis,” it said.Easy lending terms helped many Americans stretch to buy homes and a plunge in home prices has left more than a quarter of borrowers in homes worth less then their mortgages.With the nation’s unemployment rate stuck above 9 percent, banks are coping with millions of delinquent home loans, and the total number of foreclosed homes is also in the millions.In August alone, there were 228,098 default notices, scheduled auctions, or bank repossessions on U.S. properties, according to RealtyTrac, a real estate research firm.The sour housing market was the backdrop to the protest on the conference’s doorstep on Monday which drew a few hundred participants pushing for foreclosure relief and calling for the ouster Bank of America Corp CEO Brian Moynihan and JPMorgan Chase & Co CEO Jamie Dimon, among others.During an afternoon question-and-answer session, two protesters who had managed to get into the conference asked Wells Fargo & Co home loans president Michael Heid how he could sleep at night. Heid said the adversarial questioning reminded him of testifying before Congress.MBA Chief Executive David Stevens said he understood the protesters’ frustrations, and he recalled that after graduating from college he had participated in a protest against a nuclear weapons production plant in Colorado and was arrested.But he said the industry and its critics must work together to fix the housing market. “You’re not getting anywhere to rebuild this economy simply by yelling outside, that’s the unfortunate reality,” he said.Indeed, in his opening remarks at the conference, Stevens struck a tough tone, saying the trade group was “on the war front fighting” against new industry rules, including those included in the Dodd-Frank financial reform law put in place last year in an effort to try to prevent future crises.

  3. Poland - Factors to Watch on October 11


    ELECTION RESULTSThe Polish election commission announced the Oct 9 parliamentary election results from all constituencies, with support the ruling Civic Platform (PO) at 39.2 percent and for its main opposition party, Law and Justice (PiS) at 29.9 percent.The official breakdown into MP seats is to be announced on Tuesday.TAKE A LOOK-Poland’s electionTVNMedia groups Time Warner and Vivendi will likely place the only two binding bids for a controlling stake in Polish broadcaster TVN worth more than $800 million, three sources told Reuters on Monday.PULAWYThe chemicals maker plans investments of 1.5 billion zlotys in the coming eight years, which will partially be funded with credit, Parkiet reports, quoting a company official.DEFICITCurbing deficit and boosting investments will be key for the new government, Michal Boni, an adviser to Polish Prime Minister Donald tells Gazeta Wyborcza.NOTE - For a diary of forthcoming events see and a calendar of east European economic indicators see .