Navigation Search
Close

Select your location and role to view strategy and fund content

International
  • Global homepage
  • Australia
  • Botswana
  • Denmark
  • Deutschland
  • España
  • Finland (Suomi)
  • France
  • Hong Kong (香港)
  • Ireland
  • Italia
  • Luxembourg
  • Namibia
  • Nederland
  • Norway
  • Österreich
  • Singapore
  • South Africa
  • Sweden (Sverige)
  • Switzerland
  • Taiwan (台灣)
  • United Kingdom
  • United States
  • International
Professional Investor
  • Professional Investor

Tailored for investment professionals this site provides information on our products, strategies and services. Please remember capital is at risk and past performance is not a guide to the future.

By entering you agree to our Terms & Conditions

Login to My Investec

Institutional Update Q4 2016

Philip Saunders Co-Head of Multi-Asset Growth
Michael Spinks Co-Head of Multi-Asset Growth
John Stopford Head of Multi-Asset Income
Russell Silberston Head of Multi-Asset Absolute Return

The view from our Multi-Asset team

Philip Saunders Co-Head of Multi-Asset Growth
Michael Spinks Co-Head of Multi-Asset Growth
John Stopford Head of Multi-Asset Income
Russell Silberston Head of Multi-Asset Absolute Return

The view
from our Multi-Asset team


In the short term, political events and uncertainty have been driving markets and no doubt will continue to do so. Following the Brexit result, the ramifications will continue to unfold, even as we confront a critical presidential election in the US and referendum in Italy over the fourth quarter of the year.

We remain focused on the risks these events pose, and are actively stress testing our portfolios with a variety of scenarios as we did for Brexit. Looking beyond the headline political uncertainties, we are focused on a few key market themes, including a possible inflection point in central bank policy and opportunities for tailored implementation such as emerging market equities ex Asia.

Current key investing themes

1. Fears of a recession

Markets have been concerned over the possibility of a global recession, but we feel these fears may be overdone and are positioned accordingly since our models do not lead us to expect a global (or US) recession. Instead we anticipate continued lacklustre growth and continued headwinds from the debt deleveraging cycle. At this stage we expect the negative feedback loop from the UK to be constrained by central banks with the global impact on growth and trade likely to be limited, unless there is a contagion effect through euro-zone banks.

2. Rates lower for longer

Interest rate expectations have eased and inflation expectations have fallen again with bond yields now pricing in very low growth and inflation for the long term. Despite the global trend towards lower rates, market expectations of interest rate profiles can overshoot or undershoot, and it is these differences that we focus on when we mange overall duration exposure. One such example is in the US, where our short-term rate hiking profile is less aggressive than that implied by the market.


Figure 1: Fed rate hike expectations vs Investec Asset Management

Sources: Bloomberg and Investec Asset Management, as at October 2016.


What is the outlook for markets?

The global economy continues to expand at a slow pace, but with fewer signs of an imminent recession. Economic data has been mixed, but is still consistent with a gradual expansion. We would characterise the environment as generally supportive for growth-orientated assets such as equities. Growth assets have also been bolstered by stability in commodity prices, exchange rates and more positive news out of China. We believe this should help earnings to recover and reduce stress in areas which were under particular pressure last year, such as emerging markets.

Where additional easing is required, central banks in Europe and Japan are likely to look beyond current methods of QE and negative rates. In Japan they are now trying to target yields on government bonds which may signal a change in direction. The problems in the European banking sector have been brought into sharp relief by Deutsche Bank, which along with others is struggling to live with low yields in addition to addressing legacy issues and regulatory change.

The forces driving government bond yields ever lower have diminished. Expectations of easier monetary policy, weaker global growth and low inflation have begun to shift to a more mixed outlook. We doubt a definitive inflection point in bond yields has been reached although the chance of looser fiscal policy is constrained by the debt levels of many central banks, and instead expect yields to be volatile.

Asset valuations are mostly reasonable, although fewer areas look very cheap, and credit markets now appear modestly expensive. Ultimately, we believe this environment is best addressed by taking selective exposure across markets, emphasising securities offering sustainable cashflow generation offering a combination of attractive valuations, strong fundamentals and positive sentiment. There are plenty of sources of potential volatility on the horizon, not least the US election and the Italian constitutional referendum, which investors will also have to take account of in their portfolio positioning.

NEXT ARTICLE
Strategy focus: Emerging Market Corporate Debt

Important information

This communication is only for institutional investors. It is not to be distributed to the public or within a country where such distribution would be contrary to applicable law or regulations. Unless stated otherwise, all information is sourced from Investec Asset Management Limited, Investec Investment Management Limited and Investec Asset Management North America, Inc (“Investec”). Investec has prepared this material based on internally developed data and public and third party sources. Although we believe the information obtained from public and third party sources to be reliable, we have not independently verified it, and we cannot guarantee its accuracy or completeness. Information is presented for informational and illustrative purposes only. Information presented should not be viewed as a recommendation or a solicitation of an offer to buy, sell or hold a security or investment, or as a recommendation to adopt any investment strategy. No one should rely upon this information as research or investment advice. The stated opinions and investment views, including those regarding possible future events, constitute only subjective views and/or present intentions, and are not guarantees, representations or warranties, and are subject to change at any time without notice. There is no guarantee that views and opinions expressed will be correct and our intentions to buy or sell particular securities in the future may change. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. Securities referenced do not represent all of the securities purchased, sold or recommended for portfolios. Do not assume that investments in securities, companies, sectors or markets described in this material have been or will be profitable. Past performance cannot guarantee future results. Characteristics and performance of individual portfolios will vary. Unless specifically noted, past performance figures are not audited and should not be taken as a guide to future results. Investec does not guarantee the achievement of investment objectives, target returns or measurements such as alpha, tracking error, security weightings, and information ratios. The use of tools cannot guarantee performance. Investing entails risks, including possible loss of principal. If anything is unclear, please either telephone or email the contact provided with this material. This information is intended for use by our clients and their authorized representatives and is not intended for public distribution. Except as otherwise authorised, this information may not be shown, copied, transmitted, or otherwise given to any third party without Investec’s prior written consent. Indices are for illustrative purposes only, are unmanaged, assume reinvestment of income, do not represent the performance of actual accounts and have limitations when used for comparison or other purposes because they may have volatility, credit, or other material characteristics (such as number or types of securities) that are different from a particular product. Index returns do not reflect deductions for management fees or expenses, and assume reinvestment of dividends and distributions. One cannot invest directly in an index.
This communication is intended for institutional investor use only.

Some of the funds displayed on this page may not be registered in your region and will therefore not be available for sale . Please visit www.investecassetmanagement.com/registrations to check registration by country.