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
The information provided on this website is for informational purposes only and is intended solely for use by Singapore residents and is not intended for distribution to, or use by, any person or entity in the United States, or any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G) and/or its affiliates (collectively hereafter "Manulife") or any of Manulife's products or services to any registration requirement within such jurisdiction or country. Nothing on this website shall be construed as financial advice or an offer, invitation, solicitation or recommendation by or on behalf of Manulife to any person to buy or sell any Fund and is no indication of trading intent in any Fund managed by Manulife. None of the information or analyses presented are intended to form the basis for any investment decision, and no specific recommendations are intended.
Investments in any Fund are not deposits in, guaranteed or insured by Manulife and involve risks. The value of units in any Fund and any income accruing to it may fall or rise. Past performance of the Fund is not necessarily indicative of future performance. The Fund may use or invest in financial derivative instruments. Investors should read the prospectus and seek advice from a financial adviser, before deciding whether to subscribe for or purchase units in any Fund. In the event an investor chooses not to seek advice from a financial adviser, he should consider whether the Fund(s) is/are suitable for him. Copies of the prospectus and the product highlights sheets can be obtained from Manulife or its distributors, for further details (including the risk factors) and charges.
The Manager shall have the absolute discretion to determine whether a distribution is to be made in respect of any Fund as well as the rate and frequency of distributions to be made. The intention of the Manager to make the distribution and the distribution yield for the Fund is not guaranteed, and the Manager may review the distribution policy depending on prevailing market conditions. Distributions may be made out of income, net capital gains and/or capital. Past distribution yields and payments are not necessarily indicative of future distribution yields and payments. Any payment of distributions by the Fund may result in an immediate decrease in the net asset value per unit.
All advertisements or publications provided on this website have not been reviewed by the Monetary Authority of Singapore.
Manulife Investment Management (Singapore) Pte. Ltd. (Company Registration No. 200709952G)