MAGAZINE 9 - ISSUE SEPTEMBER 2014

The biggest IPO’s of 2014Page 18

The largest mergers of 2014Page 22

Page 32

The significance of high-frequency trading in global markets

www.financelab.dk

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EDITOR’S LETTERCONTENTSFINANCELAB MAGAZINE

8 Abenomics - how the economy fares?

10 Credit derivatives - where do we go from here?

12 Determinants of Capital Structure

14 Draghi’s QE

16 Emerging Markets Outlook

18 The biggest IPO’s of 2014

22 The largest mergers 2014

24 Noise traders in financial markets - do they matter?

26 Significant PE deals 2013-2014

28 Summer internship in investment banking - what’s all the buzz about?

30 The Economics of FIFA - what’s in it for Brazil

32 The significance of high-frequency trading in global markets

32The significance of high-frequency trading in global markets

38 EVENT CALENDAR

18

The biggest IPO’s of 2014

Noise traders in financial markets - do they matter? 24

Summer internship in investment banking - what’s all the buzz about?

28

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FinanceLab is a non-profit, voluntary interest organisation covering all major universities and

colleges in Denmark with 1,900 registered members.

We are the prime point of contact between the financial industry and the academic world.

Thanks toContributors

Frederik Ploug Søgaard

Layouter EditorJens Brøchner GrosbølPoul Kotiah Hansen

Jacob Graubæk Houlberg Waleed BashriNina Olesen Ulrik Stig HansenEdward Enoch Sosman Jacob ChristensenChristian Smedegaard Andersen

Christian NielsenMartin Lynge Rasmussen Iva RakocevicJulie Helm Trige Starklit Maria IlyasKatrine Jensen Monica Wong

Oskar HarmsenMorten L. Siggaard Emil Ignatzi ReinholdtKristin Horn Anni FongDaniel Fleischer S. Nadine RaidaBo Laursen

Who is FinanceLab?

J.P. Morgan is a marketing name for JPMorgan Chase & Co. and its subsidiaries worldwide.

© 2014-2015 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase is an equal opportunity employer.

jpmorgan.com/careers

You aren’t defined solely by your degree.

Your experiences, talents and passions

have all shaped who you are. So we’re

interested in that other side of you as

well. Because the life you’ve lived

doesn’t just make you the kind of

employee we want. It makes you the

kind of person we want.

At J.P. Morgan, your personal pursuits

will be a welcome complement to your

professional development. And that

means you’ll have more mobility, more

choices and more ways to contribute

than you might have ever imagined.

Visit our website to find out more.

We want what you’re made of.

PRE-INTERNSHIP, INTERNSHIP

AND GRADUATE DEADLINE

November 30, 2014

Apply via the Europe section of our careers

website.

Everyone has talent and with us at SEB you get the chance to grow. You develop through your relations with customers, collegues, through studies and training as well as through the opportunity to explore diff erent areas within the bank. With a will and ambition to continue growing you take on challenges we off er. We see your talent, and you decide how far you want to take it. Here you never stop developing.

Do you want to stay a talent?

J.P. Morgan is a marketing name for JPMorgan Chase & Co. and its subsidiaries worldwide.

© 2014-2015 JPMorgan Chase & Co. All rights reserved. JPMorgan Chase is an equal opportunity employer.

jpmorgan.com/careers

You aren’t defined solely by your degree.

Your experiences, talents and passions

have all shaped who you are. So we’re

interested in that other side of you as

well. Because the life you’ve lived

doesn’t just make you the kind of

employee we want. It makes you the

kind of person we want.

At J.P. Morgan, your personal pursuits

will be a welcome complement to your

professional development. And that

means you’ll have more mobility, more

choices and more ways to contribute

than you might have ever imagined.

Visit our website to find out more.

We want what you’re made of.

PRE-INTERNSHIP, INTERNSHIP

AND GRADUATE DEADLINE

November 30, 2014

Apply via the Europe section of our careers

website.

What will the rest of 2013 reveal?

© 2013 Citibank, N.A. All rights reserved. Citi and Arc Design is a trademark and service mark of Citigroup Inc., used and registered throughout the world. All other trademarks are the propertyof their respective owners. Citigroup Inc. is an equal opportunities employer.

/citigradsEMEA

your place is here

Are you bright and ambitious?Do you relish a challenge?Do you want to work in a globalcompany that encouragesinnovation and diversity?

Then consider Citi.

Here at Citi we provide one of the bestgraduate training programmes in theindustry. So whatever your backgroundyou can excel with us!

Whether you're a student in your first orfinal year, we have a programme foryou. Visit our website to learn how tostart your career at Citi.

oncampus.citi.com

Ground-breaking ideas never come from banks

Deutsche Bankdb.com/careers

Agile minds know they do from experience

Global Graduate Programs

We may be in the business of money, but our success is driven by innovation. It’s why our clients choose us — and why they stick with us. Whether it’s an intelligent idea about an investment strategy or a brand new technology that lends us a competitive edge, our passion is for innovation – asking the right questions to make things better. It’s what keeps us one step ahead. And it’s also what makes life here so stimulating and varied.

Discover graduate careers with a diff erence at db.com/careers

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© 2013 Citibank, N.A. All rights reserved. Citi and Arc Design is a trademark and service mark of Citigroup Inc., used and registered throughout the world. All other trademarks are the propertyof their respective owners. Citigroup Inc. is an equal opportunities employer.

/citigradsEMEA

your place is here

Are you bright and ambitious?Do you relish a challenge?Do you want to work in a globalcompany that encouragesinnovation and diversity?

Then consider Citi.

Here at Citi we provide one of the bestgraduate training programmes in theindustry. So whatever your backgroundyou can excel with us!

Whether you're a student in your first orfinal year, we have a programme foryou. Visit our website to learn how tostart your career at Citi.

oncampus.citi.com

Ground-breaking ideas never come from banks

Deutsche Bankdb.com/careers

Agile minds know they do from experience

Global Graduate Programs

We may be in the business of money, but our success is driven by innovation. It’s why our clients choose us — and why they stick with us. Whether it’s an intelligent idea about an investment strategy or a brand new technology that lends us a competitive edge, our passion is for innovation – asking the right questions to make things better. It’s what keeps us one step ahead. And it’s also what makes life here so stimulating and varied.

Discover graduate careers with a diff erence at db.com/careers

After Shinzo Abe’s election, the land of the rising sun seemed poised to rise again – ready to

break out of 20 years of stagnation. The stock market rose nearly 35 per-cent after his first four months in office, businesses in Japan were con-sidering expansion for the first time in years and Tokyo’s property market started to resuscitate as well. This was all part of Abe’s bold break with the failed policies of the past.

Through Abenomics, the aim is to resuscitate the Japanese economy with “three arrows”: a massive fiscal stimulus, more aggressive monetary easing from the Bank of Japan, and structural reforms to boost Japan’s competitiveness. Along the way en-thusiasm went missing. The stock market dropped sharply and con-sumer confidence fell. Some blamed the uncertainty over the election for Japan’s Upper House in the following July 2013. Abe’s political party Liberal Democratic Party has since won the election and all political power came into Abe’s favor, after which the mar-ket rose above its previous levels, and thereafter stagnated.

Dominant macro economic theory suggests that exports are negatively correlated with exchange rate. This notion is one of the driving factors behind the reasoning for such a mas-sive quantitative easing that Abeno-mics is a proponent for, as the quan-titative easing is supposed to create inflation and devaluate the Japanese Yen. While the money base has grad-ually risen from ¥132tn ($1.3tn) to ¥224tn ($2.2tn) since the introduc-tion of Abenomics in December 2012, the export has actually decreased by 15 percent. While this gives an am-biguous picture of how the Japanese economy fares, the bottom line is

still that the GDP of Japan has revert-ed from a negative growth of -0.5% in 2011 to a positive growth of 1.5% for the year 2013 indicating at least a somewhat brighter future.

Another part of the quantitative easing was an intention to kick start the Japanese economy via sever-al means, one of which would be a decline in unemployment rate. This would once again be achieved by the use of quantitative easing as a rise in inflation usually leads to a lower unemployment rate. However while unemployment has marginally risen from 4.00% in December, 2012 to 4.40% in May, 2014 the inflation has risen from 0.39% in the beginning of 2013 to an average inflation of 2.33% in 2014. A probably reason for the lack of effect on unemployment rate is the ultimatum presented by Abe, as he famously announced that the quantitative easing will continue un-til Japan reaches a suitable level of inflation. The result of this is an ex-pected inflation, due to the promise of an ever-increasing monetary base, which has a smaller bearing on the unemployment rate.

Nontheless the effect of the quanti-tative easing is reflected in the Jap-anese stock market. A stock market is not necessarily always a good in-dicator of the stability and growth of a country’s economy, but it still projects the overall predictions from an investor’s perspective. A sharp rise in a stock market is however not without risks as markets which rises quickly are prone to creating specu-lative bubbles. So even if Abenomics manages to be the lifebuoy that lifts the Japanese economy out of the two lost decades it still comes with the possibility of creating massive insta-bility if an asset bubble were to occur

and if this bubble would not be de-flated in a timely and orderly fashion. Japanese Prime Minister Shinzo Abe has unveiled his long-awaited struc-tural reforms or the so-called “third arrow”. A preliminary version of the plan, announced last summer, was met with disappointment in interna-tional financial markets. The new ver-sion covers more of the issues Japan faces. Fresh proposals include a re-view of the massive government-run pension system’s investment strate-gy to direct more of the money into Japanese stocks. Among the most important of the reform measures is a cut to the corporate tax closer to the OECD average of 25% from the current level of over 35% from next year, 2015. To counter the country’s labour shortages due to the aging population and low birthrate, it also includes an easing of the immigra-tion policy to promote greater use of foreign policy and measures to pro-mote greater gender equality in the workforce.

