Financial Times Europe - 13.11.2019

Wednesday13 November 2019 ★ 11

The Financial Times Limited 2019© Week 46

KKR’s move to acquire Walgreens is a

test for debt markets, where a tide of

cash has sent borrowing costs lower

but left investors worried about risky

deals. Walgreens carries $15bn in net

debt but a takeover would typically

entail borrowing far more.

Analysisi AGE 12P

KKR’s Walgreens move is

key test for bond market

O L A F STO R B E C K— FRANKFURT

L AU R A N O O N A N— NEW YORK

Cerberus as lost faith inh Paul Achleit-

ner saDeutsche Bank hairman and isc

pushing for him to be ousted,say three

peopleaware of the worsening rela-

tionship between the US private equity

firm and Germany’s biggest bank.

The desire for regime change has hard-

ened since Deutsche abandoned merger

talks withCommerzbank n April, thesei

people said, dashing Cerberus hopes of a

tie-up.The US firm is Deutsche’s third-

largest shareholder, with a 3 per cent

stake, and the second-biggest share-

holder in Commerzbank. Mr Achleitner

endorsed ending the talks.

Deutsche’s other big shareholders —

two members of the Qatari royal family,

funds managed by formerJPMorgan

Chase xecutivee Doug Braunstein nda

asset managerBlackRock —also havea

negative view of Mr Achleitner, accord-

ing to people familiar with their views.

Since Mr Achleitner became chair-

man n 2012, Deutsche has accruedi

losses of more than €10bn, fired three

chief executives and paid out €83m ot

17 executives who left the bank early. It

also embarked on five strategies and

raised €20bn in fresh equity while its

share price collapsed by three-quarters.

The other large shareholders would

like Mr Achleitner to step down before

his term ends in 2022, but they are not

convinced that now is the right time.

“Cerberus is much more pushy [than

the others],” said one person close to a

top-five investor, adding that such a

move could further destabilise the

struggling lender during the most radi-

cal restructuring in its 149-year history.

“Deutsche is under a lot of pressure

and strain already, and we need to make

sure we are not adding to this,” said a

second person close to the matter,

adding that “different [investors] have

different views on this matter”.

Cerberus’sintervention has not been

appreciated by everyone at the bank.

“They are behaving as if they owned a

30 per cent stake, not a 3 per cent one,”

said one person close to the matter.

Deutsche, Mr Achleitner, erberusC

and the lender’s four other largest inves-

tors all declined to comment.

US backer Cerberus steps up push

to oust Deutsche Bank chairman

flow into cyclical stocks, including

financials,and away from the safe hold-

ings hat were in favourt.

Investors have also begun to put

money held on the sidelines back to

work. Holdings of cash fell to 4.2 per

cent for investors polled by the bank,

the steepest monthly drop in three years

and the lowest level since 2013.

US corporate earnings have slowed

but have held up better than analysts’

estimates, adding further tock markets

support. Investors scaled back expecta-

tions that global corporate profits would

deteriorate in the next year, but most

still believe that earnings will soften.

Day in the markets age 18p

nearing a trade deal have injected vital-

ity into risky assets, with US equities hit-

ting record highs this month. This

marks a big shift from earlier in the year

when slowdown fears pushed investors

into the most defensive corners of the

market and into safe government debt.

Despite he elevated levels of USt

stocks, there is more room to grow, said

Jim Paulsen, chief investment strategist

for the Leuthold Group.

“We had a fear crescendo in August —

since then the data has started getting

better,” Mr Paulsen said. “We’ve had

global, synchronised monetary easing

and that is starting to show through.”

As recession fears ease, money will

Hartnett, BofA’s chief investment strat-

egist. “Investors are experiencing

FOMO — the fear of missing out — which

has prompted... ajump in exposure to

equities and cyclicals.”

