Pixabay CC0 Public Domain. Inversis apuesta por una cartera diversificada, con la atención puesta en emergentes y en EE.UU.
Allfunds, wealthtech and fund distribution company, has been selected by China Merchants Bank (CMB) Group as its B2B investment fund platform partner. Therefore, it will become the provider of access to third-party funds for its all overseas PWM&PB centers, especially in Hong Kong and Singapore markets.
Allfunds revealed in a press release that, with this agreement, CMB group will use its “proficient fund distribution capabilities to support its fast growing private wealth management and private banking business globally”. This move is also in line with the bank’s strategy of continuing to deploy overseas business, and to make sustainable development and investment.
By selecting Allfunds, CMB’s overseas businesses will be able to gain access to the world’s largest fund distribution network with a broad range of investment funds and take advantage of the asset services the wealthtech provides in Asia and globally. This include data & analytics, portfolio & reporting tools, research and regulatory services. Also, CMB aims to use Allfunds’ automatic dealing to increase the efficiency and boost the growth of its fund business.
Allfunds believes that the cooperation with the leading private bank in China -and Top 10 banking brands according to The Banker magazine- will provide an opportunity to further expand and strengthen its position in Asia Pacific, as well as enhance its comprehensive and integrated solutions for third party funds. The Asian market is a core part of its growth strategy and an extremely important region for the wealthtech.
“We are very pleased to partner with CMB, a highly reputable and leading private bank in China. We are excited about the huge opportunities ahead in the Asian and Chinese wealth management markets, which is an important part of our growth strategy as we continue to expand the global fund distribution network. We look forward to supporting CMB’s continuous expansion in the region”, said Juan Alcaraz, Founder and CEO of Allfunds.
Meanwhile, David Pérez de Albeniz, Regional Manager for Asia, stated that CMB is well-established with the position of an innovation-driven digital bank in the region. “As a leading wealthtech company, our team in Asia is committed to client experience, innovation and digital solutions. We are delighted to be able to help CMB move forward on the vision and support its growth ambition with our value-added and cutting-edge wealthtech solutions”, he added.
Allfunds has a branch in Singaporeand a team of 17 employees who bring in-depth knowledge of the particularities of the Asian markets as well as substantial experience in the region. Earlier this year, they opened a new office in Hong Kong as the hub for its North Asia business, broadening its ecosystem with new distributors and fund managers coming from the region.
Pixabay CC0 Public Domain. Bank of America confía en que las vacunas impulsen el crecimiento en un entorno donde la incertidumbre dominará el corto plazo
With a surge in COVID cases and uncertain fiscal policy, Bank of America believes the near-term outlook is “weak and uncertain” but expects the roll out of multiple vaccines to boost global growth, particularly in the developed market economies with the biggest problems containing COVID, but with the best access to vaccines.
In the firm’s report for 2021, global economists Ethan S. Harris and Aditya Bhave point out that “we are not out of the woods yet” due to the surge in COVID cases and uncertain fiscal policy, but in their view more stimulus and “wide vaccine distribution” should boost growth mid-year.
For the United States, they think it will be a transition year, “moving back to services from goods, to private from public and to in-person from virtual” as “the scars from COVID will remain”. Specifically, they look for the economy to grow 4.5% in 2021. In the Euro area, after falling a 7% in 2020, they expect a 3.9% and 2.7% growth this year and in 2022.
Meanwhile, in Latin America they forecast GDP growth to rebound to 3.8% in 2021 after a decline of 7.4% in 2020 and fiscal deficits to likely improve. “But many countries will still be far from stabilizing their debt ratios and will need to develop credible exit strategies”, they warn.
In the near term, the most important uncertainties for Bank of America are around the US: “We are still very much in the rising part of the COVID curve and it will take a number of weeks to gauge the damage to public health and the economy. Fiscal policy is equally uncertain, with a potential stimulus package of anywhere from zero to a trillion dollars”, the report points out.
That’s why, medium term, the speed of a vaccine roll out is “critical”. “Of importance is not only the supply of doses but also the demand, i.e. the degree to which vaccine skepticism will slow progress towards herd immunity. If delays in vaccine rollouts in emerging markets are even longer than expected, investors should look for developed markets growth outperformance in 2021”, says the firm.
