New Era for Global Bonds: Everything You Know Is Wrong
It is a new era for global bonds and everything you know is wrong, PIMCO’s global co-head of emerging markets portfolio management, Ramin Toloui, told delegates at the 66th CFA Institute Annual Conference in Singapore.
His point? All of the important market structures and ways of thinking about investing were put in place over the last many decades. But this environment was largely unswerving in its reverence for developed markets. In addition, it had very little of that most irritating of investor perturbances: volatility. As a result, fixed-income investors are all fighting the last war with the same strategies and the same weapons.
So what has changed? For starters, Toloui noted, there’s been a transformation of international creditor-debtor relationships. Consider:
- Emerging markets now have positive current account balances, meaning that they now raise capital domestically.
- Emerging market international reserves are now approaching $8 trillion.
- In five years, the gross government debt-to-GDP ratios of the G20 nations have risen from 80% to around 120%. Over this same time period, the comparable stats for emerging markets are largely flat, with a government debt-to-GDP ratio of around 30%.
- Underemployment and unemployment plague first-world economies and a full jobs recovery has yet to occur post the Great Recession.
- Emerging markets represented virtually all of global growth in 2012, yet they only receive a 5% allocation in most global bond portfolios!