Lastly, another possible cause for the poor response on some fronts from Abenomics could be due to a lag that is often present when introducing new policies. The rise in the Japanese stock market and the overall growth in GDP could however prelude an in-crease in other factors as well, such as employment rate and export. There do however lie other challeng-es ahead for the Japanese economy besides breaking out of the stagfla-tion that overshadowed the last two decades, namely its changing demo-graphics. There are two inherently problems with the changing demo-graphic of Japan, it is shrinking while simultaneously growing old. This poses several long-term problems that may dwarf even the stagflation of the past.

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ABENOMICSHow the economy fares?By Jacob Graubæk Houlberg and Waleed Bashri

Export and monetary base, shown in index 100

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Total Export Monetary Base

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Unemployment Rate Inflation

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Nikkei Stock Index Monetary Base

Nikkei-225 and monetary base, shown in index 100FI

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CREDIT Where do we go from here?By Nina Olesen and Ulrik Stig Hansen

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DERIVATIVESSince its inception in the beginning of the 1990’s, the market for credit derivatives has had a remarkable journey. Not only has the notional amount of debt underlying cred-

it derivatives ballooned until its collapse in 2008, but so has the complexity of the credit deriva-tive products. During the latest financial crisis, the collapse of the

credit derivative market has been identified as one of the main rea-sons leading to this worldwide tur-moil.

0

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$ b

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In the early 2000’s, credit deriv-atives were very popular and in 2006, the market peaked with a

global issuance amounting to more than $500 billion. During this period, because of the great popularity of the CDOs build on mortgage-backed securities, the supply began to dry out. This created an incentive to de-velop synthetic-CDO’s, which weren’t

restricted by the number of actu-al mortgages. Several investments banks came to prefer synthetic-CDOs, because they were more cost effi-cient to construct. In 2008, the credit derivatives market crashed following the emerging subprime mortgage crisis, and the market has not been close to reach the same level since. There is an on-going debate as to

what caused the market to crash and how it came to grow so large, and while there might be many identi-fiable causes for the collapse in the credit derivatives market, the meth-ods used in pricing them have been under accusation of being one of the primary culprits.

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DERIVATIVESDefault is kingIt is easy to get puzzled by the fact that the market for credit derivatives was able to grow so large with only few people finding cause for alarm. Following the global financial crisis, it has become evident that the models used to price complex financial prod-ucts, such as credit derivatives, have failed miserably in providing an accu-rate measure of the underlying value in these types of products, causing a severe mispricing of risk. It is wide-ly agreed that the fallacies of these models have caused the market for these products to grow larger than it otherwise would have.

So how are these pricing models con-structed? The common feature in all credit derivatives pricing models is that they in some way assess the sta-tistical probability of default. This is a daunting task, since such calculations are based on information that can be difficult to obtain and that the credit derivatives market is highly opaque, making it difficult to monitor the price of the underlying credit obliga-tion. The task is complicated further by the difficulties in quantifying cred-it worthiness, lack of empirical data and that readily obtainable data is often corrupted.

One of the most widely used meth-odologies in pricing is the Gaussian copula, which almost became in-dustry standard prior to the finan-cial crisis, and subsequently ended up taking a big part of the blame for the disastrous meltdown of the credit derivatives market. In a world growing ever more complex, the method offers relative simplicity, lax data requirements and a way to deal with default correlation in com-plex instruments – key tenets of its success. For two securities A and B, only three parameters are needed: the probability of default of A and B and the default correlation between them. That is, given a statistical prob-ability of default of A and B, what is the probability that they will both default given specific default correla-tion. Now, using a Gaussian copula, historical default data is not required and it is possible to make use of his-torical market pricing data of credit default swaps (“CDS”) instead. This follows the reasoning that if the price

of a CDS increases, so does the risk of default. This implies imposing an assumption that the market is able to price risk correctly, using pricing data rather than actual default data.

Yet another, and perhaps the most toxic assumption of the Gaussian copula, is that the huge number of loans that could make up one pool had only a single default correlation parameter, flattening information on thousands of pairwise correlation pa-rameters into just one. For example, if a pool of loans is made of three tranches, the top-tranche being the pool of loans with the highest credit worthiness and thus lowest statisti-cal probability of default, the middle tranche with the second-highest and the bottom tranche with the highest, they would share the same default correlation. This leads to a misrep-resentation of the probability of the occurrence of extreme events, such as the 2008 financial meltdown, and the possibility that the whole pool of loans might turn out to be worthless following a credit event.

In hindsight, these assumptions were optimistic. However, quantitative an-alysts has been aware of the limita-tions and inherent shortfalls of the method, both now and before the crisis – and despite the “bad press” it has gotten following the crisis, it is still the most widely used method to price credit derivatives and cannot be blamed solely for the recent crisis.

Where are weheading?Credit derivatives have become an important financial instrument in the global financial system, as they have given the opportunity for cheaper credit and improved the efficiency of capital allocation. The idea of pulling together loans into tranches made it possible to invest in a desired level of risk – however, as people started to speculate in defaulting loans, it put pressure on the financial system and made it unstable.

With regards to the 2008 meltdown, credit derivatives are solely responsi-ble for the crisis. There were also is-sues with lack of liquidity and reserve policies (especially in central banks),

too heavy concentration and specu-lation on real estate, flawed account-ing rules and too heavy reliance on rating agencies. Despite the market being on its knees for the last few years, a comeback might lure around the corner. In a world of cheap credit that does not seem to end in the near future, the market could be heading for a strong comeback.

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Determinants of Capital StructureBy Edward Enoch Sosman and Jacob Christensen

When forming an opinion on the market value of a company, inves-tors are often basing this on some form of corporate valuation. This can be approached in several dif-ferent ways, but most common are methods based on present value models. Therefore, part of com-

pany management is about opti-mizing the parameters that the present value models use to esti-mate value of the company. One of the most important parameters is the company WACC, which is the weighted average of debt and eq-uity cost of capital.

The purpose of this article is to investigate the factors that affect the capital structure choices of Danish publicly traded companies and discuss which other factors might be relevant for manage-ments to take into consideration.

Introduction

Study finds that capital structure is not significant for many Danish companiesDespite the importance of capital structure for the value of a compa-ny, a study from 2012 by the DIRF (The Danish Investor Relations As-sociation) found that only 65% of the investigated companies have an actual capital structure policy1. Fur-thermore, a study from 2007 by FIH Erhvervsbank found that even large corporations such as A.P. Møller A/S, H. Lundbeck A/S and Novo Nor-disk A/S did not have a target capital

structure2. These findings give rise to the question of why managements in publicly traded Danish companies do not emphasize capital structure pol-icy more when it is a factor of great importance to the value of the com-pany.

According to the DIRF study, a possi-ble explanation is that other drivers than the traditional theoretical fac-tors are more important when deci-

sions are made about how to finance an investment. In fact, by far the most important driver is the degree of financial flexibility, which 79% of the companies in the study regarded as very important. More traditional factors such as the tax shield of tak-ing on debt, bankruptcy cost, and in-formational asymmetry are only of minor interest when decisions are made regarding capital structure, ac-cording to the study.

1. Borberg & Motzfeldt2. PFA Pension, 2007, s. slide 6

Many of the traditional drivers of capital structure are affecting corporations in Denmark Despite the results from DIRF, it is possible that the traditional factors are affecting the capital structure de-cision to a certain extent. To further examine whether this is the case, thorough research was conducted on 18 publicly traded Danish compa-nies in two very different branches; the shipping industry and the phar-maceutical industry. Following the

seminal paper of Titman & Wessel (1981), the particular importance of six factors was examined. These fac-tors are volatility, asset composition, profitability, product uniqueness, growth potential, and company size, which are all predicted by theory to influence capital structure decisions.

When testing for the significance of

these factors in the period of 2002-2012, it turns out that earnings vola-tility, asset composition, profitability and company size are indeed influ-ential. However, product uniqueness and growth potential are not signifi-cant, which is contradictory to theory.This result is somewhat surpris-ing, given earlier research by Qio & La (2010) and Frank & Goyal (2009)

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showing that companies that sell unique products are not using the tax advantage provided by debt in to same extent as other companies, at least on the American and Australian market.

Regarding how companies’ growth

potential affects capital structure, Qio & La (2010) and Fama & French (2002) research show that there is a negative relation between the ratio of debt and growth potential. Thus, companies with many investment opportunities will often have a lower debt ratio.

Based on the trade-off theory and the pecking order we will in the follow-ing explain, why Danish companies should consider product uniqueness and growth potential when choosing their capital structure.

According to theory product uniqueness and growth potential should affect companies’ capital structureUnique products are often sold at high margins instead of high turn-over rates. Therefore, companies that are selling unique products are often profitable and have high earn-ings volatility, since revenue drops when a product goes out of fashion or becomes obsolete. However, ex-ceptions exist e.g. some design ob-jects have long lifecycles and low earnings volatility.

According to the trade-off theory, high profitability and high earnings volatility affect the capital structure in two different directions. High prof-itability affects the debt-equity ratio positively and high earnings volatility affects the debt-equity ratio nega-tively. Thus, according to the trade-off theory it is ambiguous how prod-

uct uniqueness should affect capital structure.

If it is assumed that companies that mainly sell unique products, also are profitable then these companies will, according to the pecking order the-ory, mainly use internal cash when making investments and thereby have a low debt-equity ratio.

High growth potential is valuable for companies; however, when compa-nies go bankrupt it is not possible to convert growth potential into cash, which increases the indirect distress costs. Thus, according to the trade-off theory, growth companies should have low debt-equity ratios. In con-trast, the pecking order theory pre-dicts a positive relation between the

debt ratio and growth opportunities. Companies that make many invest-ments often need debt financing in order to finance their projects. Thus, the pecking order theory predicts growth companies to have a high debt-equity ratio.

Our analysis shows that the conclu-sions of the trade-off and the pecking order theory are contradicting when determining how product unique-ness and growth potential should af-fect companies’ capital structure. The missing consensus in theory may be a reason for why managers disregard these factors when determining their companies’ capital structure.