Four growth drivers
The bank identifies four major cross currents in the global economy that will be key drivers of growth: the evolution of the pandemic, the distribution of vaccines, another round of fiscal stimulus and a “more organized” trade war.
“The outlook is quite stable for countries that have done a good job containing the virus with effective testing, tracing and quarantining systems. By contrast, countries that have not contained the virus are super sensitive to the near-term surge in COVID cases and the medium-term surge immunizations”, the experts say.
That’s why, in their opinion, the roll out of highly effective vaccines will be the key driver for global growth. “A key part of our forecast is that we expect some vaccine nationalism, with countries that manufacture vaccines first immunizing large parts of their own populations before exporting to the rest of the world”. Thus the US likely will get most or all of the initial doses of the Moderna vaccine. And in general, developed economies will tend to get the vaccine faster than emerging markets. Among the second ones, China will probably be the first to get herd immunity.
The firm expects another round of fiscal stimulus worldwide. For the US, they are forecasting 750 billion dollars fiscal right after the Presidential Inauguration on January 20 and across Europe they expect more moderate stimulus of 1-2% of GDP.
The last cross current to watch is the trade war, which, after Joe Biden’s presidential victory, they expect to be “smaller and more organized”. Biden has said he will try to work with US allies to present a united front for dealing with “bad actors.” For Bank of America’s economists, that would include a continued push back against Chinese violations of intellectual property rights, national security concerns and human rights issues. “We would expect him to dial back battles with Europe, Canada, Mexico and allies in Asia, while seeking to reform rather than sideline international organizations. This means a much less uncertain climate for multinational businesses”, they conclude.
Inflation, deflation
Lastly, the experts reveal their outlook for inflation: “Inflation refused to budge before the pandemic, despite a long economic recovery and apparent full employment in much of the world. In our view, this stickiness was mainly due to the fact that many years of low inflation had lowered inflation expectations even as labor markets finally started to tighten. The effect was to both flatten and shiſt down the Phillips Curve”.
In their opinion, the COVID crisis has punched a hole in inflation, and whatever inflationary pressure was in the global economy has now leaked away: “It will take a number of years for most central banks to hit their targets”.
Foto cedida. BlackRock compra el proveedor de índices personalizados Aperio
BlackRock has entered into a definitive agreement to acquire Aperio, a pioneer in customized index investing, for 1.05 billion dollars. The asset manager announced in a press release that they will buy the business from Golden Gate Capital, a private equity company, and will incorporate Aperio’s employees.
BackRock is already a provider of SMAs for U.S. wealth management-focused intermediaries, specialized in customized actively-managed fixed income, equity, and multi-asset strategies. The firm pointed out that this acquisition will boost its SMA assets by roughly 30% to over 160 billion dollars.
It also “expands the breadth of personalization capabilities available to wealth managers from BlackRock via tax-managed strategies across factors, broad market indexing, and investor ESG preferences”. In its view, the combination with Aperio will set a new standard for personalized whole portfolio solutions in the SMA market.
“The wealth manager’s portfolio of the future will be powered by the twin engines of better after-tax performance and hyper-personalization. BlackRock and Aperio, working together, will bring unmatched capabilities to meet these objectives. The combination will bring institutional quality, personalized portfolios to ultra-high net worth advisors and will create one of the most compelling client opportunities in the investment management industry today”, said Martin Small, head of BlackRock’s U.S. Wealth Advisory business.
Meanwhile, Aperio co-heads, Liz Michaels and Ran Leshem, commented that the they have been “honored” to earn the trust of the most demanding wealth managers by always putting investors’ interests first and partnering with advisors to solve the complexities of UHNW investors through research integrity and excellence in human-centric client experience.
“With BlackRock, we have found a like-minded fiduciary firm with long-standing roots in tax-efficient indexing, a commitment to sustainable investing, and diversity, equity and inclusion, and a track record of delivering consultative whole portfolio solutions to wealth management intermediaries. We are excited to harness BlackRock’s capabilities and reach to keep innovating on behalf of an even larger base of wealth managers and institutional investors”, they added.
