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IAPF Annual Investment Conference 2017
Has the World Changed?
Myles Bradshaw, Head of Global Aggregate Fixed Income, Amundi
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IAPF Annual Investment Conference 2017
Secular Context: Since 2008 Policy‐makers have failed to close the post‐crisis economic gap
• Financial crisis: 2008‐09• Economic crisis: post‐2010• Political crisis: post‐2015
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IAPF Annual Investment Conference 2017
Secular Context – the Great Recession
• 2008‐2009: Financial crisis Government bail‐outs &
Fiscal stimulus Unconventional central bank
policies Economies stabilised but at
the cost of higher government debt levels
‐
1,000
2,000
3,000
4,000
5,000
Jan‐04 Jan‐06 Jan‐08 Jan‐10 Jan‐12 Jan‐14 Jan‐16
$, Billions
Federal Reserve: Total Assets
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IAPF Annual Investment Conference 2017
Secular Context – Why does it not feel like a recovery?
• 2010 – today: Economic crisis• Monetary policy the only
game in town• Weak recovery & productivity
growth • Weak real wage growth &
low inflation
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IAPF Annual Investment Conference 2017
Secular Context – Why does everyone keep referring to the 1930s?
• 2016 – today: Political crisis No clear solution to economic
challenges Frustration boosts Political
fragmentation Populism: less fiscal
responsibility Protectionism: leads to lower
real growth & real financial returns
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IAPF Annual Investment Conference 2017
Is 2016 a turning point?
1. Light at the end of the economic tunnel?
2. Shift in macro‐economic policy responses
3. Political populism: is the wave now breaking ashore
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IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel?• Macro‐economies have been resilient to numerous shocks
6.1%6.2%6.3%6.4%6.5%6.6%6.7%6.8%6.9%7.0%7.1%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
GDP Growth % yoy with 2017 consensus
Eurozone USA
UK China (RHS)
China slowdown and 2016 Q1 equity
collapse
USA Today Oct 2016 “Is Deutsche bank
the next Lehman moment?”
IMF April 2016: “Brexit could do severe
regional and global damage”
Donald Trump January 2017 “From this
day forward, it’s… America first.”
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IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel?
• Even Eurozone
growth now
accelerating
50
51
52
53
54
55
56
57
8.5
9.0
9.5
10.0
10.5
11.0
11.5
Mar‐15 Jun‐15 Sep‐15 Dec‐15 Mar‐16 Jun‐16 Sep‐16 Dec‐16 Mar‐17
Eurozone Business survey & unemployment rate
Euro U‐rate Euro PMI
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IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel?
Mario Draghi, ECB president
March 2017
“Risks of deflation have largely disappeared”
(8.0)
(6.0)
(4.0)
(2.0)
‐
2.0
4.0
6.0
8.0
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
Jan‐12 Jul‐12 Jan‐13 Jul‐13 Jan‐14 Jul‐14 Jan‐15 Jul‐15 Jan‐16 Jul‐16 Jan‐17
Global inflation measures
US Core CPI Eurozone headline CPI China PPI (RHS)
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IAPF Annual Investment Conference 2017
1. Is 2016 a turning point ‐ Light at the end of the tunnel?
• Global risk
appetite
recovering
0
10
20
30
40
50
60
70
80
90
70
80
90
100
110
120
130
Jan‐15 Apr‐15 Jul‐15 Oct‐15 Jan‐16 Apr‐16 Jul‐16 Oct‐16 Jan‐17
US & European equities
S&P 500 (rebased 1/1/15) EuroStoxx 50 (rebased 1/1/15) VIX (equity volatility)
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IAPF Annual Investment Conference 2017
2. Is 2016 a turning point –shift in economic policyMonetary policy
• Central banks reassess costs versus benefits of lowering interest rates
• Next steps: Winding down QE in Europe, Reducing size of US Federal Reserve’s balance sheet
Bank of Japan Governor Kuroda January 16
“… a negative interest rate will be a powerful weapon for monetary easing.”
October 16“… it has become increasingly evident that excessively lowered and flattened [interest rate] yield curve can weaken the transmission mechanism of monetary easing…”
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IAPF Annual Investment Conference 2017
2. Is 2016 a turning point –shift in economic policyGovernment policy
• Fiscal stimulus
• Trade protectionism
• De‐regulation
Tax Policy Center on Trump’s fiscal plan Nov 206
“Including interest expense, the federal debt would rise by over $7.2tr over the first decade” [40% GDP]
International Trade Minister Chrystia Freeland, Oct 2016
“…it is now evident … that the European Union is incapable of reaching an agreement, even with a country with European values such as Canada, even with a country as nice and as patient as Canada.”
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IAPF Annual Investment Conference 2017
3. Is 2016 a turning point – Is this the end of post‐war multilateralism?
• Tail risks for the post‐world multilateral order Brexit & the EU: start of a trend or
trigger to reform Europe Trump: Shift in US foreign & trade
policy? OPEC & fracking: end of cartelism? East Asia: accommodating or
confronting China’s rise• Expect establishment politicians to react,
implementing more “populist” measures
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IAPF Annual Investment Conference 2017
ConclusionThe World is changing so adapt your investment strategy:
• Avoid risks with low returns: passive vs active
• Global diversification lifts risk adjusted returns
• Illiquidity premia may be attractive given bank de‐leveraging
Market views: Interest rates too low to trigger recession
• Outlook is for steady growth & continued recovery; politics a key risk
• Political tail risks: look for cheap insurance
• “Populist” policies: lift inflation risks, create “winners & losers”
• Valuations matter
Inflation looks cheap
Interest rate exposure looks expensive
Corporate credit: attractive way to generate returns
Forex: attractive way to hedge many political and macro risks
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