Asset Allocation

European emerging-market bond funds pose limited contagion risk to the broader financial system in light of the conflict in Ukraine, rating agency Fitch said on Monday. The funds have low exposure to Russia, Ukraine and Belarus, which should limit the risk of a large increase in redemptions. 

It is a good moment for investors to green their bond portfolios. The asset class is considered attractive after the rise in interest rates in recent months and the increased risk premiums stemming from the Ukraine war, Johann Plé, senior fund manager fixed income at AXA Investment Managers, told InvestmentOfficer. 

An abrupt and disorderly transition to a low carbon economy risks disrupting the financial system as a sudden implementation of climate change mitigation policies can increase transition risks, a new European Central Bank study said on Friday.

The ECB’s researchers raised the prospect of “severe banking system losses” if no additional policy action is taken. These losses could reach “up to 40 percent more” compared to a baseline scenario where no policy action is taken.

While US companies are generally praised for their quality, strong competitive advantages and high growth prospects, European equities are significantly less popular. Although most fund managers seem to have less faith in European equities, they are generally popular with value and dividend investors.

Expectations are growing that oil prices will rise further. The most recent rise was prompted by suggestions that the West would boycott Russian oil and gas, a boycott that materialised with US and UK decisions on Wednesday. 

Gold is playing its traditional role in the flight to safety and rose above 2000 dollars per troy ounce this week. There was disappointment last year when the gold price reacted poorly to sharply rising inflation, but Ukraine has pushed up the price. Gold thrives best at times of  chaos, but it is not a good hedge against inflation.

A global macro strategy seems the place to be in the current extremely volatile stock market climate. But beware, if you do not combine global macro with micro factors, you are doomed to fail, says Christopher Govaerts (photo), chief strategist at Belgian private bank Nagelmackers. Specifically, British equities and emerging markets such as China and Brazil now offer a counterweight.

Russia ETFs or funds are dropping out of the market in droves. Some are still open, as market makers manage to keep them barely alive. But for how much longer?

Worldwide net inflows into Exchange Traded Funds with an Environmental, Social and Governance (ESG) profile fell to 9.8 billion dollars in January compared to 19.8 billion dollars the same month a year earlier, according to London-based research firm ETFGI.

The firm said ESG funds now have experienced 37 consecutive months of net inflows.

Issuance of ESG debt in Europe almost doubled last year as more sovereign and supranational issuers entered the market and governments adopted sustainable finance programmes. The Association for Financial Markets in Europe sees more growth this year due to greater participation by the corporate sector and the potential of the ESG securitisation market.