Courtesy photo of ring the bell ceremony on April 19th, 2022. , foto cedida
On April 19th, 2022, abrdn, the leading global asset manager, announced the launch of two Brazilian Depository Receipts (BDRs) referencing existing North American exchange traded funds (ETFs) focused on precious metals.
The new BDR funds, initially offered to qualified investors and listed on B3, the Brazilian stock exchange located in Sao Paulo, will provide exposure to physical gold and silver, respectively.
The available BDRs will offer Brazilians easily accessible, liquid and cost-efficient exposure to both precious metals at a time when many investors are seeking to bulwark their portfolios with increased diversification and protection. Benefiting from investment, risk and operational knowledge drawn from abrdn’s existing stable of metals funds, the new instruments join a growing array of BDRs now listed on B3, numbering more than 100 overall.
“These new BDRs will immediately enhance the landscape of publicly-listed funds for investors, who have grown in number and sophistication but remain limited in their pathways to exposure to gold and silver,” said Menno de Vreeze, Head of Business Development, International Wealth Management at abrdn. “Today’s macroeconomic conditions demonstrate the imperative for fast, trusted access to these metals perhaps more than ever before, and we are extremely excited to bring these tools to a Brazilian market that is dynamic yet still broadly untapped. We were proud to work with B3 and our local partners on this timely and long-awaited launch, and will continue our work together to offer further exposure of this kind in Brazil in the future.”
“This is a big step in the Brazilian market, bringing an opportunity from of our shelf of passive vehicles in partnership with B3 via their BDR-of-ETF program to provide easy access to two of our flagship metals products. We believe this will also provide excellent foundation for future to provide exposure to our separate commodities suite, as well,” added Daniel Xavier, abrdn Business Development in Sao Paulo.
“B3 continues to support market participants to bring crucial and innovative BDRs to Latin America’s largest market, with providers today including abrdn and many of the world’s largest asset managers,” said Rogerio Santana, Director of Client Relations at B3. “Today’s new BDR offerings provide more confirmation of the Brazil’s market potential and steady maturity, meeting our investors’ requirement for local funds to help them properly diversify their portfolios and navigate volatility. We are excited to support these new BDRs going forward and congratulate abrdn on their first launch on our platform.”
Robeco appoints María Elena Isaza as Sales Director for US Offshore & Latam business, effective 18 April.
Isaza will co-lead Robeco’s Miami sales team together with Julieta Henke (Sales Director), and share responsibility for South Florida covering all channels in the biggest US Offshore hub.
Isaza and Henke previously spent a decade together at Merrill Lynch and now reunite as business partners at Robeco. Together with Jason Shidler (Sales Director) they report to Ana Claver, CFA, Managing Director, Head of Robeco Iberia & US Offshore & Latam. This addition to the team follows the recent senior appointment of Ignacio Alcantara as Head of Business Management.
María Elena Isaza started her career at Merrill Lynch where she held multiple roles, including loan officer, assistant sales manager to the Miami international office, and product specialist. She then joined Goldman Sachs Asset Management, where she led the efforts for third-party distribution of offshore mutual funds. She then when on to Schroders where she spent 9 years and was responsible for Southeast and Caribbean.
Ana Claver, CFA, Managing Director, Head of Robeco Iberia & US Offshore & Latam: “We’re delighted that María Elena is joining our team and takes on this strategic sales position together with Julieta Henke. I’m confident that her extensive sales experience in the region is a great asset that our entire sales team will benefit from. Our recent appointments of new talent reflect Robeco’s long-term commitment to the US Offshore & Latam business.”
María Elena Isaza, Director of Sales for US Offshore & Latam: “I’m very proud to be taking on this new sales position and I’m excited to be working again with Julieta Henke and with the entire sales team at Robeco US Offshore & Latam. I look forward to exceeding clients’ expectations and to continue to add value for them.”
Robeco is a pure-play international asset manager founded in 1929 with headquarters in Rotterdam, the Netherlands, and 16 offices worldwide. A global leader in sustainable investing since 1995, its integration of sustainable as well as fundamental and quantitative research enables the company to offer institutional and private investors an extensive selection of active investment strategies, for a broad range of asset classes. As at 31 December 2021, Robeco had EUR 201 billion in assets under management, of which EUR 195 billion is committed to ESG integration.