The survey results suggest the con-

cerns over sluggish economic expansion

that have triggeredcentral bank stimu-

lus measures and a rush into govern-

ment bonds haveturned. Most investors

polled by the bank expect the global

economy to expand next year, marking

the biggest monthly jump in optimism

in the survey’s two-decade history.

Improving growth prospects, driven

in part by lower interest rates, and bud-

ding optimism that the US and China are

R I C H A R D H E N D E R S O N— NEW YORK

Investors are abandoning bearish bets
and piling into stocks as pessimism over
the global economy fades, injectingvig-
our into the decade-old equities rally.
Investors polled by Bank of America
increased holdings of stocks by a fifth on
average in the past month, spurred by
optimism over growth.
More than half of the 178 investors,
which claim $574bn in assets, believe
stocks will perform better than other
assets next year.They hold 21 per cent
more in stocks than the benchmarks
they track, the highest level in a year.
“The bulls are back,” said Michael

Investors pile back into equities

3 BofA survey reports renewed optimism 3 Stock holdings increase a fifth in past month

‘The bulls

are back.

Investors are

experiencing

FOMO —

the fear of

missing out’

Companies / Sectors / People

Companies
20th Century Fox................................... 10
AMS................................................................. 14
AT&T.............................................................. 10
Advance Auto Parts.............................. 18
Affiliated Managers Group................ 13
Alibaba.......................................................... 10
Alliance Boots.......................................... 12
Altice............................................................... 12
Amazon.............................................1,9,10,
American Outdoor.................................... 4
Anheuser-Busch InBev......................... 12
Apple.............................................................. 10
Assured Guaranty................................... 13
Atlas Global Investors.......................... 17
Axial................................................................ 10
B&M...........................................................10,
BAMTech..................................................... 10
BDO.................................................................. 12
BHP................................................................. 14
BHS.................................................................. 12
Babou............................................................. 10
Barclays......................................................... 13
Barry Callebaut......................................... 18
Beat Holdings............................................ 18
BlackRock...................................................... 11
BlueMountain Capital........................... 13
Bouygues...................................................... 12
British Gas................................................... 18
British Steel................................................. 13

CME Group................................................ 17

CVS................................................................... 12

Cellnex........................................................... 10

Cerberus........................................................ 11

China Citic Bank....................................... 17

Colonial Bank............................................. 12

Commerzbank............................................ 11

Continental................................................ 14

Craft Brew Alliance................................ 18

DCC.................................................................. 18

DR Horton..............................................12,

Dean Foods................................................. 13

Deloitte.......................................................... 12

Deutsche Bank........................................... 11

Deutsche Börse........................................ 17

Deutsche Telekom.................................... 1

Diab Group.................................................. 13

Dialog............................................................ 18

Disney......................................................10,

Dollar General........................................... 10

Drax............................................................... 18

EEX................................................................... 17

EY...................................................................... 12

Edoma Partners....................................... 17

Electrocomponents............................... 18

ExxonMobil................................................. 18

Facebook....................................................9,

Flipkart........................................................... 12

Fukoku........................................................... 18

Goldman Sachs...................................10,

Google........................................................9,

Grant Thornton........................................ 12

Huawei........................................................7,

Idea.................................................................. 14

Iliad.......................................................10,12,

Infineon....................................................14,

Intercontinental Exchange................. 17

JPMorgan Chase............................11,13,

Jawoll.............................................................. 10

Jingye............................................................. 13

K Rogge Spezialbau............................... 2

KKR.................................................................. 12

KPMG.............................................................. 12

Kairos Investment Management....

Liberty Global........................................... 14

Lumber Industries................................... 13

Lyft..................................................................... 9

Man Group................................................... 17

Marvel............................................................ 10

MasMovil...................................................... 14

MediciNova................................................. 18

Microsoft......................................................1,

Morgan Stanley..................................10,

NFX.................................................................. 17

NSO Group.................................................... 9

Nasdaq........................................................... 17

National Grid.............................................. 12

Netflix............................................................. 10

Nissan............................................................. 14

Nodal............................................................. 17

Numericable Group................................ 12

Ola.................................................................... 12

Orange........................................................... 12

Osram............................................................. 14

Pacific Gas & Electric........................9,

Pallinghurst Group................................. 14

Pixar................................................................ 10

PwC.................................................................. 12

Qualcomm.................................................... 13

Remington Arms....................................... 4

Renault.......................................................... 14

Rockwell Automation............................ 18

SAP..................................................................... 1

SFR................................................................... 12

Saudi Aramco............................................ 10

Shanghai Pudong.................................... 17

Siemens......................................................... 14

Slack................................................................ 10

Solvay........................................................... 18

Spotify........................................................... 10

Swiggy............................................................ 12

Techpoint..................................................... 18

Trainline...................................................... 18

Traxys............................................................ 14

Truevalue Labs......................................... 17

Tyson Foods.............................................. 18

Uber.......................................................9,10,

Verizon........................................................... 12

Virtu Financial........................................... 17

Vodafone..........................................10,14,

Volkswagen................................................... 1

Walgreens.................................................... 12

Western Union.......................................... 18

WhatsApp...................................................... 9

Xiaomi............................................................ 10

YTL.................................................................. 18

Zomato........................................................... 12

Sectors

Automobiles............................................... 14

Banks....................................................11,13,

Basic Resources..................................13,

Construction............................................... 12

Energy.............................................4,12,13,

Financial Services..............................12,

Financials................................10,11,12,13,

Food & Beverage...............................13,

Industrials.........................................13,14,

Media..........................................................3,

Mining............................................................ 14

Oil & Gas................................................10,

Retail.........................................................10,

Retail & Consumer..............................4,

Technology....................1,9,10,13,14,17,

Telecoms...............................10,12,13,14,

Transport...................................................... 12

Travel & Leisure...................................... 12

Utilities.....................................................12,

People

Achleitner, Paul......................................... 11

Auld, David.................................................. 12

Beringause, Eric........................................ 13

Berlien, Olaf................................................ 14

Braunstein, Doug...................................... 11

Dalton, Nathaniel..................................... 13

Della Valle, Margherita........................ 14

Dimon, Jamie.............................................. 13

Dumortier, Quentin................................ 17

Feldstein, Andrew................................... 13

Frandsen, Arne......................................... 14

Friedman, Adena......................................

Gates, Bill....................................................... 3

Gesualdi, Michele..................................... 17

Ghosn, Carlos............................................. 14

Gilbertson, Brian...................................... 14

Greifeld, Bob............................................... 17

Gupta, Gaurav........................................... 12

Hahn, Tobias.............................................. 13

Iger, Bob....................................................... 10

Kleisterlee, Gerard.................................. 14

Ma, Stephen............................................... 14

Meng, Wanzhou.......................................... 7

Niel, Xavier......................................10,12,

Ploss, Reinhard......................................... 14

Read, Nick.................................................... 14

Reitz, Peter.................................................. 17

Ren, Zhengfei............................................. 13

Saikawa, Hiroto........................................ 14

Schäfer, Wolfgang.................................. 14

Siderow, Stephen..................................... 13

Staley, Jes.................................................... 13

Uchida, Makoto........................................ 14

Zuckerberg, Mark...................................... 9

“Trade wars are good, and easy to win.”
So wrote Donald Trump in a tweet from
March 2018, shortly before launching the
first round of tariffs on goods from China.
But for all Mr Trump’s bravado, datapaint
an ever bleaker picture of the trade war’s
impact on the US economy.
The US manufacturing purchasing
managers’ index has been below the
50-point mark separating contraction
from expansion since August, while the
official counterpart from China’s statistics
bureau shows a smaller fall in
manufacturing activity and far greater
resilience over the long term.
“If the sentiment of manufacturers is
any guide, the US is losing out more from
the escalation of the trade war,” said
Michael Metcalfe, global head of macro
strategy at State Street Global Markets.
“US manufacturing sentiment has
collapsed in the past nine months,
spectacularly so in the last quarter.
Meanwhile, their Chinese counterparts

