Max Severijns

Emerging market bond markets are under pressure. Concerns about whether Russia will make its interest payments this month are leading investors to wonder which other countries are at risk of default.

Billions of dollars of Russian government and corporate bonds are at risk, with as much as two-thirds of the country’s foreign exchange reserves frozen. Russia must make at least $400 million in interest payments over the next ten weeks. Next month, a redemption of no less than $2 billion awaits, according to Bloomberg data.

Economic growth in the EU will be “severely affected” by the disruption triggered by Russia’s invasion of Ukraine, the European Commission has warned. Investor confidence in Germany, Europe’s largest economy, is falling sharply. The multiplicity of problematic macro factors is large and uncertainty about raw materials dominates. “In Europe it will be touch and go.”

Russia’s invasion makes it more difficult for central banks to keep inflationary pressures at bay. Rising commodity prices weigh on the cost of living in the US and Europe. Restrictive effects of the Ukraine war on economic recovery are also increasing, but a full-fledged stagflation scenario so far appears premature, one investment strategist told InvestmentOfficer.

Investors awaiting higher yields on government bonds have systematically been missing out for four decades. While market rates are rising, bondholders remain on the edge of their seat. With central banks set to tighten monetary policy, the question is: who is going to buy government bonds?

Investors are watching the recovering raw materials market with suspicion. There is even a commodities supercycle on the way, according to Jeffrey Currie, the global head of the commodities research department at investment bank Goldman Sachs.

Currie  is not alone in this expectation. According to the Dutch research bureau Alpha Research, which carried out a survey among 58 asset managers, 46 per cent gave a buy recommendation.

In periods of low interest rates, high stock market prices and persistent inflation, the usually volatile commodity markets are once again in the sights of investors. This is also the case now, but this time there is another complicating factor: 100,000 Russian soldiers on the border with Ukraine, which the US president expects to invade the neighbouring country.

The idea that economic growth is a problem is seriously outdated, according to University of Ghent philosopher Maarten Boudry (photo), He called divestment “nonsense” and advised investors to be wary of “green” funds. “There is a lot of irrationality in these so-called ethical investment choices”, he said.

2022 will be another exciting year for financial markets. Investors operate in an environment of persistent inflation, foggy central bank policy and uncertainty about the Omicron variant. It is a search for yield and protection in the portfolio. But how?

“Inflation is currently above 10 per cent,” said Bill Ackman, founder and CEO of Pershing Square Capital Management. The billionaire investor fears that if inflation remains at this level, “there will be major consequences for most of us.”

With non-financial media writing about the increasing devaluation of money, inflation awareness is starting to permeate all parts of society. But according to Bill Ackman, the reality is much grimmer than it seems.

The yield curves on the global bond markets flattened dramatically during the second half of October. When flattening is followed by inversion of the yield curves, a recession is inevitable. This ominous development is causing concern in the market, but are the concerns justified?