Sanctuary Wealth continues its rapid global expansion with the addition of independent advisor AZ Apice Capital Management to its network of partner firms on the Sanctuary Global platform. Headquartered in Sanctuary’s Miami office, the four-person team is led by Managing Partners Walter Alves and Bruno Gorgatti and advises on more than $400 million in client assets under management, primarily for clients domiciled in Brazil. The team was formerly affiliated with Insigneo.
“Sanctuary is enjoying phenomenal growth on all fronts, in number of partner firms and assets under management, both domestically and internationally,” said Jim Dickson, CEO and Founder of Sanctuary Wealth. “AZ Apice was already successful as an independent firm before joining Sanctuary, which shows that Sanctuary Global is filing a need in the marketplace and providing resources and services that haven’t otherwise been available to these firms.”
Bruno Gorgatti and Walter Alves both earned MBAs from Thunderbird School of Global Management at Arizona State University and have been business partners focusing on the Brazilian market for more than 20 years. They are fluent in English, Portuguese, and Spanish. They first joined forces at Lehman Brothers and then worked as a team within Morgan Stanley’s Private Wealth Management Division, where they were Executive Directors, before declaring their independence and launching AZ Apice in 2016.
“We have been following Sanctuary’s success for the past few years and were thrilled when they extended their offering to internationally focused teams. The choices for supported independence for international advisors had been extremely limited prior to Sanctuary,” said Walter Alves, Managing Partner, AZ Apice. “After conducting thorough due diligence, we knew that we wanted to be part of the Sanctuary network. Sanctuary provides a wide range of solutions for our clients, efficiencies that will enhance our business, and a culture of excellence.”
Joining Bruno Gorgatti and Walter Alves at AZ Apice will be Daniella Martins, Sales Supervisor, Compliance Associate, and an AZ Apice team member since 2020, and Pietra Coquieri, Sales Associate, who joined the team in 2022.
“Sanctuary Global is proud to welcome Walter, Bruno, and AZ Apice as our latest partners in our growing Miami office. They are outstanding advisors with a strong international clientele, and we look forward to helping grow both their client base and the assets they manage,” said Robert Walter, President of Sanctuary Wealth.
Cerulli projects that $72.6 trillion in wealth will be passed on to heirs and younger generations through 2045. But, only 42% of advisor practices offer intergenerational planning, according to the latest Cerulli Edge—U.S. Advisor Edition.
Advisors hoping to capture and retain beneficiary assets must not only incorporate intergenerational planning into their business model, but also evaluate their existing technology infrastructure to remain attractive to young investors. Asset managers are working to develop new products and restructure current offerings to meet the demands of younger investors.
Evolving service and business models to meet the needs of the next generation is no small task. According to the research, over one-quarter of advisors (26%) identify building multigenerational relationships as one of their greatest practice challenges.
“Advisors are frequently so focused on the daily operational aspects and pressing investment or advice needs, they are unable to properly develop strategy related to developing relationships with the next generation,” says Andrew Blake, senior analyst.
Preparing for this shift could be an opportunity for asset managers to add value to advisors. “Asset managers can play a role in educating advisors on how to best service investors through thought leadership and value-add tools,” Blake adds.
The ability to manage and upgrade technology capabilities stands to play an influential role in determining whether an advisor is effective in appealing to younger investors. Across industries, clients are seeking to work with companies that make it easier for them to navigate accounts, access interactive digital content, and receive customer service through readily available artificial intelligence interactions. Firms with lagging digital client experiences may face substantial roadblocks trying to catch up to more technologically savvy competitors.
Cerulli believes that wealth managers focused on capturing next-generation wealth will leverage technology that promotes the client experience, making it easier and faster for this cohort of investors to transact.
Ultimately, both asset and wealth managers need to adjust their service models to safely transition intergenerational assets. “A comprehensive, cohesive digital strategy beyond a collection of software or online content is needed from both,” says Blake.