ConclusionAlthough DIRF’s study found that managers find factors such as finan-cial flexibility more important than the traditional theoretical factors when determining capital structure, our research shows that most of the traditional factors do affect compa-

nies’ capital structure. Furthermore, our research finds that factors such as product uniqueness and growth potential do not affect capital struc-ture, although these factors accord-ing to theory and earlier research should affect capital structure. There-

fore, it might be the case that Danish managers do not regard these factors when determining their firm’s capital structure and thereby they might not fully optimize the market value of their firm.

By Christian Smedegaard Andersen & Christian Nielsen

DRAGHI’S QEThe European recovery got off to a disappointing start in the first half of 2014 as GDP rose by just 0.2% across the 18 euro-states. The forecast for the future looks better, but the recov-ery remains fragile. To support the recovery, the European Central Bank has been undertaking various initia-tives to stimulate the economy. With the use of LTRO and most recently the introduction TLTRO’s Draghi is sticking to his commitment of doing whatever it may take to save the Eu-ropean economy from a prolonged recession, stagnation or deflation. At this point though, scepticism about TLTRO’s and their effectiveness has already arisen. The uptake of TLTRO’s among European banks seems to be far below Draghi’s initial expectation of 1trn euro. This indicates that the ECB might need to take more drastic measures: Quantitative Easing (QE).

Draghi’s plan The ECB cuts its reserve-deposit rate for banks from zero to -0.1% to increase the money supply of the banks, as well as cutting its bench-mark interest rate from 0.25% to 0.15% by making open-market oper-ations.

This is done to inject liquidity into financial markets and thereby en-courage banks to lend to businesses.

The hope is for an increase in invest-ments, which can help the economy back to its potential output level.

There are obvious limits to this poli-cy. As people have the option of hold-ing money rather than loaning it out, the nominal interest rate can never fall below zero. Due to this, addi-tional increases in the money supply cannot reduce the rate further, ren-dering conventional monetary policy ineffective. This is often referred to as a liquidity trap.

Draghi’ plan of increased consump-tion and investments has more or less failed, as private consumption only exhibited marginal growth in the first half of 2014.

When the Central Bank has pushed the interest rate close to zero, a dif-ferent strategy has to be deployed: the QE.

Quantitative easing from a theoretic perspectiveQuantitative easing has been a wide-ly used term since the global financial crisis hit in 2008.

Central banks pursuing QE buy assets

– typically government bonds – using “printed” money. The institutions’ in-creased money supply from the sales of bonds are used to invest. Due to the increased demand in government bonds, they become a weaker invest-ment. Consequently, institutions use the proceeds to invest in other com-panies or lend to individuals.

Typically, QE convinces the market of the fact that the central banks are willing to fight deflation or in-creased unemployment. The raised confidence in the economy boosts economic activity further. Howev-er, there are certain risks that one should be aware of. Listing the pros and cons, it becomes evident that central banks have to strike a balance in order to gain optimally from QE.

As mentioned above, a benefit of QE is that it can encourage lending and borrowing, and thereby increase spending. There are also other ben-efits in terms of job creation, and the Fed has argued that QE can be used to create jobs since business-es should end up with more cash on hand to finance new hiring.

The abovementioned reasons for pursuing QE makes sense in theo-ry. Nonetheless, the benefits have been criticised for only providing short-term gains. In the longer term, economists fear that QE can lead to inflation. High inflation happens as

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DRAGHI’S QEmoney supply in the economy is in-creased, and because the supply of goods is constant, prices rise, which leads to inflation.

Another risk concerns the value of the local currency. As this – practical-ly speaking – is printed money that is used to buy goods abroad, foreign countries begin to devalue the cur-rency. There have been examples where countries regret to recognize the importer’s currency, because it is regarded as a printed piece of paper.

Finally, QE encourages large portions of debt because of the large money supply and the low interest rates. Some debt stimulates the economy, however, excessive amounts of debt can further aggravate an already weak one. When the central bank stops printing money, the economic recovery can be put on standby, in spite of the hopes that increased con-sumer confidence will trigger a true recovery. The consequence is evident in the equities markets, which tend to dive when signals of ending QE are present.

Effectiveness of the QE-programWhether previous QE-programs have shown to be an advantage for

the economic situation is a well-dis-cussed topic, dividing economists into groups due to the complexity of defining the success parameters.

Estimates from macroeconom-ic models elaborated by the Fed and the Bank of England show that, compared with scenarios where no such action has been done, the QE programs in the US and UK have improved GDP by between 1 and 3 percent, reduced the unemployment rate by about 1 percentage point, and prevented deflation.

Furthermore, the policies have in-creased household wealth held in fixed income in the United States by up to $5.6 trillion due to the ultra-low interest rates.This meant that central bank action helped to stabilize the financial sys-tem and heal the wounds from the financial crises.

On the other hand, lower rates have reduced interest payments for bor-rowers but have diminished the in-terest income of savers. This fact has caused a large distributional effect. By the end of 2012, households in the UK and US had lost $630 billing in net interest income while the govern-ments have benefited.

On top of this, many banks have ex-perienced continued erosion in their profitability, putting many of them

under financial pressure. In the long run, this may affect bank consumers.

There is greater uncertainty com-bined with the QE-programs, as the success is contingent on a variety of factors. A reduction in the interest rate will, for example, have a great-er impact if the market participants believe it will be held for some time. Furthermore, there are issues re-garding price stability and level of fi-nancial leverage of the banks.

It seems reasonable that central bank actions in the form of QE helped to stabilize the financial system and dampen the recession. Whether it is going to work in the Eurozone de-pends on the ECB and Draghi’s ability of communicating a credible forward guidance combined with an in-creased trust in the financial system. Of course, the TLTRO’s also remain an important factor for determin-ing whether QE is needed. For now though a broad based asset purchase programme cannot be ruled out. Quite contrary, it seems as though it may very well be needed.

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Emerging markets are currently ex-periencing continued net inflows of capital after having experienced sig-nificant outflows in mid-2013. In June 2013, tapering of quantitative easing (QE) in the US led to outflows from emerging markets, which increased the likelihood of US rate hikes.

When the US government increases interest rates, even if done before ex-pected, such change would result in a smoother change of money flow than seen in 2013, according to Steven En-glander of Citigroup. Currently, US rates are not expected to increase until mid- to late 2015, leaving plenty of time for EM to recover. As previ-ously, investors worldwide turn to emerging markets in search for high-er returns as developed markets suf-fer low growth and rates. This article aims to explore current issues in EM equities, but is neither an attempt to cover all countries nor themes.

With emerging market growth - pre-dicted at 4.9% for 2014 by IMF - out-stripping the expected developed market growth of 2.2%, companies and governments have a strong foundation to improve fundamentals from. Although a general slowdown and structural issues in EM growth are valid concerns, fundamentals in EM are nonetheless more attractive than in developed markets.

China

In July Chinese production activi-ty hit its highest level in 18 months, suggesting that actions such as ex-pansionary monetary policy and infrastructure investments has al-lowed China to avoid a hard landing. Despite the economic growth, China saw its real estate prices decline by 29% year-over-year in the second quarter, easing fears of a real-estate bubble. Regarding fears of unsus-

tainable credit expansion, credit ex-pansion declined to its lowest level in eight years. Despite positives, Chi-na’s finance minister recently stated that a growth rate of 7.5% is not a floor, providing a reminder that wor-ries about underperforming Chinese growth are still real.

Chinese equities have significant-ly underperformed in the past few years, yet is starting to receive in-creased attention due to low valua-tions and a stabilizing outlook. The MSCI China Index is currently trading at 10 times earnings, and is forecast-ed to trade at 9.8 times for 2014, in contrast to a 10-year average of 13.8. According to our research, influential investors have started having a more positive look on China.

Reasons for optimism include that valuations have been depressed due to lack of market confidence. Confi-dence in the market could be chang-ing as the government carries out significant reforms of capital mar-kets along with privatization of state-owned enterprises.

India

India recently welcomed a new prime minister, Narendra Modi. Modi has been positively received for his ability to deliver results throughout his po-litical career, although certain critics say that current reforms contain little change from previous policy. Despite the fact that Modi’s promise is yet to be fulfilled, his investor-friendly at-titude rightfully spurs cautious opti-mism.

Indian equities jumped more than 20% in the first half of 2014, and in-flows surged from $354 million in the first two months of the year to $8.9 billion between March and June. De-spite long-waited triumph about In-dia’s outlook, investors are starting

to reconsider further investments. One major reason cited is that inves-tors would like to see more specific details of how Modi will turn the in-efficient, inflation-ladden economy back on track. While it is unlikely that new policies will lead to quick fixes, long-term investors might place faith in Modi’s ability to move India closer to its potential.

ASEAN

As for ASEAN (The Association of Southeast Asian Nations), current optimism is based on the initiation of the ASEAN Economic Community in 2015, which will allow for further in-tegration of markets and economies. In May, Thailand experienced a mil-itary coup, something that has been well received by investors, as the coup is expected to increase stability. The MSCI Thailand index is already up by 12.9% since its low in May. Despite initial short-term optimism and stability, it has been questioned whether the military overthrow will result in longer-term stability and development. Although Thailand’s economic outlook have improved recently, it could still be questioned to what extent stocks are adequately discounted for risks associated with longer-term political development.

Indonesia is currently in an uncer-tain stage as Prabowo, who initially lost the presidential election, has contested the win of new president Joko Widodo. Furthermore, Indone-sian stocks are surprisingly expensive given its uncertain outlook and poor returns for equities. The price-book ratio of the MSCI Indonesia Index is currently 2.23 times higher than the MSCI Emerging Markets Index, a high valuation given that the index has de-creased by 11.42% in the past year.

In the Philippines stock prices contin-ue to rise amid a credit rating upgrade

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By Martin Lynge Rasmussen & Iva Rakocevic

Emerging Markets Outlook

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by both Moody’s and S&P, something considered a major driver behind stock prices. Since 2010 the country has seen a new president, Benigno Aquino, drive forward substantial reforms, most recently with a relax-ation of foreign direct investment in late July. One worry for prospective investors is whether the market is overvalued. The MSCI Philippines Index has the highest TTM PE-ratio in Southeast Asia at 24.6, compared to 15.6 for the MSCI Southeast Asia index, encouraging investors to reex-amine fundamentals.

