BlackRock Expands Its Range of iShares iBonds UCITS ETFs with the Launch of Eight New Funds

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BlackRock has expanded its range of iShares iBonds UCITS ETFs with the launch of eight new vehicles based on exposures to investment-grade corporate bonds, increasing the iShares range of fixed-maturity UCITS ETFs to 25 funds with maturities between 2025 and 2034. According to the asset manager, these new ETFs aim to provide affordable access to the corporate bond market, enhanced by cost efficiency, transparency, liquidity, and diversification through ETFs.

“The iBonds ETFs hold a variety of bonds with similar maturity dates. Each ETF provides regular interest payments and distributes a final payment in its set maturity year. Designed to mature like a bond, trade like a stock, and diversify like a fund, the iBonds ETFs simplify bond laddering with just a few ETFs instead of searching for and buying numerous individual bonds,” BlackRock has emphasized.

These new iBonds ETFs add additional maturities in IG corporate debt to the iBonds range, across multiple countries and sectors in each ETF. The ETFs offer four defined maturity dates in December of 2031, 2032, 2033, and 2034, in both U.S. dollars and euros in IG, giving investors flexibility between currencies, maturities, and countries.

“As the range of iBonds UCITS ETFs expands, investors will be able to benefit from greater versatility to meet specific needs of their portfolios and expand use cases, such as bond laddering. These new iBonds ETFs provide an additional option for clients seeking to lock in yields at a specific point on the curve, along with the operational efficiency and convenience of the ETF vehicle,” said Brett Pybus, Co-Global Director of Fixed Income iShares ETFs at BlackRock.

The iBonds ETFs can be used by investors to complement existing investment vehicles, in an easy-to-understand structure that aims to achieve performance through a combination of capital appreciation and income derived from coupon payments on the underlying bonds. The set of ETFs can also be used to add scale to bond portfolios offered by investment advisors and improve operational simplicity. The iBonds are available through wealth management platforms, including digital ones, and brokers across Europe.

“Investors can also use these iBonds UCITS to build scalable and diversified bond ladders. By buying bonds with different maturity dates, investors can stagger the final payments and reinvest in funds with subsequent consecutive maturities, creating bond ladders. The unique structure of the iBonds ETFs makes it easier for investors to structure their investments to meet shorter-term objectives and achieve defined returns over specified investment periods,” concludes the entity.

SIX Buys Aquis, the Seventh-Largest Trading Platform in Europe, for 234 Million Euros

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European stock exchanges strengthen their potential. SIX Group AG (SIX) has announced an agreement to acquire Aquis Exchange Plc (Aquis), the seventh-largest trading platform in Europe, for 234 million euros. According to their statement, the offer values the entire issued and to-be-issued share capital of Aquis at approximately 250 million euros (207 million British pounds) using a treasury shares methodology. SIX views this acquisition as a key opportunity to complement its strategy of expanding its trading business beyond its national markets. The combined resources and capabilities of SIX and Aquis create a pan-European exchange that encompasses traditional primary market exchange businesses and MTF (Multilateral Trading Facilities).

Both companies emphasize their shared philosophy regarding innovation in capital markets, liquidity, and providing options to users, further enhancing SIX’s ability to serve clients in Switzerland, Spain, and across Europe. “The unique value proposition of combining Aquis’ cutting-edge technology solutions business with SIX’s capabilities opens the door to recurring revenue streams. Additionally, it offers the opportunity to create a competitive pan-European listing hub for growth companies by combining Aquis’ and SIX’s growth company listing segments,” they explain.

The companies highlight that Aquis offers SIX the chance to expand its current trading offering by adding Aquis’ MTF business to SIX’s existing primary market listing and data activities, thus extending SIX’s pan-European presence beyond its national markets. Clients and shareholders of SIX benefit from the enhanced capabilities of the combined group and pan-European access to trading services, along with new growth opportunities and the strengthening of the Swiss and Spanish financial centers.