Vertical integration
Aperio is a pioneer in customizing tax-optimized index equity SMAs to deliver wealth managers capabilities that “embrace the uniqueness of each investor and enhance after-tax performance”. It also pioneered individually personalized ESG portfolios that enable investors to elevate the purpose of their wealth and make an impact on causes deeply important to them.
Aperio’s high-touch consultative client service model focuses on ultra-high net worth households and institutions served by private banks and the fast-growing independent registered investment advisor (RIA) market. The U.S. retail and wealth SMA market totals approximately 1.7 trillion dollars in assets and is growing at approximately 15% annually and 35% among RIAs. With over 36 billion dollars of assets under management as of September 30, 2020, Aperio has outpaced the industry with an average annual organic asset growth rate of nearly 20% over the past five calendar years.
BlackRock plans to operate Aperio as a separately branded, vertically integrated team within its U.S. Wealth Advisory business. Aperio will retain its investment, business development, client service, and ESG-SRI processes under the leadership of Ran Leshem and Liz Michaels, who will become co-heads of the team. Their current CEO, Patrick Geddes, will maintain his role as Aperio’s Chief Tax Strategist and become a BlackRock senior advisor, focusing on broadening portfolio construction research and tools for taxable investors across asset classes.
“We are thrilled to welcome the Aperio team to BlackRock. We look forward to bringing Aperio’s innovative mindset in financial services to BlackRock and drawing on the team’s decades of experience to expand our offerings to even more advisors and their clients. This transaction deepens our presence in the San Francisco area and reflects the critical importance to BlackRock of tapping the innovation taking place on the West Coast of the U.S”, said BlackRock’s Chief Client Officer, Mark McCombe.
Pixabay CC0 Public Domain. NN IP lanza un fondo de crédito alternativo destinado a la financiación del comercio global
NN Investment Partners has launched the fund NN (L) Flex Trade Finance, offering institutional investors access to a conservative portfolio of short-dated trade finance loans which are sourced globally. The asset manager announced in a press release that they will partner with Channel Capital Advisors LLP to enhance sourcing and pipeline management of the strategy.
“Trade finance allows institutional investors to enter a USD 15 trillion market that has been dominated by banks until recently. In trade finance, investors can find a potent portfolio diversifier that offers a yield pickup over liquid credit and that is efficient from a solvency capital perspective”, they pointed out.
The asset class is short in tenor which, in NN IP’s view, provides natural liquidity and allows portfolio managers to react quickly to changing circumstances. The investment strategy focuses on well-rated loans that facilitate a specific sale of often essential goods, which are supported even under stressed market conditions.
“Strict investment guidelines ensure a highly diversified portfolio in terms of geography, sector and counterparties, without employing leverage”, they said. Also, portfolio construction is aimed at properly diversifying risk whilst still allowing for a robust analysis of each individual transaction on credit and environmental, social and governance (ESG) criteria.
In this sense, the firm will assess each transaction of the strategy on ESG criteria using a specific framework for trade finance and align each of these with the Sustainable Trade Criteria from the International Chamber of Commerce. In addition to this, they will apply proprietary policies with a focus on financing sustainable goods with positive social impact (encouraging responsible consumption) and restricting the financing of goods with negative impact (such as coal, crude oil and tobacco).
Suresh Hegde, Head of Structured Private Debt, commented that, in the current low-interest-rate environment, there is growing demand for trade finance amongst institutional investors. “Building on our 10-year track record in financing international exports, we have spent a considerable amount of time assessing the short-dated trade finance market. We are delighted to offer a strategy which allows institutional investors to benefit from the attractive characteristics of these assets in a robust and responsible manner, without adding undesirable idiosyncratic risk”, he added.
A sub-fund with monthly liquidity
The asset manager revealed that the NN (L) Flex Trade Finance has a medium-term target return of USD LIBOR + 3-4% gross with a weighted average credit rating of BBB-/BB+, and an average maturity of less than one year. It offers institutional investors quarterly interest income distribution and monthly liquidity.
The strategy is a sub-fund of NN (L) Flex, established in Luxembourg. NN (L) Flex is duly authorised by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg. Selected share classes of the sub-fund are currently registered in Luxembourg, Netherlands, Germany, France, United Kingdom and Italy.
