In the Autumn 2019 issue of the Leader’s Perspectives:
Many investors are focused on the outlook for trade talks with the US, fearing an all-out trade war which would negatively impact global, and especially Chinese, equity markets. But investors underestimate the mounting problems caused by the recent rapid expansion of credit in China. Only radical solutions now remain to resolve the country’s growing credit bubble, says Paul Smillie.
With many defined pension schemes in negative cashflow, interest in cashflow-driven investing (CDI) is increasing. We believe the $11.3 trillion global investment grade credit universe offers the best means of maximising potential returns from a core CDI strategy. Moreover, advances in technology allow us to build portfolios more quickly, optimising returns and limiting risk.
Investors in the UK and overseas are adopting extreme positioning in their hunt for defensive growth. In doing so the elastic has become very stretched and a sharp rotation could be overdue. This market dynamic is reminiscent of 1999/2000 whereby ‘old economy’ stocks are discarded in favour of ‘new economy’ ones.
After sharp drawdowns towards the end of 2018 stock markets are re-approaching their all-time highs. This is despite escalating geopolitical tensions in the Gulf, the risks of a disorderly Brexit, softening economic data, and professional company analysts cutting their profit forecasts for stocks in every major market. All this, along with simmering trade tensions between the United States and almost every other country in the world.