Daily Agenda: Stocks Slide Again as Week Begins

Global equities retreat on signs of weak demand; hedge funds reject Argentina’s offer; China’s yuan reserves declined sharply in January; Waverly’s Adam Grimes on confirmation bias.


Simon Dawson

Global equity markets slid lower as the new week began despite a slight bounce in oil futures. The Lunar New Year holiday provided a reprieve for China and other Asian equity markets but the MSCI Emerging Markets index still finished the day down roughly half a percent, while in Europe early trading took an ugly turn with the Stoxx 600 sliding by more than 2 percent. With investor sentiment depressed by ongoing evidence of weak demand, monetary and economic policy will remain in the spotlight with Federal Reserve Chair Janet Yellen’s testimony on Capitol Hill and the Eurogroup Meeting, both starting Wednesday, become a focus of risk narratives.

Chinese currency reserves fell in January. On Sunday, China’s central bank, the People’s Bank of China, released foreign currency reserve data that registered at the lowest levels since 2012 after declining by more than $99 billion in January. Many economists and strategists have raised concerns that current efforts by China’s central bank to support the yuan may not be sustainable for the long-term.

Argentina’s overture to holdouts spurned. A group of hedge funds, including Elliot Management, that had rejected the initial sovereign-debt restructuring offered by Argentina in 2010, have declined a fresh offer made public Friday. While some holdout investors have reportedly accepted the proposal by the government of newly installed President Mauricio Macri, the majority continue to argue for full repayment despite terms that are more advantageous than those offered by prior administrations.

Profits crater for platinum miner. On Monday, the largest global platinum mining firm, South African-based Anglo American Platinum, announced financial results for the final quarter of 2015 with a year-over-year decline in profits of 86 percent. Writedowns for mining assets totaled near $900 million for the South African firm as prices for the precious metal remain depressed despite a modest rally in recent weeks.

India GDP set to beat expectations. The Statistics Ministry of India released growth projections on Monday with a forecast for headline gross domestic product to rise by 7.6 percent for the fiscal year ending in March versus 7.2 percent in the prior year. This growth rate exceeds current consensus economist forecasts and, with government spending and consumption playing a critical role in the expansion, comes just weeks before Prime Minister Narendra Modi presents the budget for next year.

For-profit education company to go private. Phoenix, Arizona-based Apollo Education Group, the operator of the University of Phoenix and other for-profit colleges, announced Monday that it will be taken private through an acquisition by private equity investors, including Apollo Global Management (not affiliated with Apollo Education), after months of talks with multiple parties. The deal, valued at more than $1 billion, is intended to buy time for the company as it refines its business model in the face of increased scrutiny. The for-profit education sector has suffered harsh criticism from some elected officials and government bodies due to high default rates on Federally guaranteed student loans and low graduation rates. Apollo has been one of the most active lobbyists among companies in the sector.

Portfolio Perspective: Avoiding Confirmation Bias

We all make mistakes. Investors make mistakes. Traders make mistakes, and professional managers make mistakes. Of course, part of the “game” is to make as few unforced errors as possible, but it’s also worthwhile to consider the types of mistakes to which humans—all humans—are vulnerable, and to consider some ways to protect ourselves from errors driven by those mistakes. One of the recurring errors in financial markets is to fall prey to confirmation bias: when someone suffers from confirmation bias, that person focuses on information that supports his or her investment thesis, while ignoring data points that contradict. In many cases, contradictory data is not only ignored, it is not processed. One of the best ways to protect against this bias is to actively seek contradictory information, and to focus on those data points that challenge our biases or reasons for being in any position. Confirmation will take care of itself; we need to focus on information that suggests a different picture.

Adam Grimes is chief investment officer for Waverly Advisors in Pittsford, New York.