🔒As Maine companies look overseas, understanding global economies is key

With ties to Iceland through Eimskip, an October trade mission planned to Japan and China, and Portland's selection as host to the global Arctic conference in 2016, more Maine companies are looking beyond the horizon, especially to Asia and Europe.

The need to watch currency, policy and other economic moves in countries where they expect to partner or set up shop is becoming ever more pressing.

Mainebiz recently talked about global economic trends with Jessamyn Norton, chief investment officer and senior vice president at Portland-based Spinnaker Trust, a Maine bank chartered as a non-depository trust that manages more than $1.2 billion for 300-plus clients.

In the first half of 2015, Greece's economic problems, Federal Reserve Board monetary policy and jobs reports were the dominant economic influences.

“Positive economic data during the second quarter has put the investing public on 'Fed Watch,'” she noted.

After its July 29 meeting, the Fed kept interest rates near zero and cited progress in the U.S. job market. The Fed put its benchmark interest rate close to zero more than six years ago to bolster the weak economy. Correctly timing its first rate hike since then is key to not panicking markets.

Norton called the Fed's policy statement “status quo,” and said it won't change the market's opinion that a rate hike is coming at either the Fed's September or December meeting.

“If the rate hike should fall in September, it is likely that we'll see two 25 basis point [0.25 percentage point] hikes in 2015. If it falls in December, we'd expect just one 25 basis point rate hike,” she said.

All eyes also were on second quarter gross domestic product growth, which was relatively strong at 2.3% on a quarter-on-quarter basis, within market expectations, she said. First quarter GDP was revised upwards to 0.6%.

“In short, we saw better growth and inflation in the first half of the year. This makes a Fed interest rate hike in 2015 more likely,” she said.

The rate also should help banks improve their net interest margin — the ratio of net interest income to average interest-earning assets.

Litigation related to the financial crisis and mortgage business has kept net interest margin low over the last five years, she said, but most litigation is in the past.

She said banks have become leaner and meaner and are closing poor-performing branches. She expects consolidation among banks, notably among community banks with 35 to 40 branches that are burdened with cumbersome and expensive regulations and whose management is reaching retirement age.

Financials, primarily bank stocks, are a sector Spinnaker prefers for its clients. The average client has $3 million in assets under management by the firm, with a typical portfolio having 70% equity and 30% fixed income positions.

Norton also said U.S. equities have lagged behind international equities, the first time in many years that international markets outperformed the S&P 500, which is up only 1.2% so far this year. She added that earnings estimates by U.S. companies were down severely in the first quarter and revised later, but probably are still too low.

“We are expecting strong performance during the fourth quarter, as we believe that earnings estimates are too low,” she said. That could be a boon for investors.

Japan and Europe did very well in the first quarter and that will continue in the second half.

“For Maine businesses with global inclinations, the environment for Europe and Japan will pick up in the next 12 months,” she said, but with the still-weak Euro, “Maine companies need to watch their currency exposure.”