SIX shares with Aquis a strong commitment to innovation in capital markets and sees Aquis as having a similar philosophy regarding liquidity, offering opportunities to users and challenging traditional pan-European operators across the entire value chain of trading. “Aquis’ cutting-edge technology solutions, combined with SIX’s expertise in trading, data, and multi-asset post-trade services, enable a unique value proposition that opens the door to recurring revenue streams,” they state.

Moreover, the combination with Aquis, whose infrastructure facilitates access to capital markets for SMEs and growth companies, is expected to create an opportunity for a competitive pan-European listing hub that complements SIX’s existing segments for growth company listings. SIX expects Aquis to create an increasingly attractive offer for retail brokers by expanding SIX’s universe of tradable securities and improving the quality of retail liquidity execution across Europe.

Bjørn Sibbern, Global Head of Exchanges at SIX, remarked: “We believe that combining Aquis with SIX’s platform is an attractive opportunity to unite two companies that share a commitment to innovation in capital markets. The combination will add Aquis’ strong offering to our traditional primary listing and data businesses, complementing SIX’s growth company listing segments. As part of SIX, Aquis will continue to operate with its existing brand and business model with maximum agility, while benefiting from our resources, scale, and new investments, thereby enhancing its ability to further develop its operations. We look forward to welcoming the Aquis team to SIX and continuing to build an innovative pan-European exchange operator.”

Alasdair Heynes, CEO of Aquis, added: “I am immensely proud of the business we have built over the past twelve years. From its inception as a subscription-based exchange for startups in 2012, Aquis has evolved into a multi-product, diversified European exchange group that creates and facilitates more efficient markets for a modern economy. This has only been possible thanks to continuous technological innovation and the tireless efforts of our staff. Aquis has a clear path for growth ahead; however, the Board acknowledges that there are always some operational, commercial, and market risks associated with creating future value. The cash offer reduces the risk of future value creation and provides Aquis shareholders with significant premium value. As part of SIX, we have an exciting opportunity to accelerate the development of our business and compete more effectively at a European level, while retaining our entrepreneurial spirit. SIX shares our deep commitment to innovation in capital markets, and together we will be better positioned to help SMEs and growth companies access capital markets.”

How Does the Fed’s Rate-Cutting Cycle Affect Private Credit?

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After 15 months of aggressive tightening, the U.S. Federal Reserve (Fed) shifted its stance and cut its benchmark rate by 50 basis points in its first move. The second step came a week ago, when it announced another cut, this time by 25 basis points. Although the market had anticipated both moves, the Fed has not given any indication of its future pace or whether there will be a pause in December. This lack of guidance opens up debate and raises questions, among other things, about what the appropriate neutral rate will be and how Donald Trump might impact monetary policy.

“The impact of the end of the ‘higher for longer’ interest rate policy on direct lending and private credit in general is not straightforward, as multiple factors come into play. First, direct lending has experienced significant growth in recent years due to banks’ limited capacity to expand their balance sheets, combined with the ability of non-bank lenders to offer faster and more precise execution. The variable-rate nature of direct lending has been extremely attractive to investors, as they could benefit from high yields and strong distributions during a period of rate tightening. However, it is also important to consider that rate cuts could reduce total returns for direct loan investors, assuming spreads remain unchanged,” emphasize Nicolas Roth, Head of Private Markets Advisory at UBP, and Gaetan Aversano, Deputy Head of the Private Markets Group at UBP.

According to their latest report, the economy is entering a soft-landing phase in this initial period of monetary policy easing, and the immediate effect will be an increase in liquidity in the system, creating refinancing opportunities at potentially lower capital costs. “Borrowers with variable-rate loans will benefit from an immediate reduction in interest costs. Investors should closely monitor the pace of the cuts and the strength of the economy, as a hard landing would imply a significant slowdown in business activity, which in turn would increase covenant breaches and, ultimately, defaults, leading to loan losses,” they warn.