Eastern Europe

In Eastern Europe a tense geopolitical situation caused by Russian aggres-sion has increased risks of sanctions, despite subsiding risk of military ac-tion. Actions against Russia carries significant risk of spillover effects for emerging Eastern Europe, one rea-son being the reliance of Eastern Eu-ropean countries on Russian energy.

Emerging Eastern Europe (Czech Re-public, Hungary, Poland and Russia) is currently valued at a low expected price earnings ratio of 7.2 for 2014, compared to emerging markets over-all, which is at 13.7. One reason for the low valuation is the current geo-political environment, where there is substantial probability of risks being realized. While this author finds the current environment discouraging, certain investments could remain attractive. Value investors could con-sider companies that derive a major-ity of earnings from countries shield-ed from current geopolitical issues - it could be interesting to explore whether such companies have been unduly discounted due to current risks.

MENA

In the Middle East, Qatar and UAE are expected to see net capital in-flows increase as they were upgrad-ed from frontier market to emerging market status by MSCI. The upgrade provides a quality stamp for the two markets, likely leading them to be seen as more attractive by investors. Another Golf-country that will receive

increased attention is Saudi Arabia, whose stock market will be opened to foreign investors in early 2015. For Turkey, this author argues that the increased reliance on trade with the Middle East has developed into a vulnerability given renewed tension in places such as Syria, Iraq and Isra-el/Palestine. Elsewhere, South Africa has seen a downgrade in its credit rating by both Fitch and Standard & Poor’s, citing an expected inability of the newly elected government to un-dertake labor and economic reforms.

In MENA, non-Gulf countries are ex-pected to perform less well than their Gulf counterparts as they are under-going a series of challenges and is-sues. Gulf-countries are expected to perform well due to strong oil prices, generous government spending, and for some, a healthy private sector. For Gulf-countries, non-oil GDP is ex-pected to rise by 5.5% for 2014, half a percentage point higher than for 2013, suggesting healthy fundamen-tals that are diversified beyond oil. The upgrade is expected to result in inflows of emerging market alloca-tions from passive funds, although analysts have pointed to volatility. Analysts have argued that similar up-grades have caused equities to out-perform in the 12 months after be-ing announced, but underperform in the 12 months following the upgrade being made effective. One reason mentioned for such market behavior is that weaknesses surface due to in-creased attention.

Latin America

Latin America is currently undergo-ing a harsh period, with current pre-dictions putting growth for 2014 at its lowest level since 2009. In addition to overall unimpressive fundamentals, Argentina defaulted on August 1.

Despite focus from the 2014 Football World Cup, investors do not favor Brazil. Brazil is experiencing stagfla-tion consisting of a 1.1% growth rate (... and inflation of 5.9%) in 2013 and is expected to achieve a growth rate of no more than 1% in 2014. Reasons for the weak growth include that low investments in basic services is preventing significant productivity increases. Although Brazilian funda-

mentals are not encouraging, valua-tions are low – it is the cheapest mar-ket in Latin America. In more specific terms, Brazil’s 12-month forward P/E is 3.8% below that of emerging mar-kets as a whole, and its P/BV is 8.5% below emerging markets overall. While valuations reflect fundamen-tals, investors willing to search for companies with long-term potential might find bargains. Meanwhile, Mexico is increasingly seen as a top Latin American desti-nation for investment, based on its ability to carry out strong reforms and increasing economic growth. Despite Mexican growth amounting to only 1.1% in 2013, reforms should allow growth to rebound from 2014 onwards. While Mexico’s reforms are bold and should improve long-term performance, the 12-month forward price-earnings ratio for the MSCI Mexico Index is currently 68% above that of the MSCI Emerging Market Index. Despite being a compelling reform-story, prospective investors might question to what extent cur-rent valuations are warranted.

Conclusion

While the early 00’s saw many inves-tors attracted to emerging markets based on rising commodity prices, falling interest rates and promise of future potential, deep structural is-sues are receiving increasing atten-tion. This author argues that emerg-ing markets going forward will be assessed less on their promise and more on ability to improve funda-mentals.

2014 so far has seen China avoid a hard landing and multiple elections. While overall sentiment towards new political leadership has been positive, the coming period will show whether politicians are able to execute struc-tural reforms.

This author argues that investors able to stomach volatility should search for companies strong enough to withstand medium-term austerity as governments undertake reforms. While such companies could still be subject to volatile market sentiment, economic moat could allow such in-vestments to deliver over time.

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2014 opened successfully and con-tinued to recover to end the first half of the year strongly. The highest amount of capital was raised since 2007. A total of 588 deals raised around USD 118 billion, which is an increase of more than 60% on the same period in 2013. The strong re-covery is expected to continue in the second half of 2014.

The biggest IPOs of 2014 – Asia takes the bulkJapan Display Inc. went public on To-kyo Stock Exchange in March 2014 with an offer size of USD 3.13 billion, making it the biggest IPO in the first

half of 2014. Japan Display, a world-wide manufacturer of small and me-dium sized LCD displays, was estab-lished through the merger of Sony Mobile, Toshiba Mobile and Hitachi’s LCD display divisions. The offering is the biggest in Tokyo since drink giant Suntory’s food-and-beverage unit raised USD 3.9 billion in 2013. How-ever, the share plunged on its Tokyo debut and has since dropped by 30%.

Issue Month

Issuer Issuer Origin

Sector Business Description

Offer Size (USD bn)

Exchange

March Japan Display Inc.

Japan Industrials Manufacturer of smartphone and tablet screens.

3:13 Tokyo

January HK Electric Invest-ments Ltd.

Hong Kong

Utilities Investment trust and supplier of electricity.

3:11 Hong Kong

July NN Group NV

Nether-lands

Financials Insurance and investment management.

2:42 Euronext Amster-dam

June AA Ltd. Britain Diversified Car insurance and road assis-tance.

2:33 London

May JD.com Inc.

China Communica-tions

Consumer focused online retailer.

2:05 NASDAQ New York

Source: Bloomberg, ThomsonOne, Company websites – July 2014.

The IPO of HK Electric Investments comes in second with an offer size of USD 3.11 billion. However, the share has performed better compared to Japan Display, trading at -3.85% offer to date.

The IPO of NN Group NV, the biggest Dutch financial services company, is the largest flotation in Europe and the third largest globally with an offer size of USD 2.42 billion. AA Ltd., a car insurance and road as-sistance company, had the fourth big-

gest IPO in the first half 2014. The of-fer size of USD 2.33 billion resulted in the exit of its private equity owners. The share price has almost remained unchanged since the offering.

JD.com Inc. is a leading consumer fo-

By Julie Helm Trige Starklit and Maria Ilyas

The biggest IPOs of 2014

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Issue Month

Issuer Issuer Origin

Sector Business Description

Offer Size (USD bn)

Exchange

March Japan Display Inc.

Japan Industrials Manufacturer of smartphone and tablet screens.

3:13 Tokyo

January HK Electric Invest-ments Ltd.

Hong Kong

Utilities Investment trust and supplier of electricity.

3:11 Hong Kong

July NN Group NV

Nether-lands

Financials Insurance and investment management.

2:42 Euronext Amster-dam

June AA Ltd. Britain Diversified Car insurance and road assis-tance.

2:33 London

May JD.com Inc.

China Communica-tions

Consumer focused online retailer.

2:05 NASDAQ New York

cused online retailer in China, which got listed in the US. The company is the fifth biggest IPO and the largest Chinese IPO in the US since 2003 with an offer size of USD 2.05 billion. With a return of 44.11% offer to date its

share is the best performing among the five biggest IPOs. Also, the com-pany belongs in the communications sector, which is the best performing sector in the first half 2014.

Furthermore, China-based Alibaba Group Holding Ltd., plans to list its shares on the New York Stock Ex-change. With an estimated value of about USD 168 billion, Alibaba could be the largest-ever IPO in the U.S.

-35%

-25%

-15%

-5%

5%

15%

25%

35%

45%

Japan Display Inc HK Electric Investments &

HK E

Ally Financial Inc NN Group NV AA Ltd JD.com Inc

IPO performance

Performance offer-to-date, Source: Bloomberg, July 2014.

Asia-Pacific leads by deal volumeAsia-Pacific saw more IPOs in the first half of 2014 than any other region. Four of the 20 largest IPOs in the peri-od took place on Asian stock exchang-es — three IPOs on the Hong Kong Stock Exchange and one on the Tokyo Stock Exchange. While the reopening of the Chinese IPO market in January 2014 contributed to the strength in the region, the market was shut down again since several Chinese compa-nies that started trading were halted after gains exceeded limits set by the exchange. In addition, some compa-nies postponed their listings after the China Securities Regulatory Commis-sion (CSRC) stated concerns on high offering prices and high percentages of sales of secondary shares. Thus, Mainland China exchanges remained closed to new listings for much of the second quarter. During this period, a number of Chinese companies got listed overseas, such as e-commerce

company JD.com. The CSRC restarted the Chinese IPO market once again in June after some key amendments to the new listing rules. Ten companies were allowed to list on the Shanghai and Shenzhen stock exchanges. The reopening of the Chinese IPO mar-ket and the very strong pipeline of companies ready to go public bodes well for Asian IPOs in the remainder of 2014. With a further 100 Chinese companies now expected to be listed in this year and deal activity across a range of markets in the region, in-cluding Hong Kong, Japan and Austra-lia, the mood is one of optimism for the second half of the year.

