Has the World Changed? Myles Bradshaw, Head of Global Aggregate Fixed Income, Amundi Insert your logo here IAPF Annual Investment Conference 2017
Secular Context: Since 2008 Policy ‐ makers have failed to close the post ‐ crisis economic gap • Financial crisis: 2008 ‐ 09 • Economic crisis: post ‐ 2010 • Political crisis: post ‐ 2015 Insert your logo here IAPF Annual Investment Conference 2017
Secular Context – the Great Recession 2008 ‐ 2009: Financial crisis • Government bail ‐ outs & Fiscal stimulus Unconventional central bank policies Federal Reserve: Total Assets Economies stabilised but at 5,000 the cost of higher 4,000 $, Billions government debt levels 3,000 2,000 1,000 Insert your logo here ‐ Jan ‐ 04 Jan ‐ 06 Jan ‐ 08 Jan ‐ 10 Jan ‐ 12 Jan ‐ 14 Jan ‐ 16 IAPF Annual Investment Conference 2017
Secular Context – Why does it not feel like a recovery? • 2010 – today: Economic crisis • Monetary policy the only game in town • Weak recovery & productivity growth • Weak real wage growth & low inflation Insert your logo here IAPF Annual Investment Conference 2017
Secular Context – Why does everyone keep referring to the 1930s? 2016 – today: Political crisis • No clear solution to economic challenges Frustration boosts Political fragmentation Populism: less fiscal responsibility Protectionism: leads to lower real growth & real financial returns Insert your logo here IAPF Annual Investment Conference 2017
Is 2016 a turning point? 1. Light at the end of the economic tunnel? 2. Shift in macro ‐ economic policy responses 3. Political populism: is the wave now breaking ashore Insert your logo here IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel? • Macro ‐ economies have been resilient to numerous shocks China slowdown and 2016 Q1 equity GDP Growth % yoy with 2017 consensus 3.5% 7.1% collapse 7.0% 3.0% USA Today Oct 2016 “Is Deutsche bank 6.9% 2.5% 6.8% the next Lehman moment?” 6.7% 2.0% 6.6% IMF April 2016: “Brexit could do severe 1.5% 6.5% regional and global damage” 6.4% 1.0% Eurozone USA 6.3% Donald Trump January 2017 “From this 0.5% UK China (RHS) 6.2% 0.0% 6.1% day forward, it’s… America first .” Insert your logo here IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel? Eurozone Business survey & unemployment rate • Even Eurozone 11.5 57 growth now 56 11.0 55 accelerating 10.5 54 10.0 53 9.5 52 9.0 51 8.5 50 Mar ‐ 15 Jun ‐ 15 Sep ‐ 15 Dec ‐ 15 Mar ‐ 16 Jun ‐ 16 Sep ‐ 16 Dec ‐ 16 Mar ‐ 17 Insert your logo here Euro U ‐ rate Euro PMI IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel? Global inflation measures Mario Draghi, ECB 3.0 8.0 president 2.5 6.0 March 2017 2.0 4.0 1.5 2.0 “Risks of deflation 1.0 ‐ have largely 0.5 (2.0) disappeared” ‐ (4.0) (0.5) (6.0) (1.0) (8.0) Jan ‐ 12 Jul ‐ 12 Jan ‐ 13 Jul ‐ 13 Jan ‐ 14 Jul ‐ 14 Jan ‐ 15 Jul ‐ 15 Jan ‐ 16 Jul ‐ 16 Jan ‐ 17 Insert your logo here US Core CPI Eurozone headline CPI China PPI (RHS) IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel? US & European equities 130 90 • Global risk 80 120 70 appetite 110 60 recovering 50 100 40 90 30 20 80 10 70 0 Jan ‐ 15 Apr ‐ 15 Jul ‐ 15 Oct ‐ 15 Jan ‐ 16 Apr ‐ 16 Jul ‐ 16 Oct ‐ 16 Jan ‐ 17 S&P 500 (rebased 1/1/15) EuroStoxx 50 (rebased 1/1/15) VIX (equity volatility) Insert your logo here IAPF Annual Investment Conference 2017
2. Is 2016 a turning point –shift in economic policy Monetary policy • Central banks reassess costs versus Bank of Japan Governor Kuroda benefits of lowering interest rates January 16 “… a negative interest rate will be a powerful weapon for monetary • Next steps: Winding down QE in Europe, easing.” Reducing size of US Federal Reserve’s balance sheet October 16 “… it has become increasingly evident that excessively lowered and flattened [interest rate] yield curve can weaken the transmission mechanism of monetary easing…” Insert your logo here IAPF Annual Investment Conference 2017
2. Is 2016 a turning point –shift in economic policy Government policy Tax Policy Center on Trump’s fiscal plan Nov 206 • Fiscal stimulus • Trade protectionism “Including interest expense, the federal debt • De ‐ regulation would rise by over $7.2tr over the first decade” [40% GDP] International Trade Minister Chrystia Freeland, Oct 2016 “…it is now evident … that the European Union is incapable of reaching an agreement, even with a country with European values such as Canada, even with a country as nice and as patient as Canada.” Insert your logo here IAPF Annual Investment Conference 2017
3. Is 2016 a turning point – Is this the end of post ‐ war multilateralism? • Tail risks for the post ‐ world multilateral order Brexit & the EU: start of a trend or trigger to reform Europe Trump: Shift in US foreign & trade policy? OPEC & fracking: end of cartelism? East Asia: accommodating or confronting China’s rise Expect establishment politicians to react, • implementing more “populist” measures Insert your logo here IAPF Annual Investment Conference 2017
Conclusion The World is changing so adapt your investment strategy: • Avoid risks with low returns: passive vs active • Global diversification lifts risk adjusted returns Illiquidity premia may be attractive given bank de ‐ leveraging • Market views: Interest rates too low to trigger recession • Outlook is for steady growth & continued recovery; politics a key risk Political tail risks: look for cheap insurance • • “Populist” policies: lift inflation risks, create “winners & losers” Valuations matter • Inflation looks cheap Interest rate exposure looks expensive Corporate credit: attractive way to generate returns Insert your logo here Forex: attractive way to hedge many political and macro risks IAPF Annual Investment Conference 2017
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