“Integrating digital offerings to help drive investor outcomes will help asset managers and advisors win assets from a younger and more technology-focused generation of investors,” he conclude.
Water scarcity is becoming an ever more urgent problem. Resources are dwindling, while demand for clean water and sanitation continues to increase. According to the UN, only one third of countries in the world will have sustainably managed water resources by 2030 (1). The need for investment is urgent.
Although the developed world is far from immune, the problem is clearly most acute in developing countries. In North America and Europe 96 per cent of the population have access to safe drinking water, but this drops down to 75 per cent in Latin America and the Caribbean, 62 per cent in Central and Southern Asia and just 30 percent in Sub-Saharan Africa (2).
The good news, according to members of the Pictet-Water Advisory Board, is that private investment in water resources is growing across emerging markets
Research by the Advisory Board shows that private sector participation (PSP) in the water sector now covers 21 per cent of the world population, up from 8 per cent two decades ago. Such activity is vital as governments are increasingly unable to provide necessary investment due to tight budgets and ageing infrastructure. The private sector can help breach that funding gap, as well as bring expertise.
Some of the strongest growth has come from within emerging markets in Asia. In India, for example, the private sector had almost no involvement in water and sewage 20 years ago. Today, it covers the water needs of approximately 150 million people – a testament to coordinated efforts by the government and multilateral financial institutions. China has seen also seen private investment grow very strongly, while outside Asia, Brazil and Columbia stand out.
Investment growth has been particularly high in sewage – an area that is politically less sensitive than drinking water, yet still crucial to our well-being and to the achievement of UN’s Sustainable Development Goals (SDG). SDG 6 calls for universal access to both water and sanitation, as well as seeking to halve the discharge of untreated water and improve water use efficiency.
Local players
Common to many of these private initiatives is the fact they involve regional and local water companies – a remarkable shift in an industry that has historically been dominated by behemoths like Veolia and Suez. While in 1991-2000 half of all the private water treatment contracts went to international players, in the last decade that proportion dropped to just 14 per cent.
One potential for growth for local water firms is international expansion. Our Advisory Board members point out this is already occurring in South East Asia, with many Singapore-based water firms expanding into China and Malaysian companies into Indonesia.
Populations are growing, urbanisation is increasing and people are becoming increasingly wealthy – all of which leads to more demand for water and sanitation, and more need for investment. By 2030, the Advisory Board’s analysis suggests that an additional 400-500 million people will be covered by PSP across water and sewage.
Opinion written by Cédric Lecamp, Senior Investment Manager in the Thematic Equities team at Pictet Asset Management.
(2) Our World in Data, WHO/UNICEF Joint Monitoring Programme for Water Supply and Sanitation, data for 2020.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to risks and uncertainties that could cause actual results to differ materially from those presented herein.
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Pixabay CC0 Public Domain. Cuatro focos de optimismo en medio de la venta global de acciones
Global equities have had a challenging start to 2022 amid a perfect storm of bad news: Russia invaded Ukraine, inflation is rising at its fastest clip in decades in most developed economies, and central banks have begun to tighten monetary policy. Equity valuations—which had benefitted from unprecedented liquidity injected into financial markets to blunt the impact of the Covid pandemic—responded in kind.
While many investors are taking a “risk-off” approach, we remain sanguine about the long-term outlook for global equities, especially in non-US markets, including developed Europe and China. Opportunities now are more selective as a function of drying liquidity and rising interest rates, but we see four areas of interest for investors to consider today: equity performance dispersion in certain markets, quality firms with pricing power, bargain hunting amid higher volatility, and digital Darwinism.
Equity performance dispersion favors certain markets
For the first two months of 2022, the MCSI All Country World Index lost 7.4% as expectations rose about how many times key global central banks (i.e., the US Federal Reserve and the European Central Bank) will hike interest rates. In January the consensus was for the Fed to hike three time this year. As of mid-March, expectations were for a total of seven.
