Foto cedida. Aegon AM amplía su equipo de Inversión Responsable con tres nuevos especialistas
Aegon Asset Management has announced that Andy Woods, Curtis Zappala and Jamie McAloon will be joining its Responsible Investment team, bringing the number of specialists in this division to 17.
Based in the UK, Andy Woods arrives as a responsible investment manager, supporting the Equities and Multi-Asset investment platforms. His primary responsibility will be the voting activities and related engagements with companies within Aegon AM’s portfolios. Previously, he headed up the Institutional Voting Information Service of the Association of British Insurers.
The firm has also appointed Curtis Zappala as a responsible investment associate. Based in the United States, his focus will be on ESG integration and engagement, supporting the fixed income investment platform. Prior to his new role, Zappala was a member of the sustainability team at United Parcel Service (UPS). He has also held various sustainable-related positions at SunShare and Growth International Volunteer Excursions.
Finally, Jamie McAloon joins as a responsible investment associate, supporting the Equities and Multi-Asset investment platforms. Also based in UK, McAloon will be primarily responsible for supporting the sustainable range of products with analysis of existing and potential holdings, according to Aegon AM’s sustainability research framework. He joins the business from Abrdn, where he was a Private Equity Finance Analyst.
“We have built a comprehensive responsible investment approach, with a 30-year history of investing in this area. The three new appointments allow us to continue our work, broadening our expertise, knowledge and skills base. I’d like to welcome Curtis, Andy and Jamie to the team and look forward to the fresh perspective and enthusiasm they will bring”, commented, Brunno Maradei, head of responsible investment at Aegon AM.
Every day, the world’s urban population swells by 200,000. At that rate, more than two thirds of us will be living in cities by 2050 compared with just over half today1.
That will require a significant expansion of the built environment. It could also mean a significant enlargement of humans’ carbon footprint. Cities already account for around three quarters of global carbon emissions and energy use2. This means using popular construction techniques and planning methods would likely derail efforts to halt climate change.
But it need not be this way. Participants attending The Klosters Forum showcased the ways in which the looming urban expansion could yet be sustainable. Not all the solutions were technologically advanced. The most effective, attendees discussed, literally grows on trees.
Timber has strong credentials as a sustainable building material. Historically, timber has been used in building construction for centuries across Asia, Europe and Americas thanks to its durable and resilient properties and relative ease of construction.
In recent decades however, the material’s share in building has shrunk in the face of concrete and steel which are considered more durable, rot resistant and easy to mass produce.
Wood for good
In a workshop on “how to scale timber buildings that regenerate sustainable forestry and local economies,” The Klosters Forum participants stressed the need to readopt this earliest method of construction en masse, especially if the world were to halt global warming and environmental degradation.
Timber provides an attractive cost-effective means to reduce net carbon emissions, especially the embodied carbon that the building sector badly needs0 to cut.
What’s more, it also acts as carbon sink, can restore biodiversity and improve soil quality.
There’s no shortage of data to support timber’s utility. For example, research shows a young willow tree building up a dry biomass of 75kg in the first five years of growth captures 140kg of CO2,3 which compensates the emission from a typical household’s electricity use for 10 days.4
Wood sequesters carbon even after it is logged. Every cubic metre of wood used as a substitute for steel or aluminium reduces carbon emissions to the atmosphere by an average of 0.9 tonnes.5 Proper forest management ensures timber is sourced sustainably without depleting forests.
Busting the myths
The key challenge, forum participants agreed, lay in formulating strategies that could incentivise the construction of timber-based buildings and regenerate sustainable forestry and local economies.
One of the myths surrounding timber is that it is not fit for tall buildings. However, mass timber is beginning to be used more widely for high-rise buildings, thanks to innovation.
Among the pioneering engineered wood products is cross-laminated timber (CLT) – a building panel made of sawn, glued and layered wood which allows architects to build wooden skyscrapers.
Mjøstårnet, currently the world’s tallest timber building in Norway, which rises to more than 85-metre high, uses CLT. A 100-metre-tall timber residential block is currently planned in Switzerland for completion in 2026.
The market for CLT is expected to grow to a USD2.5 billion globally by 2027 from the current USD1.1 billion, an annual increase of some 15 per cent6.
Another misconception is that timber-based buildings pose a fire hazard. However, wood is inherently fire resistant – when the external layers of a timber beam char, they protect the core from damage for longer periods. What is more, new technologies such as CLT can produce a stronger and fire-resistant weave which can outperform unprotected steel structures in fire safety.