In this context, they also consider it important to assess the interconnected relationship between direct lending and private equity, as direct lenders often provide loans to sponsor-backed companies. “As mentioned earlier, lower interest rates will drive up valuations, along with mergers and acquisitions (M&A) activity and leveraged buyouts (LBOs), creating demand for private credit financing. This is not only positive for market liquidity but will also help accelerate capital deployment, reducing pressure on uninvested capital (dry powder),” they state.

These rate cuts also coincide with increased competition from banks with direct lenders and the potential for borrowers to refinance some loans at a lower cost. According to their report, while direct lenders used to finance at 550 basis points over the risk-free rate, banks can now offer cheaper financing (below 400 basis points on some transactions). “A new paradigm is being created in credit markets, as banks are beginning to collaborate with large non-bank lenders rather than compete. The underlying logic is that banks used to serve their corporate clients in both equity and debt capital markets (ECM and DCM). Due to regulatory pressure and higher capital requirements, banks are now referring debt business to direct lenders in exchange for a fee, while maintaining the ECM relationship with their corporate clients, creating a win-win situation,” they conclude.

COP29: A New Opportunity for Climate Financing at a Historic Moment

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COP29 climate financing historic moment

COP29, held in Baku, capital of Azerbaijan, is a new opportunity to refocus on climate finance, as it calls for a follow-up to the first review of global climate action and the call to phase out fossil fuels agreed at last year’s COP28.
In addition, the event came at a unique time, following the US presidential election, amid increasingly extreme weather events and conflicts in the Middle East and Ukraine.

From Columbia Threadneedle, they explain that the main goal is to establish a new target for climate change financing in developing countries, replacing the 2009 goal of providing $100 billion annually until 2030. Since that target was set, financing needs have surged, largely due to more severe and rapid physical climate risks than anticipated. While estimates vary significantly, an analysis by the Independent Expert Group on Climate Finance suggests that developing countries (excluding China) will need around $2.4 trillion annually until 2030. These financial needs cover support for clean energy transitions, climate adaptation, and compensation for losses and damages caused by increasingly extreme weather events.

“The discussions on this goal, the New Quantified Collective Goal for Climate Finance (NCQG), will not only focus on the global scale of required climate financing but also on the extent to which the private sector should contribute. Significant increases in public fund transfers from developed to developing countries appear challenging given current fiscal conditions. The IMF recently estimated that global public debt will surpass $100 trillion for the first time by the end of 2024, and many developed countries are facing the costs of more frequent extreme weather events within their borders, leaving less room for external financing,” emphasizes Vicki Bakhshi, Head of Responsible Investment at Columbia Threadneedle Investments.

For Bakhshi, it is significant that this meeting coincides with countries finalizing their Nationally Determined Contributions (NDCs), updated in the third five-year cycle since the 2015 Paris Climate Agreement. “These national climate plans, to be presented in early 2025, will extend the current 2030 timeline to 2035 for the first time. Representatives will debate in Baku on both the content and ambition level of these plans. Additionally, for the first time, countries must submit Biennial Transparency Reports (BTRs) to track progress on commitments,” highlights the Columbia Threadneedle expert.

High Expectations

AXA IM holds high expectations. “In our view, it is likely that climate ambition will be limited to advocating for greater national contributions (NDCs) and advancing renewable energy and energy efficiency targets for 2030 announced at COP28,” states Virginie Derue, Head of Responsible Investment Analysis at AXA IM.

In this context, she notes that beyond increased climate ambition, COP29 is expected to focus on strengthening climate financing. “The developed countries’ promise to mobilize $100 billion annually by 2020 to support climate action in developing countries was not fulfilled until 2022, with lingering criticisms related to a high proportion of loans. The commitment to establish a New Quantified Collective Goal (NCQG) for the post-2025 period is an issue that COP29 intends to address. While no precise number has been presented during negotiations, requests have tended to hover around the $1 trillion mark, indicating the high level of pressure. This is unsurprising given that funds needed for adaptation in low- and middle-income countries are estimated at between $215 billion and $387 billion annually during this decade, while broader climate action needs in developing countries are estimated to approach $6 trillion by 2030.

