Asset Allocation

The total volume of negative-yielding bonds is fast approaching the record set in early 2019. This will be a determining factor for the markets in the coming months.

The rise in negative-yielding bonds receives little attention these days as investors focus on Brexit and the US presidential elections, as the US presidential elections are likely to be decided in court. This is due to the fact that Trump will contest the result if he loses. So we’re up for a challenging couple of weeks.

European credit markets have hardly responded to the reports about the second coronavirus wave gripping the continent. This does not mean investors are complacent, according to Richard Ford, head of corporate bonds at Morgan Stanley Investment Management. Credit markets have been in waiting mode for a while, and have good reasons for it.

Many technology companies have risen to dominance in a relatively short space of time, with legislators struggling to keep up the speed. Large investors should do their bit by constantly reminding these companies of their responsibilities, say Jon Guinness (photo) and Sumant Wahi, managers of Fidelity International’s Global Communication Fund.

The pair spoke out on this digital ethics in the margin of the annual (now virtual) Sustainable Investment Week of sustainability label Luxflag.

The debate between value and growth is pointless, says Guy Lerminiaux, CIO of Degroof Petercam Asset Management. ‘This is not a productive debate. You have to look at it on a company-by-company basis. In every sector you find winners and losers.’

Investors will face tough challenges in the coming years, according to Pimco. While volatility will remain high due to the presence of numerous potential ‘disruptors’, return prospects have never been lower.

Foreign investors and central banks will continue increasing their allocation to Chinese government bonds. They offer a relatively high yield and are a safe investment, says Freddy Wong, head of Fixed Income Asia-Pacific at Invesco.

External valuations of retail properties are unreliable. Our models indicate considerably lower prices and therefore much higher debt ratios, says real estate specialist of Egbert Nijmeijer of Kempen Capital Management.

Retail property has been hit hard by the coronavirus crisis. Nevertheless, external surveyors were remarkably lenient in their half-yearly valuations. For example, for Eurocommercial Properties and Klépierre, which operate comparable medium-sized shopping centres in Europe, the downward revaluation was limited to just under 3%.

 The prices of European banking stocks have fallen to their lowest level in more than 30 years. The banks are weighing on a further recovery of the European indices, which have too few ‘asset light’ business models.

Until 30 September, the return of the European banking index stood at -43.66%. Over the past three years, the return is -24.39% and over the past five years it’s -13.36%.

The weakening dollar has been a boon for emerging market debt in recent months. Spreads have narrowed and inflows quickly turned positive again. However, investors seem to already be looking for the exit again.

Investors should increase risk as some traditional safe havens are losing their shine, Robeco says in its five-year outlook titled ‘A Brave Real World’. Investment Officer spoke with Peter van der Welle, strategist in Robeco’s Global Macro team, about the asset manager’s outlook.