Financial sponsors a key driver behind activity across multiple sectorsA look at the sector allocation of the first half of the year reveals that

different industries are represent-ed. Also, the top five biggest deals are all from different sectors. While this highlights investors’ willingness to consider opportunities regard-less of sector, it also underlines the key role of private equity (PE) and venture capital (VC). Financial spon-sor-backed exits have been a critical factor in the recovery of IPO activity. In EMEIA, the effect accounts for 25% of deals by volume and 51% of capi-tal raised. In the US, the effect is even more noticeable: PE- and VC-backed listings accounted for 64% of IPOs by volume and 81% of proceeds, includ-ing nine out of ten of the largest list-ings in the period.

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-5%

0%

5%

10%

15%

20%

25%

30%

Basic

Mat

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s

Comm

unicatio

ns

Consum

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yclic

al

Consum

er N

on-Cyc

lical

Divers

ified

Ener

gy

Finan

cial

Industr

ial

Tech

nology

Utiliti

es

Market share Offer to date

Sector allocation

The Consumer sectors comprise the biggest number of IPOs, while Com-munications, Materials and Energy comprise the best performing ones. Also, there is an indication of a nega-tive correlation between the number of IPOs and performance of these. An explanation might be that the en-vironment allows companies in some sectors to charge a higher price when entering the market, which decreases the chance of a strong performance following the issuance. Contrary, some sectors seem to be lower val-ued, which increases the possibility of large rises in the share price. High IPO prices are attractive for the pre-vious owners of a company, while

low IPO prices are attractive for the investors.

Future outlook is brightThe second half of 2014 is likely to be characterized by a period of nor-malization for the global IPO market. Stock indices around the world are trending higher, levels of volatility are low, and economic indicators are encouraging. Investor confidence has been further bolstered by the predominantly solid aftermarket per-formance of companies that have

gone public and the robust pipeline of IPO-ready businesses, indicating that there will be no shortage of op-portunities in the remainder of 2014. All the indicators are that the upward trend in activity is sustainable. How-ever, despite the increase in deals, pricing has come under pressure, suggesting that investors are display-ing a savvy and commendable level of caution. They are not prepared to invest in deals that are overvalued, which means that now more than ever those companies that come to market at the right time with the right growth story will attract investor in-terest only if they are prepared to ask the right price.

Source: ThomsonOne

21

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It’s not the money.It’s the magic.

With the favourable condi-tions of low interest rates and positions of high cash

levels, boardrooms finally regained confidence and as a result the first half of 2014 witnessed the long-wait-ed boom in M&A activity. With deals summing to $1.6bn for the first half-year, M&A activity has reached pre-crisis levels and is again marked by larger deal sizes. As of June 2014, 18 megadeals were announced.

Consolidation in the technology, media and telecommuni-cations (TMT) in-dustryThe largest deal this year and the third largest deal ever in the media industry was announced in February 2014, when Time Warner Cable ac-cepted Comcast’s offer of a friendly takeover stock-for-stock transaction of $45.2bn. This corresponds to an 18% premium and a transaction val-ue of $68.4bn. The announcement came after Time Warner Cable’s re-jection of the offer from the com-petitor Charter Communications, who had pursued the takeover for months, but lost the bidding war with a $37.8bn bid, deemed a ‘low ball of-fer’ by the target’s board of directors. The deal complements Comcast’s $16.7bn acquisition of the remaining half of NBCUniversal last year and the company is now approaching a market share of one third both with-in its pay-TV and Internet businesses. In late April, Comcast further an-nounced a three part, tax-free deal with an estimated value of $20bn with Charter Communications. This deal consists of selling, swapping and spinning out a total of 3.9m of Comcast’s subscribers as a part of

their plan to divest some of their sub-scribers in order to get the merger approved more quickly. A US market share of 30% is the horizontal owner-ship cap that has been vacated twice by the courts. The deal is expected to be completed at the end of the year with the approval from the FCC being the last hurdle.

As a direct response to this merger, AT&T and DirectTV announced in May 2014, that AT&T will acquire DirectTV for $48.5bn in equity value as an at-tempt to keep its competitiveness in the telecom industry. The deal is yet to be approved by the FCC, who will have to consider the strength of the new company’s position as a content distribution leader across mobile, video and broadband platforms. In general, the megadeals in the TMT industry are connected to higher val-uations of the companies that could end up as the new bubble.

Global Pharma, Medical & Biotech (PMB) are back in the gameCompanies in the PMB industry are pressured in terms of increasing scale, differentiating and getting more efficient. In the US, this pres-sure primarily stems from implemen-tation of disruptive healthcare policy reforms, consumer demand for prod-uct scope and domestic tax disadvan-tages. The pressure has led to a boom in PMB M&A activity, which reached the highest level since 2001 with total transactions worth $260.2bn in the first half of 2014. This value is high-er than the annual value for the last eight years and is primarily driven by six megadeals announced so far. The latest and largest deal is AbbVie’s unsolicited acquisition of Shire in a

deal valued at £31.9bn. The media considers it a prime example of an acquisition driven by tax inversion. Tax inversion refers to shifting or “in-verting” the domicile of the company outside the US in order to gain tax efficiencies. Further, there has been speculation that this motive is a sig-nificant driver of the fierce increase in deals, as companies sprint to land cross-regional deals while they can amid fear of the window closing due to heightened political scrutiny of foreign acquisitions. AbbVie’s finan-cial advisor, J.P. Morgan Chase, also worked with Pfizer in their failed bid to acquire AstraZeneca, which was also motivated by tax-efficiencies.

While tax efficiencies can also be attributed to the third largest PMB deal: Medtronic’s $46.2bn acquisi-tion of Covidien, the main drivers of the deal were the need for scale and product span in dealing with margins under pressure from changes in the US healthcare system. The deal will combine the world’s largest stand-alone maker of medical devices with a maker of surgical devices and cre-ate a close rival to the market leader, Johnson & Johnson.

Others are on the move too - Construction and TobaccoMegadeals have also been an-nounced outside the TMT and PMB industries with the most significant being the Swiss construction compa-ny Holcim’s acquisition of the French construction company Lafarge. The all-stock deal worth EUR 27.3bn was announced in April. The new compa-ny will have the number one position globally across cement, concrete and aggregates. In order to gain approval

The largest mergers of 2014By Katrine Jensen and Monica Wong

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for the acquisition, both groups will therefore be auctioning off assets to-talling EUR 5bn. These divestments will be mainly in Europe, which cur-rently suffers from overcapacity, and in areas where the companies’ busi-nesses are overlapping such as Can-ada, Mauritius and Brazil.

In July, the tobacco company Reyn-olds American announced their ac-quisition of Lorillard in a cash-and-stock transaction valued at $26.7bn. Reynolds American plans to keep the Camel and Pall Mall brands as well as Newport, the second-most popular brand in the US. The other brands in the Lorillard portfolio will be spun-off to Imperial in a $7.1bn deal. The merger provides Reynolds American’s largest shareholder Brit-ish American Tobacco (BAT) with a solid position in the $90bn US tobac-co industry. As Reynolds American increased their portfolio of brands, BAT invested $4.7bn in Reynolds American in order to maintain their

42 percent equity stake in the firm. However, the deal is precarious as it is under regulatory scrutiny and as the cigarette and tobacco market is maturing. With smoking rates de-clining 3 percent per year focus on achieving profit growth in terms of price is inevitable.

What to look for – Autumn 2014 and 2015The M&A market has bounced back with a vengeance recognizing that cost-cutting and organic growth is not enough to deliver in the challeng-ing world of today. The timing of the rebound is supported by increased confidence in the boardrooms, en-abling conditions of low-cost financ-ing and access to debt and disruptive changes in certain industries such as policy reforms. As Robert Rankin, co-

head of corporate banking and secu-rities at Deutsche Bank said, “A lot of these transactions have been consid-ered for a long time, but the courage to execute them has only returned in the last 12 months”. That corporate governance issues and regulatory in-terferences troubles the acquisition process is a common sight, however, we find it intriguing to see whether the announced megadeals will be ap-proved by the authorities. The Com-cast-Time Warner Cable deal is espe-cially interesting as it will significantly change the competitive environment of the TMT industry in the US. While it can be expected that M&A activity in the PMB industry will slow down for the second half of the year following the boom in the first half, we find that the TMT industry is still something to look out for in the near future, as the speed at which new innovative tech-nologies are developed are bound to disrupt the market.

Rank Announced Bidder company

Target company

Target dominant sector

Seller Company

Announced Total Deal value (US$bn)

Target Dominant Geopra-phy

Financial Advis-ers (B)

Financial Advisers (T)

1 2/13/2014 Comcast Corpora-tion

Time War-ner Cable Inc.

TMT - 68.4 USA J.P. Morgan Chase, Paul J. Taubman and Barclays

Morgan Stanley, Allen & Company, Citigroup and Centerview Partners

2 5/18/2014 AT&T Inc. DirecTV TMT - 66.0 USA Extensive internal M&A team, Lazard

Goldman Sachs and Bank of America Merrill Lynch

3 7/8/2014 AbbVie Inc.

Shire PLC PMB - 54.7 Ireland J.P. Morgan Chase Evercore Partners, Morgan Stanley, Citigroup, Gold-man Sachs and Deutsche Bank

4 4/22/2014 Valeant Pharma-ceuticals Interna-tional Inc.

Allergan Inc. (90.29%) stake

PMB - 54.2 USA Barclays, Morgan Stanley, RBC Capi-tal Markets

Goldman Sachs and Bank of America Merrill Lynch

5 6/15/2014 Medtron-ic Inc.

Covidien Plc

PMB - 46.2 Ireland Perella Weinberg Partners LP

Goldman Sachs

6 4/7/2014 Holcim Ltd

Lafarge SA Con-struc-tion

- 37.5 France Goldman Sachs BNP Paribas SA, Morgan Stanley, Rotchchild, Zaoui & Co

7 7/15/2014 Reynolds American Inc.

Lorillard Inc.

Tobacco - 26.7 USA Lazard and J.P. Morgan Securities LLC

Centerview Partners and Barclays

8 2/18/2014 Actavis Inc.

Forest Laborato-ries Inc.

