AllianceBernstein: Rallying Cry
At first blush, the People’s Bank of China’s move to weaken the renminbi seemed to buck the currency’s nine-year path of appreciation against the U.S. dollar. But, as points out Hayden Briscoe of AllianceBernstein, when the PBOC took a similar trajectory in mid-2012, the apparent weakening was part of a greater move to a market exchange rate, and macro statistics suggest the currency is undervalued. “The expansion of China’s foreign-exchange reserves and balance of payments surpluses has put the country under international pressure to strengthen the currency quickly,” Briscoe writes.
KKR: Moving Pieces
Unlike other recent recoveries, KKR’s Henry McVey argues, the dynamic presently under way involves disjointedly developing processes rather than a recovery in which the indicators improve at the same rate. This is particularly the case when it comes to disparate growth curves in developed and emerging markets. He writes, “We at KKR feel strongly that the current breakdown in the traditional synchronous global recovery investment playbook could represent a seismic shift in the way top-down macro investors think about traditional asset allocation decisions.” For example, emerging-markets consumption isn’t growing quickly enough to offset the slowdown caused by wage pressure in developed-markets consumer spending.
Investec Asset Management: Quality Buys
When it comes to investing in emerging markets, says Philip Saunders of Investec Asset Management, the quality of economic expansion — such as structural development of corporate governance— should play into decisions first and foremost, rather than easily quantifiable statistics. “Over the past ten years, when assessing the attractiveness of a given economy, the investment community has focused on the level of growth in emerging markets, specifically any rises in GDP,” he writes. “But not much interest has been given to the sustainability of this growth or its distribution within society, both of which are key components for an economy’s long-term development.”
J.P. Morgan Asset Management: Conscious Coupling
For the past few years, emerging markets have been tracking downward while developed markets are recovering. But Curtis Butler and George Iwanicki of J.P. Morgan Asset Management “are seeing evidence to suggest that the economic and market decoupling that has plagued emerging markets since the peak in 2011 may be coming to an end.” Among the data points that suggest developed and emerging markets are recoupling are strong PMI numbers in key emerging economies and recent outperformance on the MSCI EM Index relative to the MSCI World Index.
PIMCO: easy being green
Fixed income can yield green — in more ways than one. Green bonds, the proceeds of which benefit environmentally friendly projects, have taken off: Issuance of the debt vehicle is on pace to reach $40 billion by the end of 2014. Besides helping spur, say, clean technology, “green bonds could serve a defensive function in portfolios,” write Ben Emons and Luke Spajic of Pacific Investment Management Co.
BlackRock: From Zero to . . .
The Federal Open Market Committee is on track to start moving in the first quarter of 2015 from its zero-interest-rate policy — sooner than many expected, writes Rick Rieder at BlackRock. “Although some cite an extremely low labor force participation rate as cause for concern, we believe this is largely a function of structural and demographic factors,” he writes, “and remains beyond the scope of meaningful monetary policy influence.” Rieder suggests that, rather than employment slack, retirement is behind much of the decline in labor force participation. • •
Read more from this series at institutionalinvestor.com/gmtl.
