At GAM Investments’ latest Fixed Income Meeting, held on 23 March, our managers discussed market volatility in Turkey and commented on European and US credit markets.
Markus Heider – Emerging Market Rates and FX
Turkey’s President Erdoğan fired central bank chief Naci Agbal over the weekend after just five months, with no official reason cited for the change. The move came two days after the central bank delivered a larger-than-expected 200 bps interest rate hike; the central bank has hiked interest rates by 875 bps since his appointment on 20 November 2020. He is replaced by Şahap Kavcıoğlu, a banking professor, party loyalist and columnist in a pro-government newspaper, who becomes the fourth central bank governor in two years. In recent newspaper columns, he has argued against rate hikes and echoed the Erdoğan line that rate hikes might cause inflation. He has also stated that the strong Turkish lira might be harming competitiveness. The move highlights the uncertainty around monetary policy in Turkey. In the meantime, FX and bond market volatility has increased markedly, with the Turkish lira plummeting, although the spill over to other emerging market currencies has been limited.
Florian Komac – European Credit
Many European countries are extending or reintroducing lockdown measures as a third wave of Covid-19 sweeps the continent. With the vaccination rates continuing to lag behind the likes of the US and the UK, these measures seem to be the only way to keep cases down. However, there is a growing risk of another ‘lost summer’ and more questions are being asked on whether lockdowns are worth the cost. The service sector has been decimated by the pandemic and with recent measures, this is not going to change in the near future with bans on international travel still very much in place. On a positive note, purchasing managers’ index (PMI) data demonstrates that activity is continuing to grow in Europe’s manufacturing sector, which has proven resilient as supply chains / exports have remained relatively unscathed. Overall, we do not expect a full reopening of the economy to occur until Q3 / Q4 this year.
Jack Flaherty – US Credit
In the US, the majority of states have eased Covid-19 restrictions and are opening up again. Markets have been strong and there has been a dash for issuance with corporations concerned rates could move even higher over the long term. Leisure and entertainment sectors still have momentum thanks to improved sentiment from vaccines. Meanwhile, energy companies are benefiting from higher oil prices. Overall, we are optimistic for the coming months and expect the US economy to outperform consensus estimates.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.