Built by Nature, an Amsterdam-based organisation dedicated to showcasing ground-breaking projects, has been making multi-million euro grants to foster mass timber construction in cities.
“There are a lot of myths about mass timber – whether it’s inflammable or contributes to deforestation for example. There are a lot of research that speak the contrary and it’s important to distribute them and dispel these myths,” its CEO Amanda Sturgeon, a participant, said.
Forum attendees discussed the lack of technical knowledge in the public sector and municipal authorities. To overcome this challenge, forum attendees suggested that the industry should train sustainability facilitators to engage with this tough group of stakeholders.
They added that regulation and tax schemes should also change to reward environmental performance of buildings to induce system-wide change.
Encouragingly, some European governments are pledging a greater use of timber and other sustainable materials to meet national or municipal net zero targets. The city of Amsterdam is mandating that 20 per cent of all new construction projects to use wood or other biobased materials from 2025.
The French government is requiring all new public buildings to be made at least 50 per cent from wood or other sustainable materials from this year.
Typically, residential buildings in Europe use around 20 per cent of timber; this number drops to just 5 per cent for commercial counterparts7.
“Policies and mandates have to come into play to move the sector at speed we need,” Sturgeon said.
Notes
[1] UN World Urbanisation Prospects
[2] Seto et al. 2014; UN-Habitat, 2011
[3] Zuercher, Bern University
[4] US EPA
[5] European Confederation of Woodworking Industries
[6] Markets and Markets
[7] Tomorrow’s Timber
The Klosters Forum is a not-for-profit organisation, offering a neutral platform for disruptive and inspirational minds to tackle some of the world’s most pressing environmental challenges. Its mission is to accelerate positive environmental change by developing and nurturing a growing community of leading thinkers and doers and by fostering cross-disciplinary exchange and collaborations.
Every year, the Forum hosts an environmental annual event connecting high-profile participants from the fields of science, business, politics and industry, as well as NGOs, creative minds and sustainability experts in a neutral and discreet environment. This year, the annual forum took place on 28-30 June 2022 with the theme “The future of the built environment.”
Foto cedidaDe izquierda a derecha: Honor Solomon, nueva responsable del Canal Minorista de EMEA de AB, y Mike Thompson, recién nombrado responsable Global de Desarrollo de Negocio y Estrategia de Renta Fija.. AllianceBernstein refuerza su equipo para EMEA fichando a Honor Solomon y Mike Thompson
AllianceBernstein (AB) has strengthened its EMEA product and client leadership with the appointment of two high-profile industry figures in London. In a press release, the firm revealed that Honor Solomon will join the firm as Head of Retail EMEA and Mike Thompson will lead AB’s global Fixed Income business development strategy.
In her role, Solomon will oversee strategy, management and distribution for AB’s fast-growing EMEA retail business, and will be charged with building on the considerable growth of the retail offering across the region in the last two years. In this sense, the firm has seen the AUM in its EMEA retail business increase by 47% since the start of 2019 – including strong momentum and inflows into its UK-based OEIC range since its launch in March of last year. She will join the firm in Q1 2022, and will report to Onur Erzan, Head of Global Client Group.
Solomon joins from Legal & General Investment Management (LGIM), where she spent seven years as Head of Retail Distribution, helping to build the firm’s retail offering into one of the UK’s largest. Prior to this, she led BlackRock’s London Discretionary Team, with responsibility for the firm’s relationships with banks and intermediaries. She began her career with Merrill Lynch, where she spent four years in its investment banking division across Paris, New York and London
Meanwhile, Thompson will assume the role of Global Head of Fixed Income Business Development & Strategy, and will be responsible for driving growth and brand-building efforts for AB’s high-performing fixed income range worldwide. He joins from ICG, a leading UK-based alternative asset manager, where he was global head of the Financial Institutions Group and European Head of Marketing and Client Relations.
Prior to ICG, Thompson had a 15-year career at PIMCO, where he was head of Asia ex-Japan and previously head of third-party distribution in Europe. His prior experience also includes large fixed-income managers Western Asset Management and Franklin Templeton. Thompson will join AB in December.
“Bringing Honor and Mike aboard is a clear signal of the ambitions we have for both our EMEA business and our global fixed income franchise, and our intent to capitalize on the growth we have seen in both over the last few years”, said Onur Erzan.
