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New Report from Manulife Asset Management Highlights Seven Global Economic Themes for 2016 and Beyond

  • The total amount of negative yielding sovereign bonds has grown significantly due to negative interest rates and QE, but these measures would have little impact on inflation expectations
  • Seven factors will continue to constrain global growth: over-indebtedness, ample liquidity, beggar-thy-neighbor currency actions, regulation glut, low government bond yields, changing demographics & lowflation
  • Bank of Japan could be the first to deploy helicopter money
  • ECB could run out of German bunds to buy next year
  • Volatility stemming from policy divergence between the Fed and other major central banks could return


TORONTO AND BOSTON — In Manulife Asset Management’s latest "Salient 7" report, Chief Economist Megan Greene and co-Head of Asset Allocation Robert Boyda outline the seven themes that they believe will underpin macroeconomic and market dynamics in the foreseeable future.

The latest report takes into account developments in the last 20 months and examines what it could mean for policymakers as well as investors.

Additionally, Greene notes, "Central bank action has pushed government borrowing costs down significantly. In January 2015, the total value of negative yielding sovereign debt was US$4 trillion. Now, it’s closer to $12 trillion."1

While it makes sense for policymakers to turn to fiscal stimulus to spur growth, Greene notes that the political calendar in the next 12 months could restrict their ability to act, particularly in light of the rise of an anti-elite, anti-globalization discourse in the Western world.

According to Greene, "This has led to a rise in uncertainty, which is being fed back into economic and political indicators, creating a skittish loop. This isn’t going to help either investments or consumption."

Robert Boyda, co-Head of Asset Allocation agrees and notes additionally, “We believe bond investors will not get much out of conventional fixed income for some time. We see potential value in a much more active, opportunistic, flexible and risk-aware approach; the search for yield may require a global focus with attention to coupons, safety, currency and policy-driven risk. Emerging Market debt and high yield bonds may offer fair value. It may be difficult to find value outside of special situations driven by periodic global dislocations; we believe this means embracing the volatility and uncertainty which provide opportunities.

In a low-growth, low-inflation world, equity investors have flocked to defensive, dividend-paying sectors and stocks that behave like bonds; we believe valuations here reflect too much enthusiasm. The overindebtedness that limits government spending means that fiscal policy driven growth will be scarce. In a low-growth world, valuations are full for US equities. European equities could offer opportunities for those willing to look past the myriad crises; we think it is still too early. Emerging Markets equities are relatively inexpensive, and the valuation buffer could provide a measure of safety in a volatile asset class.

"As long as central banks stay accommodative, risks of a policy-induced recession are low. But that doesn’t eliminate the likelihood of significant price corrections; embrace the volatility."

The Salient 7 report lists seven themes that the authors believe will underpin macroeconomic and market dynamics in the foreseeable future, and attempts to map out what it could mean for investors.

1. Over-indebtedness: Total indebtedness by governments and households continues to increase

2. Ample Liquidity: The global economy is awash with liquidity and credit, thanks to successive rounds of easing measures by major central banks

3. Beggar-thy-neighbor currency actions: Countries are hoping to boost demand and growth by increasing their competitiveness via a weaker currency

4. Regulation glut: As capital requirements for other assets rise, investing in sovereign bonds has become more attractive from a capital cost perspective

5. Demographics and the drive toward debt: An aging population encourages many investors to shift into fixed income from equities

6. Low government bond yields: Secular stagnation and easy monetary policy is likely to mean the continued compression of government bond yields

7. Lowflation: Lack of global demand is expected to translate into little upward pressure on inflation, with many central banks missing their inflation targets.


1. Bloomberg: Negative-Yielding Bonds Jump to Almost $12 Trillion, Oct 2, 2016