With most global fixed income markets priced for perfection, investors are flocking to the one yield hold-out left: emerging market debt. But are investors really being compensated for the risk?
To the surprise of many, rating agency Standard & Poor’s (S&P) upgraded Portugal to investment-grade status on Monday. This pushed yields on the country’s government bonds down, and interest from international investors is already picking up.
The improving economic outlook in the euro area has prompted the European Central Bank to consider reining in its monetary stimulus. How should investors respond to the prospect of monetary tightening in Europe?
Fund managers and fund selectors alike are haunted by the prospect of Trumpian rule, but still deem a Clinton victory more likely. However, it’s paramount investors don’t leave themselves too exposed to the consequences of a Trump triumph.
Financial markets have lacked direction in recent months, with the main equity indices all very close to where they were at the start of the year. Macroeconomic data are not strong enough to reinvigorate the bull market, yet not sufficiently weak to stoke fears of recession.
The decision by the ECB to include investment-grade corporate bonds in its asset purchasing programme has led to a spike in issuance and to yields edging even lower. While this market response was anticipated by the central bank, its stimulus efforts threaten the viability of the asset class in the longer term .
Fearing that the current preoccupation with long/short equities will lead to short trades becoming too crowded, José Luís Borges insists on his long/short funds being market-neutral. However, the Lisbon-based head of institutional portfolios at BPI Gestão de Activos is otherwise happy to be overweight equities.
José Luís Borges is head of institutional portfolios at BPI Gestão de Activos in Lisbon. His favourite fund, in which he has been investing on behalf of his mainly pension fund clients for seven years now, is the Jupiter European Growth Fund.
Investors are in disagreement about whether high yield bonds are a good buy now. A quarter of European fund buyers plan to increase their allocation in the next 12 months, but an almost equally big share of them intend to decrease exposure. Fund flows have also been capricious of late.
With volatile market
conditions prevailing, many
investors are turning to cash
as a risk-reducing measure.
But are they really doing
themselves a favour?