An interview with Anton Hauser, senior fund manager ESPA BOND DANUBIA, about the yield opportunities of East European bonds.
Euro corporate bonds could outperform Euro government bonds in the last month due to the bond purchasing programme of the European Central Bank and the mounting oil prices.
Since the beginning of the year all emerging markets bond segments showed strong performance. Major factors behind this trend were the increase in oil prices as well as the withdrawal of interest rate hike expectations in the US. These reasons are accountable that the US-high yield segment is becoming more interesting.
As corporate bonds could perform very well if compared with government bonds, their relative attractiveness decreased. However, corporates still benefi t from the lack of alternatives.
Equities have recovered from their beginning-of-year slump, and bonds, especially corporate and emerging markets, have recorded impressive gains. The loosening of the monetary environment in China and the continuation of the loose monetary policy in the USA have reduced the risk aversion of investors. In terms of asset allocation, we generally prefer default risk. Equities remain underweighted.
The US central bank signalled the continuation of its loose monetary policy at its FOMC meeting on 27 April. This is remarkable given that along with the short-term stabilisation of the Chinese economy, this Fed policy is one of the most important reasons for the price rises of risky assets since February.
Author: Martina Groll, Senior Fund Manager
The bond purchase programme of the European Central Bank has caused a drought on the bond markets. As a result, investors now have to take into account the liquidity risk on top of the interest rate risk and the default risk.
The global population will reach 10 billion people by 2100, with masses streaming into the cities. The environmental problems are becoming more challenging as we speak due to the exploitation of raw materials and the climate change, which has manifested itself via ever more frequent freak weather events. The call for the cautious handling of resources has become more insistent.
Stock markets not impressed – so far
While the debate about Brexit is getting more intense (just a day ago the UK Treasury released its warnings) and the Pound Sterling is trading near historical lows as the referendum is approaching, the UK equity market has not shown any signs of stress. Its valuation premium to the Euro Stoxx 600 (in terms of the forward P/E) has not narrowed and its discount to US equities is lower than any time in recent years, as we pointed out in our previous blog.
What financial markets are telling us about Brexit
The UK’s exit from the European Union – known as “Brexit” – would be a major economic and political event for the UK, Europa and the wider world. While Brexit is not the most likely outcome (see the first blog in this series), it is a real possibility, raising questions, how financial markets will respond. In this column we present some evidence on how Brexit fears have affected markets so far and our thoughts what we can expect going forward.
The economic implications of Brexit
Opinion polls and betting odds as well as the muted response of debt and equity investors suggest that Brexit – the UK’s exit from the EU – is not the most likely scenario. That said, it cannot be ruled out. For example, about a quarter of all opinion polls conducted in the UK since last autumn resulted in a majority for the leave-vote and there are some signs that the leave-faction is gaining ground as we pointed out in our previous blog on this topic.
The likelihood of Brexit
On June 23, 2016 the UK will hold a referendum. Voters will decide whether the country should remain a member of the European Union (the “Bremain”-scenario), or whether it should leave the EU (the “Brexit”-scenario). Arguably, Brexit marks the most significant tail-risk for European and global asset markets in 2016.