For Derue, a key point is that the COP29 presidency announced the creation of a Climate Financing Action Fund (CFAF), to be capitalized with at least $1 billion in voluntary contributions from countries and fossil fuel-producing companies to catalyze public and private sector efforts in mitigation and adaptation to address the consequences of natural disasters in developing countries.

She explains that voluntary contributions fall short of the regulatory levy on fossil fuels that some activists have been advocating for, as well as the global amounts needed to be mobilized. Thus, it is crucial that these voluntary contributions do not become an excuse to continuously delay the effective transition away from fossil fuels agreed upon at COP28.

“Although the controversial topic of a minimum international levy on global billionaires is unlikely to dominate climate financing discussions next month, we expect discussions to continue behind the scenes. The issue has caught the attention of the Brazilian presidency of the G20 under the leadership of Gabriel Zucman, French economist and Associate Professor of Public Policy and Economics at the University of California. According to Zucman, some of the world’s 3,000 billionaires currently pay no tax on their annual gains,” notes AXA IM’s Head of Responsible Investment Analysis.

According to published estimates, a minimum tax that would raise their personal tax payments to 2% of their wealth could generate $214 billion in annual government revenues worldwide, a decent amount during a period of significant global budget deficits. However, even if such a tax materialized, Derue believes it remains uncertain whether the revenues could be allocated to climate adaptation given the pressure on national public finances worldwide.

“While pessimists might see it as naïve to believe in such international cooperation, we cannot ignore that international fiscal cooperation has made significant strides over the past 15 years, from automatic bank information exchanges to the end of banking secrecy and a minimum tax for multinational corporations. Without a doubt, COP29 will not be a game-changer on this front, but we hope it paves the way for future progress. Ambitions without financing are just words. COP29 must deliver on financing,” concludes AXA IM.

Betting on International Collaboration

Additionally, during COP29, multilateral development banks will present enhanced cooperation and co-financing at the national level and the first common approach for measuring climate action outcomes. They plan to publish a joint report on promoting a global circular economy. In 2023, climate financing from multilateral development banks reached a record $125 billion, while private financing captured worldwide almost doubled compared to 2022, reaching $101 billion. Meanwhile, the EIB Group, which also includes the European Investment Fund, will announce new initiatives at COP29, such as additional support for sustainable transport, reforestation, and energy efficiency for small and medium-sized enterprises.

“Climate change is the challenge of our generation, and we need more than ever global leadership for urgent and ambitious climate action. As the financial arm of the European Union and one of the largest multilateral development banks in the world, the EIB Group is taking the lead with concrete solutions. Our investments provide clean and affordable energy to households, industries, and vehicles. They support biodiversity and climate resilience. We will finance cutting-edge technologies that will make a difference in the fight against climate change. It is not only the right thing to do, but it is also economically smart,” stated Nadia Calviño, President of the EIB.

Meanwhile, Ambroise Fayolle, EIB Vice President responsible for climate action and a just transition, added: “We are working closely with the upcoming presidency of COP29, the European Commission, governments, and other multilateral development banks to contribute to achieving ambitious results. We must adopt a fresh perspective and expand the solutions we can offer. This means supporting countries in unlocking financial resources for climate action, increasing financing and advisory services for climate adaptation, and developing innovative solutions to mobilize private capital for climate action.”

March AM Launches a Thematic Equity Fund That Invests in Globally Listed Brands

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March AM thematic equity fund global brands

Banca March has launched, through its asset manager March Asset Management, March International-March Universal Brands, a thematic global equity fund that seeks to invest in companies whose brands are widely recognized around the world and consistently maintain their mission, vision, appearance, and positioning across all regions in which they operate.