Climate change will cause enormous damage to economies, especially in the emerging world. People in China could be 25 per cent poorer by the end of the century than if there were no further climate change if we do nothing more to slow the rise in global temperature. For Brazil and India the shortfall is likely to exceed 60 per cent, according to modelling by a team of environmental economists at Oxford University’s Smith School in a new report sponsored by Pictet Asset Management.
Globally, that deficit could reach some USD 500 trillion – as a worst case, nearly half of the world’s potential economic output would be lost by the end of the century compared to potential in the absence of further global warming. But this impact won’t be spread evenly. Some of the world’s biggest emerging economies are at greatest risk, particularly if they leave the heavy lifting on slowing climate change to the developed world and do little themselves. Vulnerable to rising sea levels, drought and severe weather events, these countries need to take action to limit climate change.
Fortunately, they increasingly recognise that the effort will be worthwhile. Worldwide, people are aware of the challenges presented by climate change, understanding that it leads to a loss of biodiversity, more flooding, arid farmland, forest fires and the like. And so governments are being forced into action. Thankfully this now makes the worst case a relatively unlikely one.
But merely sticking to current policies doesn’t do enough either. The loss in potential GDP per capita would be smaller, but not by much. At best the loss in potential GDP per capita might be reduced to 32 per cent from 46 per cent. And that’s without factoring in impossible-to-predict cascading effects where small incremental changes lead to a suddenly catastrophic outcome.
But were countries to act collectively, they could make up a significant chunk of that foregone output. That means action by developed and developing countries.
The Oxford team’s “current policies” scenario is that global warming would be some 2.8 degrees Centigrade above pre-industrial levels if efforts were limited to the richest countries, with 1 degree of that warming having already occurred. Should that temperature increase be cut to 1.6 degrees under an ambitious programme that included emerging economies, potential losses could shrink to a quarter or less.
And right now, there is a unique opportunity for countries, rich and poor, to make radical progress towards limiting the likelihood of catastrophic climate change. The COVID-19 pandemic has been a huge global shock. Public health measures, such as lockdowns, have inflicted huge financial costs. Governments were quick to respond and have committed vast sums to economic recovery. In many cases it makes financial sense for this expenditure to be directed towards measures that mitigate climate change.
Read more about the Oxford-Smith paper at this link.
Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
Foto cedidaDe izquierda a derecha: L. Jose Corena, Managing Director for the Americas y Enrique Pérez Iturraspe, director regional para Chile y Perú de MFS en Santiago. MFS Meridian Funds disponibles ahora en Chile
MFS Investment Management® (MFS®) has completed the local registration process with Chile’s Financial Market Commission (CMF) for 21 of its MFS Meridian Funds®, making them broadly available for sale through financial advisors and other financial intermediaries.
“Completing this process represents a significant step forward in broadening the availability of the MFS Meridian Funds to the growing retail investor base in Chile. Furthermore, it enhances our relationships with local distributors who can now more easily add the MFS Meridian Funds across their local investment platforms,” said L. Jose Corena, managing director for the Americas, MFS International Limited.
Previously, the MFS Meridian Funds were available via certain private placements through a select number of distribution partners in Chile.
“We are extremely pleased to be able to provide greater choice in the Chilean retail market. With the local registration of the MFS Meridian Funds, we can provide enhanced diversification options for our partners through their different channels and client segments. The MFS Meridian Funds can be held across various individual investment account types, including those in the APV (Voluntary Pension Savings) market,” said Enrique Perez Iturraspe, regional director for Chile and Perú for MFS in Santiago.
The 21 MFS Meridian Funds represent strategies investing across the capital markets worldwide, which include global, regional and emerging market equity and fixed income strategies, as well as multi-asset strategies. The funds offer daily liquidity and are domiciled in Luxemburg under the SICAV form. Some of the strategies which have received interest in Chile previously are MFS Meridian Funds® – Prudent Capital Fund, MFS Meridian Funds® – U.S. Corporate Bond Fund, MFS Meridian Funds® – Global Opportunistic Bond Fund, MFS Meridian Funds® – European Research Fund and MFS Meridian Funds® – U.S. Value Fund.
