Paul Severin am 04th May 2015 © iStock
Bond investors are faced with a difficult environment. Do corporate bonds offer the chance of a halfway decent yield?
Stampfl: The statement that bond investors are faced with a difficult environment is actually an erroneous one. A balanced portfolio consisting of bonds from the peripheral countries and the core countries across all sectors would have seen a very good risk-adjusted performance in the past weeks and months. Also, complementing the BB segment with corporate bonds generates a certain degree of surplus yield, which in funds like Reserve Corporate causes is used to boost the development. That is like switching from winter tyres to summer tyres in spring. It facilitates a smoother running and lower fuel consumption. Or, translating it to the case of the fund, it results in a surplus yield at lower volatility.
Paul Severin am 30th April 2015 © iStock
Last Friday, 24 April marked the second anniversary of the collapse of the Rana Plaza complex in Bangladesh, in which more than 1,100 people perished. Immediately following the disaster, which represented the climax of a string of similar events in the textile industry there, the Bangladesh Memorandum was adopted. ERSTE-SPARINVEST was one of the first major asset management companies to join this initiative as a signatory. In this interview, Alexander Osojnik, Senior ESG Analyst at Erste Asset Management (EAM), speaks about developments in the global textile industry.
Gerhard Winzer am 23rd April 2015 © ERSTE-SPARINVEST
The new normal
The importance of China for the global economic and financial system continues to grow at a rapid pace. Last year the country set a new milestone by becoming the world’s biggest economy. The total value of goods and services produced in a year exceeds that of the United States. Thus, at 30% China accounts for the largest contribution to global economic growth.
Paul Severin am 03rd April 2015 © iStock.com
For many institutional investors corporate bonds from emerging markets issuers have become an important instrument of portfolio diversification. Our fund management team estimates that a portfolio made up of 70% investment grade bonds and 30% high-yield bonds can yield an average 5% in the medium term. This sort of yield can hardly be achieved with fixed income papers from the industrialised nations.
Gerhard Winzer am 20th March 2015 © iStock.com
The most important central bank in the world, i.e. the US Fed, made an announcement yesterday that attracted a large deal of attention from investors. The bank withdrew its assurance to remain “patient” before the Fed funds rate would be increased. This paved the way for a possible abandonment of the zero interest rate policy, if economic need be. The new formula goes like this: the Fed funds rate will be raised once the labour market has improved more and the FOMC is optimistic about inflation rising towards the medium-term target of two percent.
Gerhard Winzer am 19th March 2015 © iStock.com
The US dollar has appreciated significantly vis-à-vis the euro in the past months. For this trend to continue, at least two developments would have to be in place. Firstly, the US Fed would have to abandon its zero interest rate policy; and secondly, the ECB would have to remain on its path of negative interest rate policy and bond purchases.
Harald Egger am 05th March 2015 Foto: Shutterstock.com
We have seen European equities outperform their American peers in the year to date, both in local currency and in euro. Not even the increase of the US dollar relative to the euro of 8% made a difference to that. What is this pro-European optimism based on? After all, the US economy has seen a significantly better development than the Eurozone. The same is true for US companies, which have been recording profit growth, as opposed to Europe, where profits have generally been falling recently. The uncertainties in Greece and Ukraine only add to this scenario.
Peter Szopo am 04th March 2015 Foto: iStock.com
The share price performance in emerging Europe, i.e. Poland, the Czech Republic, Hungary, Russia, Turkey, and since most recently again, Greece, has not been overwhelming in the past years. Since the middle of 2011 the MSCI Emerging Europe, the most important index for the region, had been locked into a sideways movement, which was topped off by a correction at the end of 2014 as a result of the ongoing political crises. Along with (geo-) political factors, the weakening of the economic dynamics and a lack of reforms had been causing a subdued price performance.
Gerhard Winzer am 03rd March 2015 © iStock.com
The driving topics on the financial markets are the stabilisation of the oil price, mixed economic indicators globally vs. positive economic indicators for the Eurozone, the temporary decline in escalation risk, and the expansive central bank policies.
Gerhard Winzer am 24th February 2015 Foto: iStock.com
Since the cutting of key-lending rates to almost zero in the Eurozone did not suffice to keep the inflation expectations at their long-term target of slightly below 2%, the ECB Council decided in January to expand the central bank money supply until the accomplishment of the target was foreseeable.
The possible effect on the financial market and the economies are multi-faceted. 1) The excessively low inflation expectations increase. This will cause real interest rates (i.e. nominal interest rates minus inflation) to fall. 2) The currency (i.e. the euro) depreciates vis-à-vis other currencies. 3) A so-called asset price effect is created. The ECB buys bonds with low yields, resorting to the central bank money supply. This keeps bond yields very low (partially even negative). Given that, and because the volume of government bonds investable by the private sector shrinks, investors are pushed into asset classes with higher expected yields (bonds with long maturities, bonds with higher default risk, bonds with higher coupons in a foreign currency). This crowding-out effect supports asset prices. The net worth of the holders of these asset classes increases. 4) The willingness of banks to grant loans is supported by the very low bond yields.