PMB - 20.8 USA Greenhill & Co., Bank of America Merrill Lynch1 and Mizuho Financial Group2

J.P. Morgan Chase & Co.

9 3/14/2014 Altice SA SFR SA TMT Vivendi SA 18.8 France J.P. Morgan Chase, Morgan Stanley and Barclays

Citigroup and Lazard

10 2/19/2014 Facebook Inc.

WhatsApp Inc.

TMT Sequoia Capital

18,0 USA Allen & Company Morgan Stanley

Largest Deals in Q1 and Q2 of 2014

Source: Mergermarketgroup and Bloomberg, based on accounted deals

Blue = Recent announcementRed = Hostile

1) Bridge loan commitments2) Pending execution of final financing

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It does not take many finance classes to make you sceptical about following your uncles’ stock

picking advice. The same goes for investment advice in the popular press, from your bank (which is prob-ably crafted by your student analyst friends anyway) and many other sources. Without trading based on such ’noise’, however, stock markets might not exist at all. This article will explain how economists often think about noise traders and the role they play in financial markets.

The typical household investor will probably give you an odd look if you mention mean-variance optimization or market portfolios. Despite him not having chewed through count-less volumes of finance textbooks, he certainly won’t be lacking inputs on where to let his money grow. Invest-ment advice comes from everywhere, both in the press, on internet forums and via the occasional ’insider news-letter’ from the local bank. Many fi-nancial economists will think of such investors as ’noise traders’, trading on random information that is in fact

just ’noise’. While there is (as usual) some disagreement among econo-mists, as to the role played by noise traders, one thing is for certain; they are a large part of financial markets. Evidently, household investors hold nearly sixty percent of all outstand-ing US equities.

Are you smart enough to trade?Even though noise traders may seem to be nothing but ’happy fools’ in the eyes of economists, they play a cru-cial role - without noise traders, fi-nancial markets might not function at all. In a 1982 paper, Milgrom and Stokey showed that in a speculative market of fully rational agents (that is, no noise traders), there will be no trading in equilibrium, even in the presence of asymmetric information, as long as prior beliefs are identical. Picture the situation like this: If you have inside information about an asset and think you will become bet-ter off from trading, you will realize

that the person at the other end of the trade likewise will believe she will become better off - do you then still want to make the trade? Not if you expect the other party to be ratio-nal. In theory, most of trading ought to derive from differences in beliefs, and in fact a new paper by research-ers Li and Li from the Federal Reserve show that stock turnover increases in periods of large belief dispersion be-tween households.

You better hope the counterparty is acting on noiseObviously, there are trading reasons such as hedging, diversification or liquidity needs that would create trading demand, even in the case of rational, similar beliefs, but as Fisher Black argues in his ’Noise’ paper from 1986, financial markets generally see a turnover that is hardly explainable from these sources. Instead, he says, noise traders will act on random

Noise traders in financial marketsBy Oskar Harmsen

- do they matter?

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noise as if it was real information and will be willing to trade even though they might objectively be better off from not trading. The effect of noise traders will then be dual. Firstly, ra-tional investors will be more confi-dent in trading on their information, since they know their counterparts may be noise traders. Secondly, the ability to trade on information will make it valuable for rational inves-tors to seek out costly information. As such, noise traders provide the crucial liquidity that makes financial markets go around, or as Black puts it; “noise creates the opportunity to trade profitably, but at the same time makes it difficult to [do so]”.

Noise trading and market efficiencyCan markets be efficient when noise traders are around? This is where economists’ beliefs start to diverge - since there seems to be agreement on the role of noise traders, the dis-cussion really becomes one of wheth-er markets are efficient.

On the efficiency side, the classical argument is that noise traders are met in the market by rational arbi-trageurs, who constantly trade on superior information and thereby drive prices towards fundamental values. This is also the argument that professional trading on average is stabilizing markets, rather than caus-ing speculative bubbles. Friedman writes this in his 1953 paper as the

argument “that speculation is [...] de-stabilizing [...] is largely equivalent to saying that speculators lose money, since speculation can be destabilizing in general only if speculators on [...] average sell [...] low [...] and buy [...] high”. On average then, noise traders as a group will lose money to rational investors. The more they push pric-es from fundamentals, the more ag-gressively they will be traded against.Other economists argue that this mechanism might be severely limited in reality. For example fund manag-ers (who we might be inclined to per-ceive as rational investors) will usu-ally have short horizons because of biannual earnings reports, and may be risk averse. Will he be more con-cerned about differences between a current asset’s price and its funda-mental value, or about the price at which he may later liquidate or reg-ister the asset? Larry Summers and others presented a model in which investors with finite horizons were reluctant to take large bets against mispriced assets because of the risk that they would be even more mis-priced in the future. This limited the arbitrage mechanism, and, even in the absence of fundamental risk (e.g. about the value of the company in the case of a stock), markets were in-efficient. With Andrei Shleifer, a Chi-cago economist, he argued that noise traders should take the place as a ’paradigm’ instead of the efficient markets hypothesis, and that we may attribute much of the anomalies discovered by behavioral finance to noise traders.

Weighing theargumentsWhat side is right? As always, it is difficult to tell. The concept of noise traders allows explanation of a num-ber of stock market anomalies, but stand against massive evidence on efficient markets, suggesting they may not affect prices at all. Also, in a methodological sense, the theory of noise traders may be difficult to falsify, which would lead some advo-cating caution in using it to explain anything at all. In my view, the core of the disagreement is on whether noise trader risk is diversifiable. For the risk not to be, there has to be room for noise trader ’sentiment’, such that large groups of investors can be bullish or bearish at the same time. Given the existence of bubbles (which is itself a disputed subject), this does not seem to be completely off, but evidence goes to both sides.Where does that leave the discussion around the family table, when invest-ment advice starts flying around? If nothing else, you can comfortably lean back, ignore the noise, and know that there will be a counterparty to your trades on the day where you want to act on your own insightful analyses. Just hope they’re not based on noise.

Black, Fischer. “Noise.” The journal of finance 41.3 (1986): 529-543.

De Long, J. Bradford, et al. “Noise trader risk in financial markets.” Journal of political Economy (1990): 703-738.

Friedman, Milton. “The case for flexible exchange rates.” (1953): 157-203.

Li, Dan, and Geng Li, “Are Household Investors Noise Traders? Evidence from Belief Dispersion and Stock Trad-ing Volume.” FEDS, Federal Reserve Board, Washington D.C. (2014).

Milgrom, Paul, and Nancy Stokey. “Information, trade and common knowledge.” Journal of Economic Theory 26.1 (1982): 17-27.

Shleifer, Andrei, and Lawrence H. Summers. “The noise trader approach to finance.” The Journal of Economic Per-spectives (1990): 19-33.

Papers referred to in this article

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Significant PE deals 2013-2014

The global private equity indus-try showed a strong come back in 2013, resulting in the highest

aggregate amount of capital raised since 2008. The total global PE capi-tal raised, when the books closed on 2013 reached a level of $454bn. Still, deal making is the heart of private

equity, and although the activity was up in value, deal count was down, compared to the previous three years. This article aims to shed light on two significant PE deals. The end, for one of the biggest buy-outs in his-tory - TXU a Texan utility, and the be-ginning for another, the takeover of

the US consumer giant Heinz in one of the food industry’s biggest deals.

However, the PE market trend mov-ing into 2014 is experiencing increas-ing optimism and with several inter-esting deals, the investor appetite for private equity in 2014 remains high.

By Morten L. Siggaard and Emil Ignatzi Reinholdt

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Significant PE deals 2013-2014 The death of largest leveraged buy-outQ2 2014 witnessed the filing for bankruptcy for TXU, also known as Energy Future Hold-ings Corp., which remains as one of the biggest private equity deals in history represent-ing a deal value of $44.37 billion in 2007.

Back then a trio of top private equity firms, in-cluding Kohlberg Kravis Rob-erts & Co., TPG Capital and Goldman Sachs Capital Partners, acquired the Texas power utility leaving TXU more than $40 billion in debt, or converse-ly 8.2 times the company’s adjusted EBITDA. When the company on April 29, 2014 filed for bankruptcy, the un-answered question remained, what caused this to happen? The an-swer

may be a combination of several un-forseen incidents. As the financial cri-sis hit shortly after the closing of the deal, it seemed that the buy-out was facing a race against the odds. Steven Kaplan, professor at the University of Chicago Booth School of Business comments on the timing of the deal and the over-optimism shared by the majority of the industry;

“Energy Future is emblematic of the peak of the buyout boom, when

firms did very high-priced, over-lev-eraged deals that left little room for error. When you buy into a cyclical

industry at the peak and you get the bet wrong, bad things happen.”

The period just before the TXU deal in 2007 was characterised by a booming economy with the result of a rise in the demand for electricity. This was all good signs prior to the buy-out, but following a period of falling natu-ral gas prices shortly after combined with an increased competition, espe-cially from companies offering sup-plements such as ex-tracting natural gas from shale, the buy-out suddenly went down in value. Consequently, the Energy Future deal could be seen from the outside as not only a strat-egy of backing the wrong horse, but also a gamble that natural gas prices would rise and act as competitive ad-vantage. Instead, natural gas prices fell sharply. The inevitable result of this was sizable financial losses cou-pled with the upcoming maturity of a significant debt load followed by the tempting conclusion that this bank-ruptcy in the end might have arisen from a failure of energy pricing pre-dictions combined with unforseen macroeconomic changes from the financial crisis.

Takeover of an elephantIn 2013 the biggest takeover in the

history of the food industry took place as Warren Buf-fet’s Berkshire Hathaway teamed up with Brazilian private equity firm 3G Capital to ac-quire industry giant H J Heinz Com-pany, famously known for its food products such as Heinz Ketchup and Heinz Beans. This mega-deal of GBP 18bn was realized in collabora-tion with US banks J.P. Morgan and Wells Fargo who both provided capital for the takeo-ver. On the advisory side, Bank of America advised Heinz on the deal while Lazard ad-vised the ac-quiring side.