MFS has been serving the Americas for more than 30 years, supporting clients from its hubs in Miami, Boston and London, as well as locally in Chile, through its office in Santiago.The MFS Meridian Funds are a line of 36 funds totaling nearly US$35 billion in assets available in major markets throughout the Americas and Europe.
Foto cedidaRick Lacaille, Senior Investment Advisor para liderar el programa ESG de State Street.. Rick Lacaille, nombrado nuevo Senior Investment Advisor para liderar el programa ESG de State Street
State Street Corporation announced in a press release that it has appointed Richard F. Lacaille –Rick Lacaille– to the newly-created role of senior investment advisor. He will lead the company’s Environmental, Social and Governance (ESG) solutions, services and thought leadership across all its businesses.
Lacaille will report to Ronald O’Hanley, chairman and chief executive officer of State Street Corporation, and, as a consequence of his appointment, Lori Heinel has been promoted to global chief investment officer for State Street Global Advisors.
The firm pointed out that, for many years, they have been at the forefront of innovation across its businesses, developing best-in class ESG capabilities including reporting and analytics tools, premier academic research, and investment solutions and products. They believe Lacaille will ensure their strategies are well-coordinated and optimized to serve clients’ increasing demand for ESG servicing, guidance and investment solutions.
“With more than two decades of leadership at State Street Global Advisors and his role as chair of State Street’s executive corporate responsibility committee, Lacaille is absolutely the right leader to take our firm’s ESG efforts to the next level. We believe ESG considerations drive long-term value for investors, and will only become increasingly more important as drivers of return and risk”, said O’Hanley.
The company also explained that Heinel, who joined State Street Global Advisors in 2014 as chief portfolio strategist and has served as deputy global chief investment officer since 2016, will assume Lacaille’s role as global chief investment officer. In the press release, they highlighted that she has been “a driving force” for a number of key initiatives across the business including implementing consideration of financially material ESG issues throughout the investment process.
In her role, Heinel will oversee the full spectrum of industry-leading investment capabilities from index funds and ETFs to active, multi-asset class solutions and alternative investments. She will lead an investment team of more than 600 professionals globally and will report to Cyrus Taraporevala, president and chief executive officer of State Street Global Advisors.
Taraporevala commented that Lori taking the reins as global chief investment officer will bring to fruition years of succession planning. “She is a change leader who I believe is strongly positioned to lead State Street Global Advisors’ Investments team, as we continue the investment innovation which has been a hallmark of our strategy for decades.”
The company noted that Lacaille and Heinel will assume their respective new roles by March 31, 2021 after a “careful and deliberate transition”.
A recovery in the job market and record levels of household savings should lift consumer spending worldwide. Investment will also get a boost from rising profits and maintenance cycles. Trade is also recovering fast and even though spending on services will remain well below pre-COVID levels, the sector should gain strength, too.
Investors should also expect the environment to become a greater priority in 2021 – fuelling growth in sectors like clean energy. Joe Biden’s victory in the US presidential election will provide further momentum to this shift. Across the globe, green investment will form a key part of fiscal stimulus packages, feeding into a strong and synchronised economic recovery.
Pictet Asset Management’s business cycle indicators point to to mid-single digit growth in world gross domestic product (GDP) in 2021, but positive base effects cannot hide the long-lasting damage caused by the pandemic. Pictet Asset Management estimates that the fallout from COVID-19 will permanently reduce global GDP by 4 percentage points. It will take years before the global economy can go back to pre-COVID-19 levels.
The growth gap between emerging and developed markets will widen further to the benefit of both developing world equities and debt, thanks in a large part to China – the only major economy to avoid a contraction this year. From industrial production to car sales and exports, most of China’s primary economic activity indicators are already back at or above December 2019 levels, and set to expand further. Retail sales have lagged slightly but Pictet Asset Management expects private consumption to recover gradually in the coming months.
The near term outlook for the US economy is dependent on the fiscal relief programme currently under negotiation. A package north of USD1 trillion – Pictet Asset Management’s base case scenario – could push US growth above 5 per cent next year.
