Growth and expectations have been reined in during the last month
\nas the short-lived Chinese stimulus – which briefly led to improved
\neconomic data – came to an end and Europe slowed, not least
\nbecause of Brexit fears in the run-up to the EU referendum on 23
\nJune. Leading indicators across the globe are all showing soft GDP
\ngrowth and the global growth slowdown is leading to expectations of
\nrates being lower for longer, which in turn is providing support for
\nrisk assets.<\/p>\n
In Europe the mediocre economic and company data we are seeing But this fragile rally has not made for a robust investing environment. Our equity strategy has been to favour the UK, Europe and Asia exJapan China is an ongoing theme. Clearly, markets became concerned by the absolute levels of Any departure from a strategy of growth through credit issuance would have significant It is not only China that has a debt issue – net debt to GDP is near or at all-time highs in most We have recently discussed whether any country might seek to write off its debt and what In the US, inflation data is ticking upward, with wages rising in most areas, yet markets had The US economy needs to create around 80,000 jobs a month to maintain the employment rate. Global markets are being troubled by a range of issues: some old,
\nwould usually be alarming, but with low levels of productivity this
\nlevel of economic activity still represents above-trend growth. So
\nwe\u2019ve seen equity markets rally off their lows at the first part of the
\nyear, not because the news flow is improving but rather on the
\nexpectation that interest rates will stay low as a result of the low
\ngrowth environment.
\nCore bond yields have rallied and that discount
\nrate has provided support to long-duration assets and risk assets
\nmore broadly.<\/quote><\/p>\n
\nNevertheless, it is the environment that we have. Clearly, in a lowgrowth
\nworld we are always closer to the fear of recession, which
\nwe saw earlier this year. Corporates are navigating through the
\nterrain relatively well, although this is against significantly revised
\nearnings expectations<\/p>\n
\nand, while we are well-positioned for a low growth, low return
\nenvironment, we have recently decided to take some risk off the
\ntable by paring back our overweight position with regard to Asia exJapan.<\/p>\n
\nChinese debt and China\u2019s ability to both sustain its growth and engineer a soft landing without
\nprompting a credit crisis. It has taken on more debt to keep growth growing and markets have
\nperversely accepted this \u2013 perhaps this is another case of extraordinary fiscal and monetary
\npolicy becoming \u2018the new normal\u2019.
\nIt is difficult to call when China\u2019s credit issue will become
\nmore immediate, though recent rhetoric indicates there is an increasing clamour for the
\nPeople’s Bank of China to address the \u2018credit binge\u2019.<\/quote>
\n Not least with the publication of an article
\nin People\u2019s Daily citing an \u2018authoritative source\u2019 that was critical of the debt-driven growth
\nstrategy employed by the Chinese authorities.<\/p>\n
\nimplications for markets. It would focus the spotlight on the number of bad loans in the Chinese
\nbanking system and lead to rising corporate defaults. This could bring to an abrupt end the
\nchange of fortunes that has lifted commodity prices. Though I don\u2019t believe we are yet at the
\npoint where the People\u2019s Bank of China will turn off the credit taps, we are keeping a close eye
\non it and I am not hugely confident about China\u2019s ability to get through this without doing too
\nmuch damage to itself or the global economy.<\/p>\n
\ncountries. This has not been an issue for corporates due to massive monetary stimulus and low
\ninterest rates, but the underlying macro backdrop is not one that suggests rampant market
\nreturns. There are huge amounts of fiscal debt in the system and generally three ways to tackle
\nit. Growth is one way, though as we\u2019ve seen this is proving difficult across the globe, while you
\ncan inflate your way out of debt or you can default. Monetary policy has so far failed to result in
\ninflation working its way into the system, while defaults will do little to buoy markets. Countries
\nmay well try to use all three mechanisms available to them, so we might expect defaults to rise.<\/p>\n
\nimpact that would have. While this is largely a thought exercise, it is interesting to imagine what
\nthe market reaction would be to, say, Japan writing off its debt, which it largely owns itself. With
\nno-one to pay back, a write off might not have a hugely negative impact, but it could lead to
\ncurrency implications and a knock-on effect on the markets.<\/p>\n
\nbeen relatively sanguine until the publication of Fed minutes indicating a June interest rate rise
\ncould be on the cards gave markets the jitters.
\nEven so, the prevailing market sentiment is that
\nthe magnitude won\u2019t be high enough to prompt a strong market or central bank reaction, which
\ncould be right given the number of deflationary shocks we have experienced.<\/quote><\/p>\n
\nJob growth has been running faster than that level for over five years, and it appears that job
\nopenings are becoming harder to fill. While wage growth has increased from the 1.5-2.0% range
\nin which it sat for many years, its recent rise to a 2.5% growth rate still appears tentative.
\nAgainst that backdrop, the dollar may have started a much anticipated bull run, with the wellknown
\nconsequences for emerging markets and other asset classes.<\/p>\n","protected":false},"excerpt":{"rendered":"
\nsome new. According to Mark Burgess, CIO EMOA and Head of Equity Investments at Columbia Threadneedle Investments, three issues are worth paying close attention to: Global growth, Ongoing macroeconomic uncertainties in China and Debt…<\/p>\n","protected":false},"author":1,"featured_media":52561,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1809,1655,1859,2073,1943,1651,2087,2148,2068],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/52563"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=52563"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/52563\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/52561"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=52563"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=52563"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=52563"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}