Since the takeover analysts have ar-gued that America’s most well-known investor, Mr. Buffet has once again invested in a sound business with substantial growth potential. Ana-lysts have thus argued that despite the somewhat fragile recovery in many Western economies Heinz has the potential to becoming a domi-nant player in fast growing re-gions like Asia. Especially the business’ strong brand is highlighted as a key competitive advantage that will help the company attain growth through market entries and consoli-dations. In fact one of the key elements in the rise of the stock price before the takeover was former CEO William R. Johnsons strategy of pushing Heinz

15 largest brands into emerging market economies. Asia has proved an especially sound investment for Heinz and this strategy is expected to be maintained under the new man-agement.

Another strategy of value creation introduced by the new owners is emphasis on cutting costs. Since 3G Capital and Berkshire Hathaway took over they have replaced former CEO Mr. William R. Johnson with former Burger King CEO Mr. Bernardo Hees who has cut away 600 office positions in Canada and US to ‘simplify the or-ganization’ as a Heinz spokesperson put it. The cuts will help the Heinz Company to introduce more accoun-ta-bility and enable faster decision making within the organization. The strategy of cost cutting was ex-pected as Bernardo Hees managed to reduce costs by about 30 pct. at his former employer Burger King, which was also acquired and owned by 3G Capital until they took the company public in 2012.

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From the perspective of the studentsAs an undergraduate, graduate or MBA student you find tons of avail-able summer internships offered by both small investment banks you have barely ever heard of, and the big financial institutions you have always dreamed of working for. Basi-cally, you get an internship in invest-ment banking for two reasons: first-ly, to learn and secondly, to land a full-time offer. A summer internship in investment banking is typically an intensive eight to ten-week introduc-tion to the firm and the industry.

Every year there is a fierce compe-tition in getting a spot at a summer

internship program to the differ-ent investment banks. At Goldman Sachs there was an acceptance ratio of 2% last summer, where they had 17.000 applicants. This year there was an even more fierce competition at another investment bank, Morgan Stanley, where there were 90.000 ap-plicants for their summer program. Despite the financial crisis, the big investment banks don’t seem to have any problem in attracting student ap-plicants. So why is there such a huge motivation among the students in ap-plying for the summer internships?

The path of getting the internshipBefore landing a summer internship, you must go through a thorough re-cruitment process. Normally, the

process begins in September and ends no later than January depend-ing on which bank the student apply to. The recruitment process starts by sending in CV and cover letter. Af-ter submitting your files you will be asked to complete numerous online tests. It is only after passing the on-line tests the bank will even look at you application. It is needless to say that your CV and application need to be outstanding to be invited to the next stage: the interview stage. The interview process typically consists of first rounds telephone interviews, followed by a assessment centre and case studies that the student com-pletes at the bank’s office. There are several ways to prepare for the re-cruitment process. Many students use AskIvy or Vault, which are web-sites that consist of, among other, career advice, interview guides, mod-elling tests that are designed to help

Summer internship in investment banking – what’s all the buzz about? By Kristin Horn and Anni Fong

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the student for a career in investment banking and other areas in finance. Having done a fair share of network-ing before the recruitment season is a significant advantage. This can con-sist of informal meetings during the summer and/or weekend trips near recruitment season. A weekend trip is a 2-3 days trip to a financial centre (New York, London or Hong Kong), where the student typically book 5-10 meetings per day, which are informal interviews. By doing the networking before hand, the student get a signifi-cant advantage as the bankers will re-member who you are if the informal interviews are successful. As there is so much preparation to be done, the whole recruitment process will pro-vide a huge learning curve. So even though if you do not get an offer, you will still have learned so much, which makes the application process itself a motivation in applying.

The summer internshipThe beginning of the internship con-sists of an introductory part, where the student gets to learn more about the company and has several types of courses. The rest of the internship involves different projects the stu-dent has to participate in. During the internship you will get practical expe-rience, which is a tremendous advan-tage when applying for a full time job later on. Additionally, the summer analyst gets to network with fellow students, which can possibly be fel-low colleagues in the near future. Further, this gives the student the time to decide if this is really some-thing he/she or not. This minimizes risk the possibility to choose a wrong fulltime job later on.

After the summer internship, what’s next?When the internship is over, there are several advantages. First of all your CV will be strengthened signifi-cantly. Having completed the intern-ship you will have a major advantage relative to other students who did not complete an internship in getting

a full time offer. Should you decide banking is not for you there is still an advantage when applying to oth-er firms. Remember, firms always prefer students that have had intern-ships over students that have not.

From the perspective of the banks Why are summer internships so im-portant to all the banks? They offer this over and over, so what are the pros by doing this? It is not surprising that the competition between invest-ment banks is tough and a talented base of employees is one of the most valuable assets for the bank. From this point of view it is crucial to re-cruit the most talented people in or-der to outperform competitors. To recruit most talented people for full-time positions, summer internships or internships in general is a good non-committed way for the banks to test young ambitious students and whether they fit into investment banking and the company. This is why the recruiting process for sum-mer internships is as comprehensive as applying for a full-time position in investment banking. In spite of the extensive recruitment process the responsibilities given to summer an-alysts are similar to that of a full-time analyst. According to Goldman Sachs, which is the best-ranked bank within M&A in 2013 by Thomson Reuters, a very significant portion of their full-time Analyst and Associate classes comes from their summer intern-ships.

But not only is it about getting the most suited people for investment banking, but from the perspective of the banks it is important to make an effort in offering the best and most attractive internships. The banks are selective in choosing the best students, but the students are also selective and targeted in choosing which internships to apply for.

To sum up, summer internships are invaluable for both students and banks. For students it is the best way to enter the one of the most presti-gious and sought after careers in fi-nance. For banks it remains the best

way to attract talent at an early point while branding themselves as the best employers. By the looks of it, the financial crisis has not diminished the popularity of summer internships, if anything the opposite could be true as even more attention has been cast on investment banks.

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Every time FIFA has to find a host for the World Cup there is always great competition

to have the honour. But why do countries fight over who gets to spend a ton of money on hosting this massive event?

World’s biggest soccer partyThis summer we have all been wit-nessing the 32-day event in Brazil amalgamating cultures around the globe. But what impact does such a significant event have on the host’s economy?

Every fourth year when the World Cup is held, visitors from around the world can be amazed of the many great facilities that have been built for the event. You may have won-dered why these countries would be willing to spend billions on stadiums for a giant sporting event. Obviously

there must be a very good reason for Brazil to spend this much money on a sports event, so what’s in it for them?

There are many reasons for a coun-try to host this kind of event, one of which is tourism. Brazil was expect-ed to attract 600.000 tourists for the event, and with calculations based on average spending of the tourists at past tournaments from the Economic Research Institute Foundation they project visitor spending for the 2014 World Cup to approximate $11.1 bil-lion in total. Although this seems like a very large gain from the World Cup, it’s actually just a tiny gain in the tril-lion-dollar economy of Brazil. From this perspective the gains from tour-ism shouldn’t be enough for Brazil to want to host the event.

An additional gain from hosting is international branding of your coun-try, which might improve Brazil’s in-ternational standing and attract in-vestments and people to Brazil. This could be a powerful booster for the

Brazilian economy. However, the World Cup appears to be is a very large investment in something that is not guaranteed at all. Looking at South Africa’s economy since 2010, shows that it had a minor upturn in 2011, but since then the GDP growth has decreased by almost 50%points1. Hence, we see a pattern of short-term hype, but no lasting effects on the economic growth. Analyst Bar-bara Mattos also expressed how the “event will provide short-lived sales increases that are unlikely to mate-rially affect earnings and disruptions associated with traffic, crowding and lost work days will take a toll on busi-ness.”

In spite of this, Brazil’s tourism Min-ister Vinicius Lages says: “The Cup is not an economic panacea but a cata-lyst for Brazilian development. [...] It was a key factor behind Brazil finally overhauling its infrastructure.”

He predicted that the 32-day event would add about $13.6 billion this

1) Numbers from the world bank

The Economics of FIFA – what’s in it for Brazil?By Daniel Fleischer & S. Nadine Raida

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year to the Brazilian Economy. And additionally, the event will add long-term value for the economy. Ernst and Young made a report with the Brazillian economic institute, Getulio Vargas Foundation, concluding that the cup will produce a surprising cas-cading effect on investments. In addi-tion, the report measured the impact of both FIFA World Cup and the 2016 Olympics to add 4 percentage points a year to economic growth through 2019 as well as creating no less than 3.6 million jobs, and with a popula-tion of about 32 million people living in poverty this will have great mean-ing for Brazil.

This reflects one of the main reasons many developing countries choose to host this massive event. It is a great way to get things done. It creates a deadline for some modernisation processes especially in infrastructure. This can be very important for a coun-try like Brazil, which is known for hav-ing difficulty implementing economic legislations of reformation. Maybe

this is also a reason for Brazil’s failure to exploit this opportunity to invest in the country’s long-term growth. Bra-zil is a country with massive inequal-ity, a Gini-coefficient of 0.59, and a fairly high level of corruption. This is how some people explain, why the Brazilian government has mostly fo-cussed on investing in grand and very inaccessible stadiums, and not solv-ing some of the very serious prob-lems in infrastructure. You could also point out that maybe infrastructure should not be the first priority, but that with a haltering educational sys-tem creating further inequality, this should be Rousseff’s (Dilma Rousseff, the Brazillian president) main area of attention. According to Paw Research Center the Brazilians agree with 61% thinking that the World Cup is bad for their country, and histories of com-munities being evicted to make way for stadiums and houses for athletes makes it hard to disagree completely with this view.

Taking all this into account it still

does not seem clear why the Bra-zilian government would choose to host the World Cup, against the will of the people and not with any clear or guaranteed economic benefits. This might not be explained by eco-nomics, but by something even more irrational... namely politics.