In his view, to be able to attract talent “of their calibre” is confirmation of AB’s status as a brand of choice for both clients and leading industry talent. “We are delighted to welcome them both to the firm, and we are confident that they will help to lift our retail and fixed income franchises to new levels”, he concluded.
The first signs of a moderation in global economic growth are on the horizon. According to the latest market report by BLI – Banque de Luxembourg Investments, the moderation in activity seems to be more the result of the ongoing disruptions in supply chains than any major weakening of demand.
“Although most activity indicators are holding up, they appear to be starting to drop back from the very high levels of previous months. In the United States, for example, the manufacturing activity index fell for the second consecutive month after 15 months in a row of almost uninterrupted growth”, points out Guy Wagner, Chief Investment Officer and managing director of the asset management company. Besides, in services, the activity index was also down slightly due to the rise in coronavirus infections, although, in his view, “this should prove temporary.”
The “Highlights” report shows that trends appear similar in Europe, with activity remaining robust but possibly at a turning point.
Moderation in China continues
In China, the pace of growth has continued to moderate in recent months. According to BLI, this is due to the simultaneous effect of strict restrictions to curb the epidemic, tighter regulatory measures in almost all economic sectors, a shortage of electricity, and the financial difficulties of China Evergrande, the country’s second biggest property developer. In Japan, exports continue to be the most dynamic segment, as yet showing no signs of weakening.
Upcoming reduction in asset purchases
The FOMC (the Federal Reserve’s monetary policy committee) left its monetary policy unchanged at its September meeting. Nevertheless, Fed Chair Jerome Powell signaled that it would start tapering asset purchases, from the next meeting in November through to mid-2022. The report reminds that when it comes to the future level of interest rates, Powell reiterated that the end of asset purchases did not mean a simultaneous rise. “Opinion in the FOMC seems to be divided on this subject since half its members are expecting a first interest rate hike in 2022″, it adds.
In Europe, in view of the economic improvement and the surge in prices, the ECB announced a slight readjustment of asset purchases under the pandemic emergency purchase program to a level slightly below that of the previous two quarters. At the December meeting, the monetary authorities expect to give more details on the monetary policy outlook for 2022.
More volatility in equity markets
Lastly, BLI highlights that having risen almost every month since the beginning of the year, equity markets were more volatile in September. “Uncertainty surrounding the financial difficulties of property developer China Evergrande and the rise in long-term interest rates weighed on share prices. In consequence, the major indexes in the United States, Europe, and the MSCI Emerging Markets recorded losses“, says Wagner.
Meanwhile, the Topix in Japan was alone in rising, partially making up for the accumulated lag of previous months. “In terms of sectors, energy stocks stood out with a sharp increase in their share price on the back of rising oil and gas prices”, concludes the Luxembourgish economist.
The global economic outlook is darkening again as tighter monetary policy around the world and surging energy prices continue to undermine consumer confidence and corporate earnings growth.
Major economies are flirting with a recession. Europe is feeling the chill more than most other regions as the soaring cost of living and energy shortages force consumers to tighten their belts, banks to slow lending and companies to delay capital spending plans.
All of thisaugurs badly for corporate earnings in the coming months.
While the equity market sell-off this year has driven investor risk appetite to record lows – a point where stocks and other risky asset classes tend to stage a rebound – we see risks of a further correction. This is why we maintain our underweight position in equities.
We’re unlikely to change this stance until we see stabilisation in corporate earnings revisions, a steeper yield curve and a further cheapening of cyclical stocks.
By comparison, some areas of the bond market are beginning to look attractive, however, as yields are climbing to levels that are increasingly at odds with economic fundamentals. Headline inflation has likely peaked in the US, with inflation expectations also having slipped in recent months. The New York Federal Reserve’s monthly survey shows that consumers in August saw inflation at 5.75 per cent over the next 12 months, the lowest since October 2021. Against this backdrop, we upgrade bonds to overweight, with a preference for US Treasuries – a haven in times of turbulence. We also cut cash to neutral.
Our business cycle indicators show a clear slowdown in global economic growth. As Fig. 2 shows, rising borrowing costs tend to exact a heavy toll on global business conditions.
The outlook has deteriorated in the euro zone in particular, where consumer confidence has plunged to an all-time low and energy rationing poses further risk to industrial sectors. With the euro zone economy expected to contract towards the end of this year, we have cut our 2023 real GDP forecast to 0.2 per cent from 1 per cent.
