With Brexit in every headline, it’s hard not to form an opinion on the possible outcome for the UK. Investors are getting increasingly edgy about the impact on certain asset classes, and I have read many articles predicting which sectors will do well in various exit scenarios. Sterling credit has remained healthy since the referendum, led by robust fundamentals and not by politics as the pound …
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Statistical data represents only an approximation of reality, and sometimes not a very good one. Generally, the less economically developed a country is, the worse the quality of the data provided by the government authorities. This increases the likelihood of later revisions, as new facts are uncovered or the methodology adjusted to better reflect the changing reality. Investors in emerging ma…
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It is widely recognized that China is globally well-integrated from a trade perspective (it accounted for 13% of total world exports in 2017 according to the WTO). Yet in comparison, its financial markets remain in relative isolation. Indeed, despite having the 2nd largest equity and 3rd largest bond markets in the world (currently around $13 trillion), foreign participation in these markets re…
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Compared to one and a half years ago, when the prevailing narrative was still revolving around global synchronised growth, the economic outlook for Europe has darkened significantly. From ‘peak optimism’ levels in late 2017, Euro area real GDP growth has slowed to 1.2%, while Eurozone manufacturing PMI has dropped by more than ten points. Even the notoriously optimistic ECB eventually had to co…
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Inflation expectations in the US and Europe have been diverging lately and it comes as no real surprise, of course. After all, annual GDP growth in the US was running at a healthy rate of 2.6% in real terms in Q4 2018. The unemployment rate has fallen below 4%, putting upward pressure on wages, while economic sentiment indicators, such as PMIs, are in firmly expansionary territory. In stark con…
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There is a general belief in markets that the economic cycle follows the US – and therefore that you can’t have a recession in a developed market without a US recession first. Yes, the US economy is the biggest out there, and with general market sentiment being that we are late cycle it is understandable that everyone’s focus is on the US data and its flattening yield curve.
But what has reall…
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Last week’s conclusion of the Royal Commission into misconduct in Australia’s financial services sector has rightfully made international headlines. After digesting the 1011-page report, investors breathed a sigh of relief and pushed Australian bank shares sharply higher. The Commission’s findings and recommendations have been well-documented in the popular press (here), and the debates around …
Read the articleIn the years leading up to World War 1, and then the Russian Revolution in 1917, Russia had become the world’s largest net international debtor. It was borrowing heavily to finance industrialisation (railroads, oil, iron and cotton production) and as its population grew it saw rapid economic growth. WW1, and the earlier 1905 conflict with Japan had also resulted in rising debt. At the same t…
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Global bond markets rallied after the US Federal Reserve (Fed) signalled on Wednesday what financial markets had been pricing in for months: the central bank will most likely retract from its rate hiking plans this year, given the global economic slowdown, lower oil prices and generally muted domestic inflation. The Fed also indicated its balance sheet may not shrink as much as expected as it n…
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As we all know, 2018 turned out to be a tough year for most asset classes, not least High Yield (HY) bonds. The sell-off in the fourth quarter was particularly quick and brutal compared to the recent lulls of benign volatility under the blanket of central bank largesse. Global HY lost a few percentage points in pure local currency terms in 2018, whilst the lower beta and more senior secured hea…
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