Globally, though, Pictet Asset Management would expect fiscal stimulus to be reduced compared to 2020 – not through a return to austerity policies, but because Pictet Asset Management expects fewer new measures. Central banks will act as “shock absorbers” by keeping rates low and maintaining stimulus. However, liquidity conditions are still likely to deteriorate. Pictet Asset Management estimates that the total assets of major central banks will expand only USD3 trillion next year. This is double the yearly average seen the 2008 financial crisis but significantly below this year’s record USD8 trillion.
History tells us that this matters for risk premia. Pictet Asset Management´s models suggest that global equities’ earnings multiples could contract by as much as 15 per cent next year, but this is likely to be more than offset by an approximate 25 per cent surge in corporate profits.
Government bond yields in the developed world are likely to move gently higher tempered by central bank action which could include balance sheet expansion by the European Central Bank and yield curve control by the US Federal Reserve.
Fixed income and currencies: conditions improve for emerging bonds, TIPS
Even if Pictet Asset Management expects the global economy to recover strongly from the ravages of the pandemic in 2021, the surge in GDP growth is unlikely to lead to a sharp sell off in developed market government bonds. That’s primarily because central banks won’t take any unnecessary risks.
Both the ECB and the Fed will do whatever is required to keep policy accommodative and ensure a self-sustaining recovery. For the ECB that means more bond purchases and the continuation of cheap loans to banks; for the Fed, that could involve adding yield curve control (YCC) – anchoring policy to specific bond yield targets – to its anti-crisis measures.
All the while, inflation will remain below central banks’ targets. Nevertheless, the combination of strong growth and rising commodity prices will feed through to a moderate pickup in inflation expectations. That’s a dynamic investors should pay attention to: while it translates into only a very gentle rise in nominal government bond yields in 2021 (Pictet Asset Management sees 10-year Treasury yields edging up to 1 per cent) it points to a further fall in real yields.
This would provide a boost to US Treasury Inflation-Protected Securities (TIPS). Pictet Asset Management expects them to outperform all developed market nominal bonds; real yields should remain close to -1 per cent as inflation expectations gather momentum.
In a year that will see healthy global growth and increased international trade, emerging market local currency bonds should also fare well. They are among the very few fixed income assets offering a yield of above 4 per cent. Adding to their investment appeal is the prospect of a strong rally in emerging market currencies – which should unfold as the global economy recovers and as trade tensions ease under a Biden administration. Currently, emerging market currencies are close to 25 per cent undervalued versus the US dollar according to Pictet Asset Management’s model. Chinese renminbi debt should have a particularly strong year – not only benefiting from its attractive yield compared to developed world bonds but also from the asset class’s increased presence in mainstream bond benchmarks.
Prospects for developed market corporate bonds are mixed. High yield bonds are not especially attractive at this juncture. To seasoned fixed income investors that would seem unusual as history shows sub-investment grade bonds outpace equities during the final throes of a recession and in the early phase of a recovery. Yet the problem this time round is that high yield debt is already expensive.
In the past, high yield bonds’ outperformance has taken hold whenever the gap between their real yields and stocks’ dividend yields was above 10 percentage points. The strong run would then fade as the yield gap approached 3-5 percentage points. With the yield gap currently standing at 1.5 percentage points, however, the scope for high yield bonds to register significant gains appears very limited.
Investment-grade corporate bonds are more appealing – their returns compared to those of US Treasuries are low compared to the levels normally seen at this point of the economic cycle.
When it comes to currencies, 2021 doesn’t promise to be a good year for the dollar. There are several reasons why. For one thing, the greenback’s allure should fade in the face of a synchronised global economic recovery. Then there’s the prospect of a surge in the US budget deficit and continued intervention from the Fed – a fiscal and monetary expansion which will likely place further downward pressure on the currency. The dollar continues to trade well above what fundamentals – such as interest rate and growth differentials to the rest of the developed world – suggest is fair value.
Gold should continue to rally – Pictet Asset Management forecasts the gold price will hit USD2,000 by end-2021. Continued quantitative easing by global central banks, a weaker trajectory for the dollar and real rates dipping further into negative territory should all underpin demand for gold.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
The COVID-19 pandemic has ravaged economies worldwide. Weak infrastructure and healthcare systems, dependence on commodities and tourism for income, and high debt loads have left emerging markets suffering disproportionately.
