has the changed? - iapf bradshaw slides.pdf · insert your logo here iapf annual invest ment...

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IAPF Annual Investment Conference 2017

Has the World Changed?

Myles Bradshaw, Head of Global Aggregate Fixed Income, Amundi



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



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



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



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



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



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.”



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




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)




• 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)



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…”



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.”



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



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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