The end of an era of loose monetary policy—which bolstered equity valuations in 2019 (MSCI ACWI up 26.6%,) 2020 (16.2%) and 2021 (18.5%) and contained volatility—has sparked a rotation from growth to value stocks for many investors. This rotation, in turn, has generated a widening dispersion of returns, as volatility rose, and allocations were adjusted at the stock, sector, country, region and style-factor levels. For example, within the US, the tech-heavy NASDAQ dropped 12.4% in the first two months of the year, significantly underperforming the Dow Jones Industrial Average, down 6.9%.
That dispersion reflects the sharpest growth-to-value rotation in a decade, as does the strong relative performance of London’s FTSE 100, weighted heavily to value sectors, such as banks, energy and miners. In Europe, by the end of February, the MCSI Europe Value index outperformed the MSCI Europe Growth index by 11.1%.
The performance dispersal is also evident in China’s various stocks markets. The MSCI Overseas China, dominated by mega-caps trading as ADRs, fell 38% in 2021 versus gains of 3.2% for the all-cap MSCI China A Onshore Index, (stocks traded in Shanghai and Shenzhen,) which better reflect the growth potential of the domestic Chinese economy.
The takeaway is that selectivity is paramount. A recent MSCI paper found that high cross-sectional volatility in equity markets offers “greater opportunities for active managers.”
Quality firms with pricing power should outperform amid high inflation
Albeit important in the short run, the debate about whether to rotate from growth stocks to value stocks should be, in our view, of less concern to long-term investors. In other words, what’s most important over the longer term is investing in great companies—ones with the ability to structurally grow long-term cashflows and earnings—irrespective of whether they are considered as growth or value. Investors wondering what qualities make for great companies can review Porter’s Five Forces, a framework for evaluating the competitive strength and long-term potential of a business. Of particular interest now are companies with pricing power that can pass on higher prices to end users while inflation is high. We are already seeing greater differentiation in earnings results between companies that can pass on higher input prices to customers and those left compressing their own profit margins—a topic likely to make plenty of headlines in the coming quarters as earnings reports reflect this new reality.
Volatility creates bargains
In volatile markets, investors need to take the time to separate the signal from the noise. Global stocks have been awash with liquidity thanks to key central banks’ rapidly growing balance sheet. The Fed, for example, has doubled its balance sheet to just under $9 trillion since early 2000. To use a fishing analogy, that liquidity is like dropping dynamite in a lake: fishermen can easily pick any floating fish and likely profit, even with the most speculative firms. Today, as liquidity is withdrawn, the lake still has plenty of fish, but investors must work harder to find good ones. Having said that, it is noteworthy that the recent sell-off has been top-down, dragging down many companies with strong fundamentals that reported very strong 2021 results. That suggests many of these firms are victims of the rising-rates narrative, creating a bottom-up opportunity for bargain hunters.
Digital Darwinism is reshaping the economy
The Covid-19 pandemic has accelerated the trend of digital Darwinism, whereby companies that establish superiority in crucial new technologies can gain a long-term, transformative advantage. Having reimagined the consumer tech world, this trend is now sweeping the business-to-business tech ecosystem. Key industries at the forefront of such change include artificial intelligence, cloud computing, robotics, industrial automation, electric vehicles, renewable energy technology, among others. While consumer-facing US tech behemoths outperformed in recent years, many European companies are now providing the underlying technology, software or hardware to facilitate many of these business-to-business (B2B) thematic trends. Likewise, China is investing heavily in these areas, too, attracting a record $131 billion in venture capital in 2021, according to the research firm Preqin. Given that, investors should diversify and look for opportunities in regions that were largely overlooked in the recent tech boom.
Amid such volatility, investors should get back to basics, seeking out quality companies that can thrive in these challenging times. The opportunity extends beyond the US, Europe and China to such places as South America, the Middle East, Africa, Japan and Australia. As tough as volatile markets are, with the right research and by taking a longer-term view, investors can benefit.
Opinion by Marcus Morris-Eyton, Growth Equity Portfolio Manager based in London, and Christian McCormick, Senior Product Specialist based in New York, both at Allianz Global Investors.