The fund invests 100% of its portfolio in globally listed companies. From an investment universe of approximately 3,000 companies, March Universal Brands selects the 35-45 most outstanding brands, dividing the investment universe into three sub-themes: powerful brands (those whose brand is an intangible asset perceived in the same way by consumers worldwide), promising brands (those in early stages of consumer recognition and expansion), and disruptive brands (the most innovative, often linked to the technology and digital sectors).

The new thematic fund aims to offer attractive returns to its investors by highlighting the resilience these types of organizations demonstrate during crises and their rapid ability to recover during cycle shifts.

As Javier Escribano, General Manager of March AM, noted, “We believe that this new product can be very attractive to Banca March investors. Investing in universal brands that base their philosophy on pillars such as leadership, loyalty, recognition, reputation, and perceived quality offers consistent long-term returns, making this a great opportunity to expand our range of thematic funds.”

The New Wave of ETF Investors in Spain Will Be Younger and More Female

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new ETF investors Spain younger female

Women, Generation Z, and Millennials are driving the investment universe in Europe, according to a study by YouGov commissioned by BlackRock to analyze European investing behavior. The survey, titled BlackRock People & Money 2024, also explores why some Europeans do not invest and examines the behavior of current and potential investors across 14 European countries, including Spain.

One of the key findings for Spain is that the number of female investors has risen by 16% compared to 2022 (from 16% to 19% in 2024), while the number of male investors has remained steady (at 37% from 2022 to 2024).

In Spain, the next wave of investors is expected to be younger and more female, with 49% aged between 18 and 34 and 48% being women (compared to 27% and 35% of current investors, respectively).

The new wave of ETF investors in Spain is also anticipated to be younger, with 49% of new ETF investors aged 18 to 34 (compared to 34% of current investors) and 35% women, representing a one-fifth increase.

In fact, as part of the study conducted by YouGov and BlackRock last year, respondents were asked which investment vehicles they currently use and which they intend to use in the next 12 months. ETFs were a standout: the number of ETF users in Spain is expected to nearly double within the next year (49%). Among these respondents, 28% currently have no investments and may begin with ETFs.

Younger individuals show a strong preference for digital ETF platforms, with 84% of Spaniards aged 18 to 34 choosing to invest through their bank, another provider’s digital platform, or a robo-advisor. 68% of older ETF investors (aged 35 and above) prefer to operate with ETFs through an online platform.

“The Spanish market has seen significant growth in the ETF space in recent years, closely aligned with global trends. According to our latest survey, we anticipate nearly 50% growth in the base of Spanish ETF consumers over the next 12 months,” notes Javier García Díaz, Head of Sales for BlackRock in Iberia. “This surge underscores the growing appeal of ETFs among young Spaniards, who seek simple, diversified, and cost-effective investment options to help them achieve their financial goals.”

More Investors Overall in Spain

Despite having one of the lowest levels of investors compared to the rest of Europe (28% of respondents are investors, compared to 34% of Europeans), Spain is seeing an increase in people investing. Indeed, the number of people investing has grown by 6% compared to the last survey. This trend is expected to continue, with 4% of non-investors entering the market in the next 12 months, adding 1.2 million new investors.

Spanish investors are also more likely to consult an advisor in person (46% of respondents) compared to their European counterparts (30%).

Pictet AM Launches a Thematic Global Equity Fund Focused on Megatrends

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Pictet AM thematic global equity fund megatrends

Pictet Asset Management (Pictet AM) has announced the launch of the Multi Solutions-Pictet Road To Megatrends 2028 II fund, the second edition of a systematic global thematic equity investment solution that gradually builds its exposure over four years. Domiciled in Luxembourg, under UCITS regulation, with daily valuation and liquidity and denominated in euros, the new fund is co-managed by Rafael Matamoros, Cyril Camilleri, and Xavier Aumagy.