But looking beyond the short-term, prospects for these countries are hopeful. Vast fiscal and monetary stimulus have poured into the global financial system as governments everywhere look to mitigate the pandemic’s impact on their economies. A considerable proportion has been earmarked for infrastructure. Crucially, governments will be in a position to restructure their economies in ways that not only boost their productivity but are also environmentally friendly – to build back better. Indeed, in many cases the greener course of action is also the most economically sensible for emerging markets, according to a report by Oxford University’s Smith School sponsored by Pictet Asset Management.
Even before Covid-19, the green investment potential of emerging economies was huge. It’s estimated that the Paris Agreement has paved the way for some USD 23 trillion in climate smart opportunities in emerging markets by 2030, according to the World Bank.
So far, their performance has been mixed. Yet, there is political momentum, driven by a groundswell of popular support, for green recovery from COVID-19, in a way there wasn’t following past pushes like the 1997 Kyoto agreement. Government efforts are reinforced by and reflect a groundswell of environmental activism by both individuals, companies and communities.
Not that it necessarily needs new money. For instance, public subsidies for coal, oil and gas production and consumption amounted to roughly USD 500 billion worldwide in 2019, compared to USD100 billion for renewables.
In many cases, this support is provided by governments of less developed economies in an effort to develop oil and gas fields or to keep their populaces happy with cheap energy. But just reversing those subsidies would make huge strides towards climate change mitigation. And would save tens of billions of dollars from becoming stranded assets.
Between USD 5 trillion and USD 17 trillion of assets are already at risk if governments decide to pursue a high ambition strategy of limiting warming to 1.6˚C. That’s the value of infrastructure and other assets that would have to be mothballed to achieve the lowest rate of warming in Oxford’s scenarios. Further investment into fossil assets only pushes the value of stranded assets higher.
The green economy already makes up some 6 per cent of the global stock market, according to FTSE Russell. For it to expand further, investments will need to flow beyond the power sector, which currently receives most low-carbon funding, to agriculture, transport and forestry among others.
The significant structural changes economies need to undergo to mitigate climate change will absorb large amounts of funding over a long period, but financing is also needed for the many smaller, cost-effective measures that can be taken to adapt to the rise in global temperatures. For instance, early warning systems for storms and heat waves are estimated to save in assets and lives ten times what they cost. In all, adaptation currently represents just 0.1 per cent of private climate finance flows.
There’s an inevitability about the shift towards greener investment. The economics are moving in that direction. The finance will follow. Governments and private investors are likely to heed the early signals and allocate capital accordingly.
Read more about the Oxford-Smith paper at this link.
Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
The world stands to lose nearly half of its potential economic output by the end of the century. That’s the shortfall we face if we fail to make further progress on climate change.
But this is only an average. According to Laurent Ramsey, Co-CEO of Pictet Asset Management and Managing Partner at Pictet Group, emerging markets are at risk of faring even worse given their particular vulnerabilities to rising sea levels, drought and slumps in agricultural output. It’s a bleak picture. But there are also reasons for hope.
The scientific consensus on climate change is becoming widely accepted, and governments, individuals and businesses have started to act. With the benefit of some clear thinking and careful planning, much more can be done. Particularly across the emerging world.
Everywhere, human ingenuity, technological advances and the understanding that comes from experience and education are all positive forces that will drive efforts to mitigate climate change and to help us adapt to its effects.
This paper by Professor Cameron Hepburn and his team at the University of Oxford Smith School of Enterprise and the Environment offers a deep and broad analysis of the risks and opportunities emerging economies – and the world more generally – face from climate change. Their insights are based on the latest economic and climate modelling techniques.
It is research that Pictet Asset Management is proud to have sponsored. The dynamics this report describes will play a critical role for investors over the coming decades. The pace at which governments act will determine how capital should best be allocated, be it regionally or across asset classes.
Pictet Asset Management responsibility as managers of their clients’ assets is to understand the forces that shape the world, not just during the coming quarter or two, but sometimes over lifetimes – indeed, this frames their pioneering thematic approach. It also underpins their commitment to investing in emerging markets, which, notwithstanding short-term fluctuations, represent the greatest potential for long-term economic growth. Just think of the enormous strides these countries have made over recent decades.