The growth outlook is also weak in the US, although there are some positive signs that testify to the resilience of the world’s largest economy. The US labour market remains tight with jobless claims now trending down. Consumer confidence, meanwhile, has improved for the second consecutive month thanks to easing inflation worries.
That said, surveys also show companies remain reluctant to boost their capital spending while the housing market is confronting a slump in construction activity, pointing to a further 10 per cent decline in property prices over the next six months.
What’s more, typical mortgage payments as a proportion of income stand at their highest levels since the 1980s.
We’re becoming cautious on Japan’s economy whose leading indicators have slowed down. Manufacturing activity is contracting and weak global demand is pressuring the export sector.
The prospects for the UK economy remain weak, too.
The government’s plans to deliver the biggest tax cut since 1972 and ramp up borrowing at a time when the country’s consumer price index hovers close to a 40-year high has led investors to question the country’s fiscal credibility, giving rise to a sharp sell-off in sterling and gilts.
Consumer confidence stands at an all-time low with inflation-adjusted wages expected to contract 5 per cent. We expect the UK economy to fall into recession from the fourth quarter of this year with full-year growth to be at zero next year.
Our liquidity indicators show tighter conditions in major economies, especially in the US and UK, as central banks continue to reverse pandemic-era monetary stimulus.
At the same time, bank credit, which has until recently partially offset the effect of central bank tightening, is finally slowing down, in line with leading indications from credit standards.
China is the only country showing easier liquidity. The People’s Bank of China is lowering funding costs and offering targeted easing measures to revive credit demand.
Our valuation model backs up our positive stance on bonds.
Global bond yields are now at the highest since mid-2011 following a recent sell-off.
Equities are on the verge of becoming cheap for the first time since April 2020 after a 9-per cent decline in world stocks in September alone – which was driven entirely by a contraction in earnings multiples.
As a result, the global 12-month price earnings ratio has fallen to 13 times, below the low seen in June.
What is more, the pace of contraction is consistent with a sell-off typically seen during a recession.
Our models suggest a rebound in multiples of 5-10 per cent over the next 12 months, assuming that 10-year yield on US Treasury Inflation Protected Securities (TIPS) falls to 0.75 per cent.
Our 2022 global earnings growth forecast, meanwhile, stands at 2 per cent, significantly below market consensus.
Within equities, we’re becoming more cautious on cyclical sectorsthat are growth-sensitive, such as industrials and real estate.
Our technical indicators show investor risk appetite close to record low levels, with equity funds losing USD25 billion in flows in the past four weeks.
While a technical rebound cannot be ruled out at this depressed sentiment level, our negative trend score suggests taking an underweight equity position over our investment horizon.
Opinion written by Luca Paolini, Pictet Asset Management’s Chief Strategist
La séptima edición del Investments Summit & Golf de Funds Society volverá a reunir a gestores de activos de todo el mundo que compartirán ideas de inversión y estrategias este jueves 14 de octubre.
Además, en el evento, que tendrá cita en el Ritz Carlton Golf Resort de Naples, se disputará un torneo de golf el viernes 15 en el Tiburon Golf Club.
Dentro de los temas que propondrán las gestoras se encuentran los mercados emergentes. En este sentido, John M. Malloy Jr de RWC quien presentará la oferta de la compañía “Emerging and Frontier Markets”.
Janus Henderson también profundizará sobre los emergentes con Daniel J. Graña, CFA, portfolio manager de Mercados Emergentes que estará acompañado por Matthew Culley, assistant portfolio manager.
M&G Investments discutirá los beneficios, las valoraciones de mercado y las oportunidades de los High Yields a tasa flotante con James Tomlins, manager de M&G (Lux) Global Floating Rate High Yield Fund, quien hablará sobre las oportunidades que el alto rendimiento puede ofrecer en un escenario de presiones reflacionarias.
Por otro lado, Thornburg intervendrá con una conferencia sobre inversión en bonos en un entorno de bajo rendimiento a cargo del administrador de la cartera de clientes, Robert Costello, CFA. El técnico hablará tanto del Thornburg Limited Term como del Thornburg Strategic Income en su presentación “Bond Investing in a Low Yield Environment”.
Vontobel, en cambio, centrará su disertación en la importancia de los activos de calidad a la hora de buscar inversiones. Bajo el lema “Quality or Nothing”, Ben Falcone, CFA, Head of Client Portfolio Manager Team Quality Growth Boutique, hará su presentación demostrando la importancia de esta característica al momento de colocar inversiones.
