As more corporate bond issuers in China run into financial trouble, investor anxiety about the possibility of a broader market collapse has understandably increased. We don’t think it’s time to man the lifeboats, however; on the contrary, we believe that Chinese bonds still offer good opportunities for research-driven investors.
Many investors are throwing in the towel on active equity management in the name of evading risk. But being active doesn’t always mean accepting higher risk. Consider, for instance, the benefits of even-tempered stocks.
Passive investments continue to gain popularity, generate record flows and grab headlines. We understand the appeal. But investors must also consider some of the risks of tethering their fortunes to a benchmark.
Ordinarily one of Europe’s most vibrant cities, Moscow on a recent visit looked like a town in a defensive crouch. And while Russian economic conditions have stabilized somewhat, we think they will remain difficult for some time.
Bond yields in key markets around the world have been on something of a roller-coaster ride, moving up quickly in recent months. Ten-year Treasury rates closed at 2.28% on May 11, up from 1.65% at the end of January.
Developed-market equity valuations seem a bit expensive today—but we still think they’re worth an overweight in multi-asset strategies. A wider view shows that stocks remain attractive globally.
Global :: Our global growth forecast remains steady at 3% for 2015, following an estimated 2.7% gain in 2014. But the modest acceleration in global growth masks significant changes in the growth paths of the developed and developing economies. Growth in the industrialized economies is expected to accelerate by anywhere from about 1% to 2.6% this year, while growth in the developing economies is projected to slow to 3.7%, significantly below trend and last year’s estimated growth rate of 4.4%.
US :: With only a modest gain in real consumer spending for the first quarter, many analysts are now questioning just how much of a lift will come from lower energy prices. We see the decline in oil prices as an accumulating benefit to consumer cash flow that will be visible in spending patterns over time. But beyond that, the benefits of lower oil prices carry important compositional shifts as well.
Europe :: UK inflation has turned negative for the first time since 1960. In part, this has been due to falling energy and food prices, and we hesitate to call this deflation in the fullest sense of the word. We find little evidence in recent data or the historical record to justify the hysterical reaction of some commentators whenever inflation turns (or threatens to turn) negative for even the briefest period.
Asia :: Despite a marked slowdown in China’s industrial output and fixed-asset investment—previously the main drivers of growth—there is no sign of panic among policymakers, and the stock market is rallying. Some observers worry about an eventual doomsday, but we believe that the economy and social stability will be underpinned by a sturdy jobs market, provided that the services sector continues to expand.
Japan :: While it’s all but certain that Japan’s headline inflation rate will print close to zero in the coming months, it continues to look unlikely that the Bank of Japan (BOJ) will respond with more aggressive easing. This week’s gross domestic product figures and BOJ policy statement reinforce that viewpoint.
Latin America :: Recent data suggest the Mexican economy is recovering more slowly than expected. That probably means the negative output gap will take longer to close. It also increases the chances that the central bank will wait for the US Federal Reserve to lift interest rates before it starts to tighten its own monetary policy.
Europe :: The euro area has had a good start to the year, but questions are already being asked about its ability to sustain recent momentum. Lower oil prices have provided an important stimulus, but deeper signs of resilience are apparent in income growth and money/credit dynamics. In our view, these improvements should help sustain the recovery even when the boost from the oil price starts to fade.
EMEA :: As Turkey heads for an important election in early June, it stands at a crossroads politically, sociologically and economically. The electoral results could play a large part in determining the country’s path for the next decade or two.
The AllianceBernstein Managed Volatility Equities Fund has received a ‘Recommended’ rating from investment research house Lonsec.
We speak with AB portfolio manager Tassos Stassopoulos who manages the AllianceBernstein Emerging Consumer Fund.
Liquidity risk—or the danger that investors will be unable to trade in securities at the time and price of their choosing—has become a much greater challenge for investors, and could hurt bond investors in particular as interest rates rise.