Market dip highlights US equities as a key risk

2018 ◽  
Keyword(s):  
Emerging Markets ◽  
Corporate Bonds ◽  
Global Markets ◽  
Fixed Income ◽  
Government Bonds ◽  
Content Type ◽  
Bear Market ◽  
Asset Class ◽  
Negative Factors

Significance Global markets are being unsettled by a confluence of negative factors, especially a sell-off in government bonds that has raised the yield on 10-year US Treasuries by 10 basis points to 3.16%, 35 basis points higher than in August. The fierce moves in fixed income are reviving fears about a full-blown bear market in bonds. Impacts Widening policy divergence will boost the dollar; 10-year US Treasury yields are rising faster than their German and Japanese equivalents. Pressure will persist on fragile emerging markets (EMs) and the entire asset class; investors have sold EM equity and bonds in October. Spreads on dollar-denominated EM corporate bonds fell this month, defying worries about high EM corporate debts, but fears will persist.

Conditional stock liquidity premium: is Warsaw stock exchange different?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Szymon Stereńczak
Keyword(s):  
Emerging Markets ◽  
Stock Returns ◽  
Stock Exchange ◽  
Emerging Market ