Don’t Jump Onto Europe’s Bandwagon

November 8, 2013 Leave a comment

Don’t Jump Onto Europe’s Bandwagon

November 07, 2013

Recent stirrings of optimism about Europe’s economy have been interrupted: New jobs figures and signs of a slide into deflation have ended some premature celebrations. The region’s economic crisis isn’t over. The danger of a relapse into recession is real. The U.S. Federal Reserve and (belatedly) the Bank of Japan (8301:JP) are buying assets on an enormous scale with the aim of lowering long-term interest rates. This quantitative easing has risks, but in both cases the evidence suggests it has worked. The European Central Bank, though, has largely refrained. It bought bonds at the height of the crisis but neutralized the effect of the transactions on the money supply. It also undertook a big program of short-term lending to banks, but that’s winding down. No doubt there are legal and, above all, political impediments in the European Union to Fed-style asset purchases, but these must be overcome, and the ECB is best-placed to make the argument.Furthermore, it’s universally agreed that the euro area needs not just a single bank supervisor—which it now has in the form of the ECB—but also a single bank-resolution mechanism. Germany and like-minded countries, however, won’t hear of bailing out failing banks or their financially stressed national governments. Without a single bank-resolution mechanism, the toxic link between distressed banks and distressed governments will remain. So long as that’s true, recovery will be held back and the euro area’s supposedly integrated capital market will be at risk of splintering into separate zones.

The need for more effective cooperation in Europe isn’t confined to banking. The U.S. Department of the Treasury has complained that German economic policies are slowing Europe’s recovery—arguing, in effect, that the euro area’s members ought to set their economic policies with the interests of the wider euro area, not just their own, in mind. Avoiding deflation in the euro area calls for a bit more inflation in Germany than Germany would wish. If Berlin vetoes that and the euro area falls back into recession, Germany won’t escape unscathed.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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