.. are no less cautious than they were at.
the beginning of the year.”
Moreover, the CaixinPMI, which
focuses on smaller and private
companies, recently shot back o itst
highest level in two years.
Mr Metcalfe said that the recent PMI
data appeared to support the findings of a
recent academic paper hatt S importersU
had paid a heavy price for the trade war.
“If economic rationale was a key driver,
the pressure to agree a trade truce soon is
growing,” he said.
Hudson Lockett

Splitting the costUS manufacturers pay heavier price for China trade war

Fund fallHigh-flying BlueMountain

humbled by bet on doomed PG&E— ANALYSIS, PAGE 13

Tough gigCan tech and flexible working

feed India’s jobs hunger?— INSIDE ASIA, PAGE 12

Tommy

Stubbington

Tail

Risk

Bond investors have spent the past few weeks pondering a

terrifying question: what if everything is fine?

A global sell-off that began in mid-October and acceler-

atedhas been driven by good news. The trade impasse

between the US and China shows signs of easing. Markets

no longer fear an imminent no-deal Brexit. And recent

economic data ave painted a slightly less bleak picture.h

Ten-year US Treasury yields have shot to 1.93 per cent,

their highest since July, from just above 1.5 per cent in early

October. Germany’s 10-year yield has risen to minus 0.

per cent from minus 0.59 per cent over the same period.

Fund managers who bought negative-yielding debt at

the peak of the summer bond rally, perhaps betting that

they could sell on at a higher price, are nursing big losses.

The stock of debt withsub-zero yields ad ballooned toh

$17tn in August on the assumption that the world was in a

sorry state. Confirmation that the gloom was overdone

would see the total, already at $12.5tn, shrivel.

Even so, it looks premature to call a turning point in the

30-year bond bull market.

The mood music on trade has

improved but there has been

no decisive breakthrough.

The Federal Reserve may

have paused its rate cuts but

the European Central Bank

has restarted bond-buying,

and there is little prospect of

a rate rise in the eurozone for

years to come.

In this context, it seems the trade narrative has provided

an excuse to take some profits after an epic rally. Govern-

ment bonds are not traditionally seen as a racy asset class,

but many portfolio managers found themselves sitting on

gains of nearly 10 per cent for the year with several months

left. The temptation to cash out and make an early start on

the Christmas shopping has proved strong for many.

There is another, more compelling, argument for a turn-

ing point in the great bond bull market: the idea that

monetary policy has reached the end of the road and

policymakers are turning instead tofiscal stimulus n ani

effort to boost growth.

That dynamic is particularly clear in the UK, where elec-

tioneering politicians of all parties are merrily tossing

aroundspending promises. But fiscal conservatism is like-

wise unlikely to feature heavily in next year’s US presiden-

tial campaign. Even in ultra-cautious Germany, debate has

begun over whether to turn on the spending taps.

Even if this largesse materialises, the jury is out on its

impact on bonds. There is no simple mechanical relation-

ship between the amount of debt issuance and the level of

yields — indeed there has not typically been any correla-

tion at all. Bond yields ultimately reflect expectations for

the path of interest rates. That suggests fiscal stimulus will

have a longer-term impact only if it raises growth and

prompts central banks to lift rates. That is a big if.

[email protected]

To call a turning

point now

in the great

30-year bond

bull market

looks premature

Amy Laughinghouse/Getty

Chinese manufacturers resilient despite trade war

Manufacturing purchasing managers’ indices

Source: Bloomberg

Jan   Oct

* China oicial PMI covers wider industry whereas Caixin PMI focuses on smaller and private groups











US

China oicial*

China Caixin*

NOVEMBER 13 2019 Section:2Front Time: 11/201912/ - 18:58 User:nick.miller Page Name:2FRONT USA, Part,Page,Edition:EUR, 11, 1