Foto cedidaDavid Solomon, presidente y Consejero Delegado de Goldman Sachs.. Goldman Sachs completa la adquisición de NN Investment Partners
The Goldman Sachs Group announced the completion of the acquisition of NN Investment Partners from NN Group N.V. for €1.7 billion ($1.84 billion).
NN Investment Partners will be integrated into Goldman Sachs Asset Management with the company’s more than 900 employees joining the Goldman Sachs family and the Netherlands becoming an important location in Goldman Sachs’ European business and a center of excellence for sustainability in public markets investing.
The acquisition brings Goldman Sachs’ assets under supervision to approximately $2.8 trillionand affirms its position as a top five active asset manager globally with leading franchises in fixed income, liquidity, equities, alternatives and insurance asset management. It also brings assets under supervision in Europe to over $600 billion, aligning with the firm’s strategic objectives to scale its European business and extend its global reach.
The combination further strengthens our platform and provides an expanded product range and dedicated service to clients globally, bringing together the best of both organizations to deliver investment solutions at scale, across all asset classes.
NN Investment Partners is highly complementary to Goldman Sachs Asset Management’s existing European footprint, adding new capabilities and accelerating growth in products such as European equity and investment grade credit, sustainable and impact equity, and green bonds.
NN Investment Partners has been successful in incorporating Environmental, Social and Governance (ESG) factors across its product range, with ESG criteria integrated into approximately 90% of assets under supervision. Over time, Goldman Sachs Asset Management intends to leverage the expertise of NN Investment Partners to complement its existing investment processes, helping the firm to deepen ESG integration across its product range and deliver on clients’ sustainable investing priorities.
David Solomon, Chairman and Chief Executive Officer of Goldman Sachs, said: “This acquisition advances our commitment to put sustainability at the heart of our investment platform. It adds scale to our European client franchise and extends our leadership in insurance asset management. We are excited to welcome the talented team at NN Investment Partners, a center of excellence in sustainable investing, to Goldman Sachs and together we will focus on delivering long-term value to our clients and shareholders.”
As part of the transaction, Goldman Sachs Asset Management has entered into a long-term strategic partnership agreement with NN Group to manage an approximately $180 billion portfolio of assets, reflecting the strength of the business’ global insurance asset management capabilities and alternatives franchise.
The partnership also strengthens Goldman Sachs Asset Management’s position as one of the largest non-affiliated insurance asset managers globally, with over $550 billion in assets under supervision, and the acquisition will provide a foundation for further growth in the firm’s European fiduciary management business, building on the success of its platform in the United States and United Kingdom.
A special poll conducted by The Conference Board, the March Consumer Confidence Survey, focused on the perceived impact of the war in Ukraine on overall inflation in the US, as well as its impact on a wide swath of expectations ranging from energy and food prices to economic growth and international travel.
Consumers expect the overall impact of the war in Ukraine to be negative, as well as wide reaching. The most pronounced impacts are expected to be felt in energy prices. In fact, more than half of consumers said that prices at the pump would likely be the hardest hit. With gas prices hovering well above $4 a gallon, energy prices are likely to remain a top concern among consumers.
Notably, 6 out of 10 consumers believe the conflict will cause prices to rise significantly over the next several months, while about another 3 out of 10 consumers feel the impact on prices would likely be moderate.
Consumers expect the overall impact of the war in Ukraine to be negative, as well as wide reaching. The most pronounced impacts are expected to be felt in energy prices. In fact, more than half of consumers said that prices at the pump would likely be the hardest hit. With gas prices hovering well above $4 a gallon, energy prices are likely to remain a top concern among consumers.
Meanwhile, consumers expect the impact on food prices to be somewhat more subdued. However, this may be partially due to increases in this sector that will take a bit longer to filter through the supply chain before consumers see visible changes on store shelves.
Less than a quarter expect the US economy to be very negatively impacted, but nonetheless expectations are that growth will slow in the near future.
Overall, consumer confidence continues to be supported by strong employment growth and thus has been holding up remarkably well despite surging geopolitical conflict. However, expectations for inflation over the next 12 months reached 7.9 percent in March—an all-time high—and are likely to rise further in the coming months.