According to the asset manager, the Multi Solutions-Pictet Road To Megatrends 2028 II initially provides high exposure to money markets and fixed income. The firm highlights that over four years, this exposure will be reduced on a quarterly basis and increased in global equities, eventually reaching 100% of the portfolio. “This approach optimizes market entry timing and reduces average volatility,” they assure.

The equity component will be divided into 80% thematic investments based on megatrends—with a strong focus on technology and the environment—and 20% allocated to a global investment strategy targeting large-cap listed companies with a sustainability component, aiming to outperform equity markets with lower downside risk.

For Gonzalo Rengifo, General Manager of Pictet AM in Iberia and LatAm, “this fund is designed to facilitate equity exposure for investors less inclined to take risks. It offers a systematic savings plan and mitigates the impact of economic cycles. In the medium term, it can generate higher returns than bank deposits, money market investments, or conventional fixed income.”

The Victory of Trump and Its Effects on Emerging Markets

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victory Trump effects emerging markets

Financial markets in emerging countries have mostly reacted as expected to the victory of Donald Trump and a likely Republican win. As the U.S. dollar strengthened, most emerging market currencies weakened, with the Mexican peso and currencies of Asian manufacturers being the most affected. Once details about the scale and timeline of tariffs become clearer, we expect emerging market currencies, particularly the Chinese yuan and Mexican peso, to weaken further.

Chinese equities fell as anticipated, but the market is also awaiting details of fiscal measures expected to be announced on Friday. The rise in U.S. interest rates has dominated the yields on emerging market credit. We continue to expect emerging market credit spreads to widen in the short term.

Currencies

Emerging markets began reacting as more clarity emerged about the result. Overall, initial reactions were as expected: by midday Central European Time, most emerging market currencies had weakened against the U.S. dollar. Yesterday, the Chinese yuan fell by 1.3%, settling at 7.18, while the Mexican peso dropped 2.8%, reaching 20.66.

Asian currencies experienced widespread declines, especially those most exposed to trade with the United States: 1.2% for the South Korean won, 1.3% for the Malaysian ringgit, and 1.7% for the Thai baht. As expected, the effects were more moderate for the Indian rupee (0.2%) and the Indonesian rupiah (0.6%). Since Brazil is one of the few emerging markets that could potentially benefit from possible trade wars due to China’s retaliations, the Brazilian real gained 0.65%.

Equities and Credit

Chinese and Mexican stocks fell as expected due to the prospect of a potential trade war. The Hang Seng Chinese Enterprises Index dropped 2.6%, while the MSCI Mexico Index fell 1.6% this morning. A stronger U.S. dollar in the coming weeks would continue to exert downward pressure on emerging market currencies and equities.

U.S. interest rates rose nearly 20 basis points to 4.44%, affecting emerging market credit behavior yesterday morning. Emerging market corporate credit spreads appeared to move very little, suggesting that the market has not yet fully priced in potential tariffs. However, some of this may reflect a delay in spot bond pricing, so a complete market reaction might take another day. Since China represents about 25% of the asset class and Asia excluding China accounts for another 25%, we expect further widening in the short term.

Awaiting China

The market is also awaiting details on China’s fiscal measures, expected at the conclusion of the Standing Committee of the National People’s Congress on Friday. A broad issuance quota with flexible issuance timing would be seen as positive for the Chinese market. Nevertheless, a 60% tariff could likely reduce Chinese growth by one percentage point from our baseline 2025 forecast of 4.5%. The Chinese government would need to take bolder measures to support the economy to offset the headwinds posed by tariffs.

Asset Managers Consider Sustainability, Regulation, and Technology Key Pillars in the Evolution of Their Business

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asset managers sustainability regulation technology
Regulation, sustainability, technology, and new investment products are some of the factors driving the consolidation wave currently affecting the global asset management industry. These insights are highlighted in the latest study by the Thinking Ahead Institute (TAI), in partnership with WTW, which surveyed the world’s 500 largest asset managers, collectively reaching $128 trillion USD at the end of 2023.