Such are the foundations on which Pictet has grown during the past two centuries. But as talented as their own analysts, economists and investment managers are, Pictet Asset Management recognizes there is always more to learn. For nearly a millennium, Oxford’s academic community has created a well of knowledge that has profoundly influenced the course of humanity. Pictet Asset Management´s own history suggests that they have also had some success in taking the long-term view.
Which is why Pictet Asset Management has forged this partnership with Oxford’s Smith School. Thanks to their vast expertise in both environmental economics and emerging economies,
And, extraordinarily, they’ve done so through the lens of one of the most traumatic global developments in modern memory.
Compounding the challenge of how to negotiate the long-term peril presented by climate change is a more immediate crisis – the Covid-19 pandemic that has ravaged communities around the world. As this paper makes clear, the vast fiscal and monetary packages governments continue to put in place to support their economies over the near term can also considerably help efforts to limit global warming over decades to come if invested wisely.
Thankfully, the worst-case outcome, that of failing to do anything more to prevent global warming than we already have, is unlikely. Governments, businesses and individuals have recognized the need for action and have put steps in place.
Rather, the issue is: how much do we do? We can’t take for granted that all the effort will come from the developed world. Emerging countries are at risk of suffering disproportionately from the effects of global warming. And I think they are rising to the challenge – not least because taking measures is an investment that will often reap considerable rewards, and not just over the very long term.
In some areas, emerging economies are even well placed to take a lead. China already accounts for the lion’s share of photovoltaic cell manufacturing, is at the forefront of research and development and is one of the biggest adopters of the technology. Renewables combined with decentralised energy systems could help other emerging economies escape the need for massive investment in large networks. And as renewables become ever more cost effective, many of these countries could end up with cheaper energy than their developed rivals.
Some of the measures governments introduce, such as redirecting fossil fuel subsidies towards renewable energy sources, will be temporarily unpopular because they run counter to embedded interests. But the economic justification is clear. As the cost of power generated by renewables falls, fossil fuels will become ever less attractive. Great swathes of infrastructure devoted to fossil fuel production and use will be mothballed.
Ultimately, the work done by Professor Hepburn and his team leaves us hopeful. The challenges posed by climate change are huge. But they’re not insurmountable. And the emerging world has both its role to play and rewards to reap.
Read more about the Oxford-Smith paper at this link.
Except otherwise indicated, all data on this page are sourced from the Climate Change and Emerging Markets after COVID-19 report, October 2020.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
Important notes
This material is for distribution to professional investors only. However it is not intended for distribution to any person or entity who is a citizen or resident of any locality, state, country or other jurisdiction where such distribution, publication, or use would be contrary to law or regulation. Information used in the preparation of this document is based upon sources believed to be reliable, but no representation or warranty is given as to the accuracy or completeness of those sources. Any opinion, estimate or forecast may be changed at any time without prior warning. Investors should read the prospectus or offering memorandum before investing in any Pictet managed funds. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Past performance is not a guide to future performance. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested.
This document has been issued in Switzerland by Pictet Asset Management SA and in the rest of the world by Pictet Asset Management Limited, which is authorised and regulated by the Financial Conduct Authority, and may not be reproduced or distributed, either in part or in full, without their prior authorisation.
For US investors, Shares sold in the United States or to US Persons will only be sold in private placements to accredited investors pursuant to exemptions from SEC registration under the Section 4(2) and Regulation D private placement exemptions under the 1933 Act and qualified clients as defined under the 1940 Act. The Shares of the Pictet funds have not been registered under the 1933 Act and may not, except in transactions which do not violate United States securities laws, be directly or indirectly offered or sold in the United States or to any US Person. The Management Fund Companies of the Pictet Group will not be registered under the 1940 Act.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in North America to promote the portfolio management services of Pictet Asset Management Limited (Pictet AM Ltd) and Pictet Asset Management SA (Pictet AM SA).
In Canada Pictet AM Inc is registered as Portfolio Managerr authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA. In the USA, Pictet AM Inc. is registered as an SEC Investment Adviser and its activities are conducted in full compliance with the SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref. 17CFR275.206(4)-3.
