Fixed-income investors have been waiting for liftoff on interest rates for a very long time, and could be left waiting for a while longer.
At the conference, Dan Fuss, CFA, vice chairman of Boston-based Loomis Sayles, observed that central banks are giving global economic conditions more weight in their decision-making process. Fuss reviewed the peace, people, prosperity, and politics of the global landscape, and considered the role of central bankers within that topography. Ultimately, Fuss expects that fixed-income professionals will have to deal with low rates and low inflation in an environment where both will rise.
One speaker who saw opportunities to profit from central bank activity around the world was BlackRock’s Rick Rieder. He expects aggressive central bank actions in Europe to lead to opportunities in peripheral countries. Rieder also cited Mexico and Indonesia as emerging market countries with attractive sovereign debt opportunities. Brazil presented more of a puzzle for Rieder, who is convinced that it will eventually be a successful trade, but successful timing remains tricky.
Ronald G. Layard-Liesching, co-founder of Pareto Partners, outlined a darker theory of risk in the global markets stemming from currency exchange. A growing number of public funds, sovereign wealth funds, and ultra-high-net-worth individuals based in emerging markets are trading in US dollars with no interest in hedging their exposures back to their home currencies. Liesching reported that daily currency trading volumes denominated in dollars are now over 140 times the size of the dollar value of New York Stock Exchange. In his view, currency markets and their flows are driving the activity in other markets, which means that currency volatility could have new, unexpected, and entirely unpleasant consequences.
All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Peter M.J. Gross is an online content specialist for CFA Institute, where he has managed blogs for the CFA Institute Annual Conference, European Investment Conference, and Middle East Investment Conference. Previously, he worked at Hampton Roads Publishing Company and at MFS Investment Management. Mr. Gross' articles have been published by Enterprising Investor, City A.M., Seeking Alpha, and The Hook. His work has also been highlighted by Real Clear Markets and the World Economic Forum. Mr. Gross holds a BA degree from Connecticut College.
The fate of the European Central Bank's obscure targeted longer-term refinancing operations will likely be debated in 2019 given Italian banks' heavy reliance on it for additional liquidity. Financial Times (subscription required) (07 Dec.)
The Securities and Exchange Commission is reviewing an application for the proposed Long-Term Stock Exchange, which offers a different shareholder voting structure to protect companies from pressure to produce short-term results. The fate of the proposal remains unclear as regulators and institutional investors alike work to determine the associated risks and benefits of such an exchange. Pensions & Investments (free access for SmartBrief readers) (10 Dec.)
Former Nissan Chairman Carlos Ghosn was indicted in Japan for filing securities reports that understated his total pay package. The company was also indicted, as was former Representative Director Greg Kelly who allegedly conspired with Ghosn. The Japan Times (10 Dec.)
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