According to the report, regulation55% of companies experienced an increase in regulatory oversight—and sustainability are fundamental aspects transforming their business. For example, 66% of the surveyed firms reported a rise in client interest in sustainable investments, including voting, while 73% boosted resources allocated to technology and big data, and 55% to cybersecurity. Additionally, 47% increased the representation of minorities and women in senior positions.

In business terms, 56% of the surveyed companies reported an increase in their range of product offerings, while 27% noted a decline in aggregate investment management fees, and 15% experienced a moderate increase.

When it comes to sustainability, investment firms believe the effort starts internally. While this approach has been widely integrated regarding environmental sustainability, it has not been as prevalent in terms of governance. One key area of focus for asset managers has been increasing the presence of women within their companies and industry.

“Among the 79 asset managers who provided data on workforce diversity, an average of 24% of senior management positions are held by women, who represent 41% of the total workforce. Women and minority groups still have relatively low representation in senior leadership roles, despite a slight increase since 2022,” the report notes.

Environmental Commitment

If we focus solely on environmental aspects, it becomes evident that the commitment to net zero emissions by 2050 has been adopted by much of the industry. “A net zero commitment is a pledge by a company, country, or organization to reduce their greenhouse gas emissions to the point where the amount emitted is balanced by the amount removed from the atmosphere. The goal is to achieve ‘net zero’ carbon emissions by a specific target year, meaning that any emissions produced are offset through actions like carbon capture, reforestation, or purchasing carbon credits, resulting in no net increase of greenhouse gases in the atmosphere. This is a key strategy to combat climate change and limit the rise in global temperatures,” the report explains.

In this regard, the commitment of asset managers varies by region. For example, although the Americas region has the lowest proportion of companies with ‘net zero’ commitments, it holds the largest share of assets. Considering only those companies with ‘net zero’ targets for their portfolios, the committed assets stand at 18% in EMEA, 13% in the Americas, and 3% in APAC.

Additionally, according to the document, specific country regulations in Spain (90%), Netherlands (82%), United Kingdom (80%), Switzerland (80%), France (79%), and Germany (77%) drive high adoption rates. Other notable mentions include Japan (90%) and Australia (71%), both with ‘net zero’ commitments for 2050 supported by policies and strategies rather than legally binding mandates.

The Use of AI

Lastly, the report offers a brief overview of the integration of artificial intelligence (AI). According to the survey, AI enhances decision-making, increases efficiency, solves complex problems, and offers scalability. In fact, as AI technology continues to advance, its role in industry transformation will become even more critical.

This sentiment is reflected in the responses of the surveyed companies: 64% of firms classified from Japan and South Korea invest in AI, while 82% and 72% of firms classified from India and Japan use AI. Additionally, approximately half of the companies using AI incorporate it into their investment processes (20% overall).

Economic Transformation and the Risk of Trump: The “Nuts” Behind the Political Noise in Germany

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economic transformation risk Trump Germany

While a new political shift focuses on the U.S., in Europe, the spotlight is on the instability triggered in Germany following the coalition government’s breakup due to disagreements on addressing economic weakening, with possible early elections looming.

According to analysts from Banca March, divisions have surfaced among the three parties making up the government: the Social Democratic Party (SPD), the Greens, and the Liberal Party (FDP). “The first two political forces advocate for suspending strict fiscal rules that limit debt increases to raise public spending and support a struggling industry. In this context, Chancellor Scholz (SPD) dismissed the Finance Minister (FDP) for opposing a relaxation of fiscal policy, along with other liberal ministers—Justice, Education, and Transport,” they explain.

For these experts, the chancellor does not have the authority to call early elections, but there is a mechanism known as a “vote of confidence.” “This would allow parliament to vote on January 15 to determine whether to maintain support for the chancellor. If approved, the government would continue with the SPD-Green alliance. However, Scholz is unlikely to reach a majority in the vote, which would require him to ask the German president to dissolve parliament. From then, early elections would have to be held within 60 days, by mid-March,” they add.