The impact of rising prices, especially for less affluent consumers, is likely to curb spending in 2022. These consumers will have fewer discretionary dollars to spend on dining out, entertainment outside of the home, travel, and vacations. Thus, in-person services industries trying to bounce back from the pandemic may remain challenged, though to a lesser degree than during the worst of the COVID-19 crisis.
We expect headwinds from higher inflation and the war in Ukraine to persist in the short term, and these may well dampen confidence and cool spending and economic growth in the months ahead.
Foto cedidaEvan L. Russo, nuevo CEO de Lazard AM.. Lanzar elige a Evan L. Russo nuevo CEO para su negocio de gestión de activos
Lazard announced that Evan L. Russo, Chief Financial Officer (CFO) of Lazard, will succeed Ashish Bhutani as Chief Executive Officer (CEO) of Lazard’s Asset Management business.
Mr. Bhutani has decided to retire as CEO of Lazard’s Asset Management business and from the Board of Directors of both Lazard Ltd and Lazard Group as of June 1, 2022, to pursue philanthropic and personal interests. Mr. Bhutani will continue serving as Chairman of Asset Management and as a Vice Chairman of Lazard through the end of the year. Mr. Russo will continue serving as Lazard’s CFO and work with Kenneth M. Jacobs, Chairman and CEO of Lazard, to expeditiously identify his successor.
Mr. Russo joined Lazard in 2007. He has served as CFO and as a key member of Lazard’s executive leadership team since October 2017. In his role as an executive officer, he helped to lead strategic priorities for the firm, developing a deep understanding of the Asset Management business. As CFO, Mr. Russo significantly increased engagement with Lazard’s stakeholders. He also developed a deep bench of talent and enhanced the capabilities of the finance team worldwide. He successfully led projects to modernize and improve the firm’s global financial capabilities and optimized the firm’s capital structure. Prior to becoming CFO, Mr. Russo served as Co-Head of Lazard’s Capital Markets and Capital Structure Advisory practice in the firm’s Financial Advisory business.
Mr. Bhutani joined Lazard in 2003, was shortly thereafter appointed head of Lazard Asset Management and became a member of the Board of Directors in 2010. Under his leadership, Lazard’s Asset Management business has become a leading global asset manager with over $250 billion in assets under management. Mr. Bhutani, along with the senior management team, has built a business based on a culture of innovation and entrepreneurship, with a passionate commitment to serving clients with excellence. It is this culture that underpins Lazard’s success and will continue to be a driving force in its future growth.
Mr. Bhutani is Chairman of the Lazard Foundation in the U.S. in addition to being active in a number of philanthropic organizations, including serving as a Board member of City Harvest. He now plans to focus more on his personal philanthropic efforts.
“Over his two decades at Lazard, Ashish has led the transformation of our Asset Management business into a leading global franchise driven by a world-class team, and for the past 12 years he has served as a valued member of our Board of Directors,” said Mr. Jacobs. “Ashish has been an inspirational partner, and I admire him as a leader and as a philanthropist. On behalf of Lazard’s Board, I thank Ashish for his substantial achievements as a senior leader of the firm andhis contributions as a Board member.”
“The success of our Asset Management business over the past 20 years has been driven by our innovative and entrepreneurial culture, and an unwavering focus on delivering the best of Lazard to our clients,” said Mr. Bhutani. “I am confident that under Evan’s leadership, working closely with our experienced senior management team, the business will reach new heights in delivering best-in-class investment solutions and service to our clients.”
Lazard’s Asset Management business provides a world-class suite of investment solutions across a diverse range of asset classes, regions and investment styles, with operations in 24 cities, supporting clients in more than 50 countries across the globe.
Alexander F. Stern, President of Lazard, to retire from the firm at year end
Lazard also announced today that Alexander F. Stern, President of Lazard since 2019 and an investment banker in its Financial Advisory business for nearly 30 years, has decided to retire from the firm at the end of this year. He will continue serving in his current role as President through year-end 2022 and will also continue as Executive Chairman of Lazard Growth Acquisition Corp. I, a Special Purpose Acquisition Company.