Alec Murray, Senior Vice President Head de Equity Client Portfolio Managers en Amundi, hará su presentación sobre management. El experto dirige un equipo de portfolio managers de clientes que son responsables de representar la filosofía de inversión, el proceso y el desempeño de las estrategias de renta variable de la empresa, y proporcionar actualizaciones sobre las tendencias del mercado financiero y las perspectivas económicas de la empresa a los clientes y sus asesores.
Finalmente también se hablará del futuro. En ese sentido George Saffaye, Managing Director de Global Investment Strategist en BNY Mellon presentará “Mobility Innovation for the future”. En su rol, Saffaye guía el mensaje y el posicionamiento de las estrategias de inversión. Es una interfaz crítica entre el personal de cara al cliente y los equipos de inversión, según la información de la firma.
Por último, Manulife Investment Management también hablará acerca de los desafíos para las nuevas generaciones. Clinton Graham, Vice President and Portfolio Advisor of Wellington Management, hablará sobre su estudio “Next Generation Themes”. La presentación se dividirá en cuatro partes bien definidas: el caso de los temas a largo plazo, la oportunidad FinTech, la inversión temática en atención médica y, finalmente, la evolución de datos 5G.
Si desea obtener más información del evento puede acceder a través del siguiente enlace.
Foto cedidaHuw Davies, gestor de fondos adjunto para su equipo de bonos estratégicos de retorno absoluto de Jupiter AM.. Jupiter nombra a Huw Davies gestor de fondos adjunto para su equipo de bonos estratégicos de retorno absoluto
Jupiter AM has strengthened its Strategic Absolute Return Bond (SARB) team with the appointment of Huw Davies as Assistant Fund Manager of Fixed Income. He joined the firm in the summer of 2020 following the company’s acquisition of Merian Global Investors, where he started his previous role as Investment Director of Fixed Income in the same team.
In a press release, the asset manager has explained that Huw will now report directly into Mark Nash, Head of Fixed Income Alternatives, and will work alongside Assistant Fund Manager James Novotny, strengthening the resource dedicated to Jupiter’s alternative fixed income offering.
Following the Merian acquisition, the team’s flagship portfolio, the Jupiter Strategic Absolute Return Bond (ICVC) fund, has been incorporated into the firm’s offering. This vehicle looks to deliver positive total returns uncorrelated to bond and equity market conditions, with stable levels of volatility. Powered by its flexible approach to navigating volatile fixed income markets, the fund has delivered 18.23% over three years and 20.4% over five. The fund is Jupiter’s first footprint in the alternative fixed income space and has added a new dimension to the its existing Alternatives business.
In addition to Huw’s appointment, the company has also announced that it is strengthening the client-facing support offered to its flagship fixed income strategy with the promotion of Matthew Morgan to Investment Director, Fixed Income and Multi-Asset. Having joined Jupiter in 2019 as Product Specialist on its Multi-Asset strategy, in his new position he will co-ordinate the activities of the team of Investment Directors across the company’s £15.3 billion Fixed Income and £1.1 billion Multi-Asset ranges, leading a growing team of strategy specialists.
“Since the onset of the Covid pandemic, the policymaking landscape has dramatically changed. Fiscal spending is unlikely to disappear anytime soon as inequality and global warming issues are addressed. Central banks will remain supportive but will take more of a backseat, while ensuring that banking systems are in good health to support the recovery”, said Mark Nash.
In his view, this reflationary environment will see higher growth and higher inflation, with yields rising. “A more ‘absolute return’ approach will be needed to achieve positive returnsfrom fixed income, and I am pleased to be welcoming Huw to the team at this important time in for the strategy”, he concluded.
Foto cedidaClinton Graham, vice president y portfolio advisor de Wellington Management. Foto cedida
The concerns for the future and the issues that the new generations of the industry will have to deal with will be the focus of the presentation of Manulife Investment Management at the seventh edition of the Investment Summit & Golf of the Funds Society.
During the event, which will be held on October 14th and 15th at the Ritz Carlton Golf Resort in Naples, Manulife will present “Next Generation Themes”by Clinton Graham, Vice President and Portfolio Advisor of Wellington Management.
The presentation will be divided into four well-defined parts: The Case for Long-term Themes, The FinTech Opportunity, Thematic Healthcare Investing and finally the 5G 5G Data Evolution.