Coinciding with the World Cup is the presidential election in Brazil, and with the World Cup it might have been possible for Rousseff to win the election on the feel-good-buzz of the event. Now though it seems as if a bulletproof plan is failing, because what the World Cup really has done is highlight the extreme inequality of the nation, and the need for mod-ernisation. One way the World Cup has surely created a gain for Brazil is that it has pushed the people to their limits and out onto the streets. From here they might even be heard and start the change that the government promised the World Cup would bring.

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By Bo Laursen

The significance of high-frequency trading in global markets

What is high-frequency trading?

High-frequency trading (HFT) has been one of the most discussed top-ics within the financial industry over the past decade. But what is high-fre-quency trading really? There is no of-ficial definition of HFT and therefore it is often confused with phrases such

as algorithmic trading, electronic trading, black box trading, quantita-tive trading, automatic trading etc. In academic literature HFT is often spec-ified by systematic trading using an algorithmic execution method at very high speed.

Refers to a computer driven system that makes portfolio allocation decisions, decisions about when to buy/sell or decisions about which specific assets to buy/sell.

Refers to the computerized execution of a trade. That is, when a trade has been decided, a computer may de-termine how to process the order given current market conditions, whether to execute a trade aggressively/pas-sively, or whether to execute the order in one trade or in several smaller trades.

Systematic trading

Algorithmic execution

HFT is characterized by a higher number of trades and a lower average gain per trade com-

pared to traditional fundamental investments. Typically HFT firms engage in multiple intra-daily trades and close the positions so only a few, if any, are carried overnight.

It has been found that returns based on high-frequency intra-day trading have a very little correlation with returns based on traditional long term investment strategies. In terms of the classical CAPM terminology this means that HFT portfolios are

zero-beta and may therefore serve as valuable diversification tools for long-term portfolios. The most obvious aspect of compe-tition for firms engaging in HFT is speed. Whoever is able to act first upon a profitable trading opportunity capture the biggest profit. The firms need to collect data, run their mod-els and execute the trades as fast as possible. To gain speed on the col-lection of data HFT firms spends mil-lions each year to place their trading models on computers geographically close to the exchanges in so-called co-location centres. The speed at

which the HFT firms compete is mil-liseconds (1/1000 sec.).

HFT has been intensely debated in the past decade. Advocates of HFT argue that it improves liquidity and thereby shrinks the bid-ask spread making it cheaper to trade for every-one. On the other hand opponents argue that HFT destabilize the mar-ket and introduces the possibility of so-called flash crashes i.e. crashes where the market returns to its initial position in a short period of time. More information about co-location, flash crashes, regulation, technologi-

“Muhammed Ali

I’m so fast that last night I turned off the switch in my hotel room and was in bed before the room

was dark.

cal developments and HFT in general see the “Algorithms and high-fre-quency trading” section in Financelab Magazine 8.

Statistics of high-frequency tradingMost HFT firms are based in New York, London, Singapore or Chicago. Since speed matters in HFT the com-panies utilize strategies that depend on their geographic location. For in-stance, several Chicago based HFT

companies exploit their proximity to the Chicago Mercantile Exchange to develop faster trading strategies for futures, options and commodities. On the other hand New York based firms tend to have preferences for U.S. equities. Some HFT companies in London take advantage of the Euro-pean time zones. London may there-fore have a larger proportion of firms trading foreign exchange compared to the rest of the world. The Singa-pore based firms specializes in the Asian markets.

Examples of large companies in the financial sector practicing HFT are Getco, Renaissance Technologies,

D.E. Shaw, Millennium and Worldqa-unt.

Of all asset classes equity remains the major asset for HFT companies. Of all companies specializing solely in HFT 83% of them trade equities, while the number is only 26% for foreign ex-change. This pattern may be partly explained by the fact that the major-ity of the equity, futures, and option trades are executed algorithmically (a prerequisite for HFT). On the other hand a lot of the trades in the fixed income and foreign exchange mar-kets are made over-the-counter.

Asset classes traded by HFT-companies

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330% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Equities

Futures

Options

Bonds

FX

Figure 1

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Figure 2

Considering equity alone as the major asset class figure 2 shows the preva-lence of HFT in different parts of the world. The most striking result is that more than half of all the equity trades in the US can be considered being of high-frequency. The rest of the world is far behind America with Europe at a second place with 35% of the trades.

Figure 3 shows the evolution of HFT in the equity market for America and Eu-rope. It is obvious that there has been a tremendous increase in the market. In the years before 2000 the market share of HFT in equity was less than 1% in both US and EU. Technological improvements and large profits for the companies involved dramatically increased the popularity of HFT. The US market peaked in 2009 with a mar-ket share of 61%, while the EU market peaked in 2010/2011 with 39% of the equity trades being of high-frequen-cy.

High-frequency trading, share of equity trading 2012

Share of equity trading (2005-2014)

0%

10%

20%

30%

40%

50%

60%

70%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

EU

US

Revenue for HFT-companies trading US equity ($bn)

0

1

2

3

4

5

6

7

8

2009 2010 2011 2012 2013 2014

In the most recent years HFT has been on a decline. Figure 4 shows the revenue for US HFT companies during the period 2009-2014. Revenues and profits from trading US equities have fallen dramatically since the volatility needed to foster ideal conditions for HFT have declined from what it was at the height of the global financial crisis.

Figure 3

Figure 4

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US trading companies by type

The last figure shows that while HFT accounts for a very large part of the trading volume in the US market, the number of companies specializing sole-ly in HFT constitutes only 2% of the total market.

To conclude, HFT makes up a very large part of global trading volumes, at least for equities, futures and options. As HFT specialized firms compete for increased speeds and the best strategies there is little doubt that HFT will remain sig-nificant and most likely will increase in significance going forward. As this race occurs and HFT spreads across all asset classes, we could be witnessing what is the future for all trading. But only time can tell us the answer to that.

Hedge Funds 42%

Broker-dealers 23%

Mutual Funds 33%

HFT Companies 2%

US trading companies by type Figure 5

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Nordic Trading Competition

AF SAJEEV SHANKAR / FOTO CASPER BALSLEV

Computerne er klar og parate. Det samme er de 15 deltagere, der har kvalificeret sig til tur-neringen Nordic Trading Competition. Fordelt på fem hold skal deltagerne se, hvem der i løbet af dagen kan få 100 millioner virtuelle kroner til at yngle mest. Bag konkurrencen står Financelab, der er en studenterorganisa-tion, som er bygget op omkring medlemmer-nes fælles interesse for at handle med aktier. Deltagerne i konkurrencen er dog ikke medlemmer af foreningen, men derimod studerende fra CBS. Fire en halv times aktie-handel skal nu afgøre, hvem der har bedst styr på dagens kursudvikling. Frederik Ploug

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Søgaard er formand for Financelab og er en af initiativtagerne til konkurrencen. Han byder velkommen til deltagerne og giver dem en kort ”market briefing”. Det vil sige en oriente-ring om begivenheder, der kan få betydning for udviklingen på dagens marked. ”Konkurrencen er dog bevidst lagt på en dag uden de helt store begivenheder i finans-markedet. Det er gjort, så det er de deltagere, der er bedst til at bruge de analytiske redska-ber, der vinder”, fortæller Frederik. ”Release the bulls” råber han ud til for-samlingen. Konkurrencen er nu i gang. Delta-gerne i dag har alle deltaget i de tradingkur-

ser, der blev holdt i foråret. Vinderne ved hver af disse kurser er de 15, der er her i dag, og de er dermed de bedste af de 200 oprindelige deltagere. Skal finde de bedste af de bedste”Today is about finding the very best of the best”, som Wayne Walker siger. Han er under-viser på trading-kurserne og har flere års erfa-ring med aktiemarkedet efter at have arbejdet som trader tidligere i sin karriere. Han har store forventninger til deltagernes kunnen, og sammen med sin kollega Ole Quistgaard er han dommer ved konkurrencen

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Qualify for the next

SEPTEMBER 2014

11 NORDNET - OPTIMIZE YOUR RETURN 17:00 - 20:00, Århus Event Type: Education

18 FINANCELAB AT CBS STUDENT SOCIETY DAY All Day, Copenhagen Business School, Solbjerg Plads 3 Event Type: Career

19 - 28 FINANCELAB STUDY TRIP A full week, London Event Type: Career

OCTOBER 2014

1 INVESTMENT PANEL - APPLICATION 08:00, Århus Event Type: Career

6 SPRING INSIGHT PROGRAMMES WITH DEUTSCHE BANK Time and place TBA, Copenhagen Event Type: Career

9 FINANCELAB QUANT EVENT ON CVA 18:00 - 22:00, Place TBA Event Type: Education, Social

9 WOMAN IN FINANCE 16:00 - 21:00, HOW601, Howitzvej 60, 2000 Frederiksberg Event Type: Social

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9 NORDEA - RISK MANAGEMENT 16:00 - 19:00, Århus Event Type: Education, Career

10 - 11 INVESTMENT STRATEGY CHALLENGE 2014 14:00 - 17:00, Nordre Ringgade 1, 6000 Århus, Danmark Event Type: Education, Career, Social

28 INSIGHT INTO DEUTSCHE BANK CB&S: MARKETS 18:00 - 22:00 Copenhagen Business School, Fuhu-lounge, Porcelænshaven 26, 3. tr. 2000 Frederiksberg Event Type: Education, Social

30 FINANCELAB QUANT EVENT ON STRUCTURING 18:00 - 22:00 Copenhagen Business School, Fuhu-lounge, Porcelænshaven 26, 3. tr. 2000 Frederiksberg Event Type: Education, Social

30 CLEARWATER INTERNATIONAL - M&A COURSE Time & place TBA, Århus Event Type: Education

31 INVESTMENT CAMP 2014 All Day, Copenhagen Event Type: Education, Career, Social

NOVEMBER 2014

2-3 BASIC TRADING COURSE 08:00 - 16:00, Århus Event Type: Education

DECEMBER 2014

4 BLACKROCK - THE WORLD OF ISHARES 16:00 - 19:00, Aarhus Event Type: Education

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The people we work with

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