“Alex has been an invaluable partner to me for many years and an important advisor to Lazard’s Board,” said Mr. Jacobs. “He has been a key member of our executive leadership team as President. In his prior role as Global Head of Strategy, he was responsible for our key strategic initiatives, and as Chief Operating Officer he ensured our successful transition to being a public company. As CEO of Financial Advisory until 2019, Alex steered the development of our Financial Advisory business globally, enhanced collaboration and productivity across our workforce and strengthened our relationships with our investment banking clients. On behalf of our Board, I thank him for his years of service and unwavering commitment to the firm, our clients and our culture.”
Pixabay CC0 Public Domain. La deuda pública mundial se disparará en 2022: 71,6 billones de dólares
2022 will see global sovereign debt rise by 9.5%, up by $6.2 trillion to a record $71.6 trillion, according to the second annual Janus Henderson Sovereign Debt Index. The increase will be driven by the US, Japan and China in particular, though almost every country is likely to borrow further.
Global government debt jumped to a record $65.4 trillion in 2021. On a constant-currency basis, public debt levels rose 7.8% as governments borrowed an additional net $4.7 trillion. Since the pandemic began, global sovereign debt has soared by over a quarter, up from $52.2 trillion in January 2020 to today’s record.
Every country Janus Henderson examined saw borrowing rise in 2021. China’s debts rose fastest and by the most in cash terms, up by a fifth, or $650 billion. Among large, developed economies, Germany saw the biggest increase in percentage terms, with borrowing rising by one seventh (+14.7%), almost twice the pace of the global average.
Despite surging levels of borrowing, debt servicing costs remained low. Last year, the effective interest rate on all the world’s government debt was just 1.6%, down from 1.8% in 2020. This brought the total cost of servicing the debt down to $1.01 trillion, compared to $1.07 trillion in 2020. The strong global economic recovery meant the global debt / GDP ratio improved to 80.7% in 2021 from 87.5% in 2020 as the rebound in economic activity outpaced the increase in borrowing.
2022 will see debt servicing costs significantly increase
The global interest burden is set to rise by around one seventh on a constant-currency basis (14.5%) to $1,160bn in 2022. The biggest impact is set to be felt in the UK thanks to a rising interest rates, the impact of higher inflation on the large amount of UK index-linked debt, and the cost of unwinding the QE programme. As interest rates rise, there is a significant fiscal cost associated with unwinding QE. Central banks will crystallize losses on their bond holdings which have to be paid for by taxpayers.
Bond market divergence signals opportunities for investors
During the first couple of years of the pandemic, bond markets around the world converged. Now, the theme is divergence. The US, UK, Europe, Canada and Australia are focused on tightening monetary policy to squeeze out inflation – both through higher interest rates and with tentative steps towards unwinding quantitative easing programmes. By contrast, the Chinese central bank is stimulating the economy with looser policy.
Janus Henderson sees asset allocation opportunities in shorter-dated bonds as they are less susceptible to changing market conditions. Janus Henderson believes markets are expecting more interest rate hikes than are likely to materialise and this means shorter-dated bonds will benefit if the tightening cycle ends sooner.
Bethany Payne, portfolio manager, global bonds at Janus Henderson said: “The pandemic has had a huge impact on government borrowing – and the after-effects are set to continue for some time yet. The tragedy unfolding in Ukraine is also likely to pressure Western governments to borrow more to fund increased defence spending. despite recent volatility, opportunities exist for investors in sovereign bonds markets.”
Payne adds tha during the first couple of years of the pandemic, the big theme was how bond markets around the world converged. Now, the theme is divergence; regime change is underway in the US, UK, Canada, Europe and Australia, which are now focused on how to tighten monetary policy to squeeze out inflation, while other regions are still in loosening mode. Regarding Asset Allocation, there are two areas of opportunity.
“One is China, which is actively engaging in loosening monetary policy, and Switzerland, which has more protection from inflationary pressure as energy takes up a much smaller percentage of its inflationary basket and their policy is tied, but lagging, to the ECB”, she adds.