As a portfolio advisor with Wellington Management, Clinton works closely with portfolio managers as well as the firm’s macroanalysts and asset allocation strategists to articulate the firm’s investment strategies to clients and prospects.
Within the Portfolio Advisor Group, he covers a variety of strategies and asset classes, including equities, alternatives, and fixed income. He represents the firm’s global investment capabilities and advises clients, prospects, and consultants on global investing issues.
For more information and/or to register for the Investments Summit 2021, follow this link.
Foto cedidaGeorge Saffaye, Managing Director, Global Investment Strategist de BNY Mellon. Foto cedida
George Saffaye, Managing Director of Global Investment Strategist at BNY Mellon will present “Mobility Innovation for the future” in the seventh edition of Funds Society Investment Summit & Golf.
Saffaye is a global investment strategist for the Thematic Equity, US Large Cap Growth Equity, US Small Mid Cap Growth Equity and Global Natural Resources strategies. In this role, George guides the messaging and positioning of investment strategies. He is a critical interface between client-facing staff and investment teams, according to the firm information.
Before joining the firm, George worked as a portfolio specialist on the Small Cap team at Dreyfus, serving as a liaison between small cap portfolio managers and Dreyfus sales and marketing professionals as well as external consultants and clients. Prior to that, he worked at Credit Suisse Asset Management and Warburg Pincus, where his team was responsible for institutional client service and marketing in the Midwest region of the US. George has been in the investment industry since 1990.
The expert will speak during the event that will take place on October 14th and 15th at the Ritz Carlton Golf Resort in Naples.
For more information and/or to register for the Investments Summit 2021, follow this link.
Exceptionally powerful and competing economic forces are radically reshaping the landscape for emerging market (EM) investors. But for those with analytical capabilities, the resulting divergence in country and asset performance makes this fertile ground on which to generate returns.
The global macroeconomic environment is exceptionally uncertain. On the one hand, the Covid-19 pandemic keeps delivering ugly surprises; the exceptionally infectious Delta variant is the latest but unlikely to be the last. On the other, global central bank liquidity remains generous, as do fiscal stimulus measures. Inflationary pressures are growing – some are temporary, others could well take hold. Governments are under pressure to respond. Elsewhere, particularly China, there appear to be secular political shifts.
All of which further muddies an already complicated picture – there is huge variation among emerging market economies. Spanning the full spectrum of economic activity, from raw commodities to finished high end manufactured goods, emerging nations are expanding at varying speeds. At the same time, there’s significant differentiation in the assets on offer even within those countries.
So, in some cases, when a country’s dollar-denominated bonds are richly-priced, it is its local currency bonds that offer the prospect of better attractive risk-adjusted returns.
At the same time, the growing popularity of green bonds among sovereign issuers adds a further dimension to an investor’s decision making.
Varying impacts of Covid, varying amounts of stimulus, big divergences in country fundamentals, the introduction of green bonds on top of locally and hard currency-denominated securities all make navigating this EM bonds a challenge that demands expertise and experience.
Covid
The single most important issue facing all countries, but particularly emerging economies given their relatively limited public sector and financial resources, is how hard they were hit by Covid-19 and how effective their responses have been.
Countries’ relative performance, or their ‘pandemic trajectory’ is a key determinant of how their economies and markets are likely to shape up – and not just over the short term. There is also the longer-term threat from what economists call hysteresis, or the economic and social scars Covid leaves behind.
These effects will in part be determined by countries’ ability to contain the epidemic. That’s to say case, morbidity and mortality counts. These, in turn, will have been affected by the degree to which public health services have come under strain. These countries’ prospects will then be further influenced by the pace at which they are managing to vaccinate their populations (see Fig. 1). Countries that escaped the worst of the pandemic during 2020 and 2021 but have very low vaccination rates could still succumb to new strains of the virus, such as the Delta variant that swept through India during the spring and has since spread widely.
Commodities
With the recovery has come a boom in commodities, not least oil. Though generally prices have pulled back from their highs amid signs of a Chinese slowdown, the overall trend has been positive this year. Some of this strength has been a result of rising demand as life gets back to normal, partly stemming from bottlenecks in the supply chain caused by lingering after-effects of pandemic lockdowns. And emerging economies reacted differently to the revival in markets for raw goods.
