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In his latest video update, Paul McNamara discusses how factors in major developed markets have had a major influence on emerging market (EM) debt, how EM fundamentals differ from their developed peers and offers his outlook for the asset class.
What were the major recent events and what were the impacts on your asset class?
I think the big thing for emerging markets has been less what's going on in our backyard as developments in the bigger economies. So we've had weakness in Europe. We've had this weakness in the US Treasury market even as the economy itself has plugged away reasonably well and a bit of a wobble in China. And those really haven't been great for emerging markets. When China is weak, commodity prices struggle. That's bad for the commodity exporters, whereas the selloff in US yields has driven up yields everywhere else, which means that bonds haven't really performed either. It's been a very difficult year so far.
What can your asset class offer in the current environment?
What I think EM debt can offer is that we don't have the huge pile up of debt that we see in the developed world. I think a big reason for the selloff in bonds in the core markets is this idea that we've got a huge amount of debt and huge deficits going forward. Generally, balance sheets in emerging markets are in better shape. So I think there's some scope for outperformance on the back of that.
What’s your outlook in the near and medium term?
I think we're in reasonable shape cyclically. I think our concern is that the whole movement in yields, especially in the developed world, has been driven by more structural, non-cyclical fiscal considerations. And until that's addressed, I think it's going to be a volatile environment and one where we maybe want to keep our boats close to shore. In the medium term, I think EM fundamentals, not all emerging markets, but significant number, do offer opportunities to get away from problems which are in place pretty much across the whole of the developed world.
Is there one chart you’re currently monitoring closely?
The slight problem we have is that the stuff that matters to us most at the moment is happening in the developed world, not in EM. So while it might seem kind of out of our backyard, I think watching what happens to say the yield on the 10-year Treasury, and especially the real 10-year yields in the US, is probably the most significant variable in the financial world at the moment.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein 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 contained herein. Past performance is not an 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 or an invitation to invest in any GAM product or strategy. 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.
No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Past results are not necessarily indicative of future results. Investors could lose some or all of their investments.
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
This presentation contains forward-looking statements relating to the objectives, opportunities, and the future performance of the US market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein 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 contained herein. Past performance is not an 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 or an invitation to invest in any GAM product or strategy. 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.
No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Past results are not necessarily indicative of future results. Investors could lose some or all of their investments.
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index or benchmark.
This presentation contains forward-looking statements relating to the objectives, opportunities, and the future performance of the US market generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
Active Thinking
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Andrea Quapp highlights the fact both stocks and bonds are currently attractively rated, which is presenting her with asset allocation opportunities. She also mentions the importance of innovations such as artificial intelligence and, specifically for Switzerland, the appeal of the Swiss real estate market.
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Private Shares – Christian Munafo
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Christian Munafo of Liberty Street Advisors notes an improvement in market conditions for investors in late-stage private companies; many of these companies are similar to what public market investors used to seek in small to mid-cap growth stocks. He also stresses that many of them are not just high growth, they are also at or approaching profitability.
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Multi Asset Solutions – Julian Howard
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Asia/China Growth Equities – Jian Shi Cortesi
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Jian Shi Cortesi notes that weak sentiment in China is keeping Chinese equities at very low valuations, due to the soft economic growth, real estate drag and the ongoing China-US rivalry. However, she is optimistic about long-term prospects, with the conviction that in the long term earnings growth will drive stock prices.
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European Equities - Niall Gallagher
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Niall Gallagher shares his views on the implications of rising real bond yields and why he thinks central banks will continue to have to fight inflation rather than deflation. Niall also discusses the sheer scale of capital required to enable the energy transition, and some of the companies he believes stand to capitalise.
Active Thinking
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Active Thinking: Can EM debt step out of the Dollar’s shadow in 2024?
24 November 2023
Following a tough 2022, emerging market debt has fared well so far in 2023, outperforming US government bonds and investment grade credit, particularly as some softer US data weighed on the dollar. Paul McNamara, Investment Director and lead manager on emerging market debt strategies, analyses the key factors affecting the asset class and shares his thoughts on what to look out for in 2024.
Active Thinking
Active Thinking
16 December 2022
At GAM Investments’ latest Active Thinking forum, David Dowsett argues that after a busy week for central banks, we could now be moving into a different era, while Paul McNamara discusses how the situation in the US, Europe and China will shape emerging markets and the longer-term effects of reshoring.
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Elevated inflation and rising interest rates: what’s the solution?
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