Beyond the Political Issue

Clearing away political noise, Stefan Hofrichter, Head of Global Economics and Strategy at Allianz GI, believes Germany needs a structural reorientation. “For years, the country and its companies relied on low energy costs, China as an export market, and the U.S. as a security guarantor. However, the current situation has changed: Russia is no longer a reliable energy source, China faces economic difficulties and has become a competitor in several industrial sectors, especially automotive, and defense spending requires a significant increase. All of this affects growth prospects,” Hofrichter explains.

The Allianz GI economist goes further, indicating that the country needs a clear economic transformation. “A little over 20 years ago, the country achieved successful restructuring with the ‘Agenda 2010.’ Then known as the ‘sick man of Europe,’ Germany became a leading global exporter. Today, we also have a significant advantage: public debt is low, allowing room to finance private sector stimuli,” he adds.

On the fiscal front, experts see it as likely that Germany will face new U.S. demands for higher military spending in the coming years, potentially exceeding the NATO target of 2% of GDP, supported by the special €100 billion fund created in 2022.

“However, additional defense spending will be challenging to accommodate despite Germany’s fiscal space, with forecast average fiscal deficits of 1.2% of GDP over the next few years and a debt ratio expected to fall below 60% by 2029. This reflects Germany’s lack of budget flexibility due to debt brake provisions. The need for increased public investment, for defense, but also for the green transition, could lead to new debates on debt brake reforms, the potential use of off-budget funds, or shifting at least part of the spending to the European level,” notes Eiko Sievert, Public Sector and Sovereign Analyst at Scope Ratings.

Impact of Trump 2.0

In his view, “the country needs a stable, reform-oriented government to respond to potential political shifts from the newly elected U.S. President Donald Trump, which will impact Germany’s trade, fiscal, and defense policies. In this sense, Sievert explains that the United States, Germany’s second-largest trading partner after China (A/Stable) and the largest individual destination for its exports, is expected to impose higher import tariffs, posing a significant setback for Germany’s export-dependent economy.

“Almost 10% of German exports were destined for the U.S. in 2023, the highest share in more than 20 years. Meanwhile, the share of exports to China fell from a historic high of 8% in 2020 to 6% in 2023, partly reflecting increased competition in the Chinese manufacturing sector, particularly in automotive,” comments Sievert.

The expert warns that Germany also remains heavily dependent on imports from China, accounting for 11.5% of total imports in 2023. “The rise of global protectionism and the growing risk of a trade war between the U.S. and China will test the resilience of German supply chains in the coming years,” says the Scope Ratings expert.

Impact on Assets

At DWS, they expect a limited market reaction, although it could provide a tailwind for equities and a slight headwind for fixed income. According to the Allianz expert, the state of German equities reflects some of the structural challenges facing the country’s economy, such as high fiscal pressure (compared to international standards), bureaucracy (which affects many G7 countries, not just the U.S.), high energy costs (especially compared to the U.S. and China, although German prices have returned to pre-Ukraine war levels and align with the European average), a shortage of skilled labor (also linked to bureaucratic barriers), and insufficient investment, both public and private.

In this sense, they consider that German equities, like European equities, do not present a high valuation level. “Over a ten-year horizon, we expect returns aligned with the long-term average, despite moderate earnings growth. Meanwhile, German public debt remains the central pillar of euro-denominated public debt,” comments Hofrichter.

Regarding the yields on the German Bund, DWS points out that they have been trending downward since early summer, influenced by declining inflation figures and weak economic data. However, since early October, they have not escaped the rise in U.S. Treasury yields.

“It is likely that the main drivers of German bond yields will continue to be economic prospects, inflation developments, and, in the short term, the pace of interest rate cuts by the European Central Bank (ECB). We believe it is unlikely that the prospect of a government change will push yields up, as additional spending could be expected. Over the next 12 months, we continue to anticipate a decline in German public debt yields and a slight steepening of the yield curve,” conclude DWS representatives.