Many commodity exporters were buoyed by improvements in their terms of trade. Markets welcomed the turnaround. Take South Africa – the country moved from running a current account deficit to a surplus as exports improved, which, in turn, boosted the rand. Elsewhere, however, an improving trade position was offset by other risks, such as political upheaval in the case of Peru and Colombia or geopolitical stresses (here South Africa is also at risk given febrile conditions in the streets).
On the flip side, large commodity importers such as China, have been hit by higher raw material prices. This has had the effect of pushing up inflationary pressures, particularly in Central and Eastern Europe, or of weakening their current account positions, and thus raising external funding costs.
Social shifts
How emerging countries compare in terms of their performance on environmental, social and governance (ESG) matters is also bound to affect their investment appeal. Social and governance factors are particularly important in parts of Latin America, where leftist politics and populism are witnessing a resurgence. This raises the risk that these countries will suffer an erosion of their long-term creditworthiness as politicians attempt to spend their way out of problems, causing fiscal pressures to mount. At the same time, worsening youth unemployment, poverty and educational outcomes are a threat to countries’ human capital formation, with Latin America again particularly at risk.
Monetary policy
Inflation is a big question for investors everywhere – but especially so in EM. Huge flows of global liquidity and substantial measures of fiscal policy have kick-started economies in the wake of the pandemic. Further waves of mass infection could yet prove a damper on both growth and price pressures. But as countries learn to cope with Covid, the existing stimulus could cause economic growth to boil over.
So far, EM central banks have taken an aggressive approach as inflation breached their targets – by and large they’ve been well ahead of developed economies in tightening policy (see Fig. 3). As a result, we think the markets have more than fully priced in the degree to which rates will be hiked by the time they peak. For instance, we think too much has been priced in for Russia, Mexico and Colombia, presenting us with attractive opportunities in those markets.
But even here there is considerable differentiation between emerging economies. For instance, inflation remains quiescent in emerging Asian economies so central banks there are likely to maintain dovish policies, especially in light of their rising infection numbers.
Making the most of differentiation
Investors in emerging markets have their work cut out. Countries face more complex challenges than ever, many of them brought to the fore by the Covid pandemic. It has compounded the impact of differing degrees of development and differing access to resources, be they natural or man-made and ranging from infrastructure to human capital to strength of institutions. And it has added another dimension to domestic politics.
Pictet Asset Management has a multi-faceted investment approach, using expertise from across the firm, that weighs up macro, political, environmental and social dimensions.
Take our approach to investing in Chile. We see limited value in Chilean 10-year dollar-denominated debt, which trades at a spread of just 99 basis points over US Treasuries, and so have an underweight position in this asset versus the benchmark across our portfolios. Where we do own the hard currency bonds, we express a preference for the country’s green bonds that trade in line with the conventional bonds. For bonds priced in Chilean pesos, our recent bias is to receive local rates, as we believe that the bonds’ recent weakness implies expectations for too many policy rate hikes. At the same time, we have a more strategic bias to be overweight the currency, as a recent bout of weakness presents an attractive entry point.
“Investors in emerging markets have their work cut out”.
As a team, we have learned to pay greater attention to the risks and opportunities presented by environmental matters and transition risk.
We think green bonds are a good way for governments to finance climate change initiatives and consequently encouraged Hungary to start a green bond programme that we could participate in at the time of issuance. Romania has been less quick to adapt these measures, but here too we have been pushing the government to recognise demand for these instruments. Encouragingly, it has responded by developing a green bond framework which should help build its sustainability-focused credentials.
We have a global reach, with a regional approach based around London, Singapore and New York, giving us local perspectives across the emerging market universe that we marry with our global macro and strategy strengths.
Opinion written by Mary-Therese Barton, Head of Emerging Market Debt at Pictet Asset Management.
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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 (Europe) SA, 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 (USA) Corp (“Pictet AM USA Corp”) is responsible for effecting solicitation in the United States to promote the portfolio management services of Pictet Asset Management Limited (“Pictet AM Ltd”), Pictet Asset Management (Singapore) Pte Ltd (“PAM S”) and Pictet Asset Management SA (“Pictet AM SA”). Pictet AM (USA) Corp is registered as an SEC Investment Adviser and its activities are conducted in full compliance with SEC rules applicable to the marketing of affiliate entities as prescribed in the Adviser Act of 1940 ref.17CFR275.206(4)-3.
Pictet Asset Management Inc. (Pictet AM Inc) is responsible for effecting solicitation in Canada 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 Manager authorized to conduct marketing activities on behalf of Pictet AM Ltd and Pictet AM SA.
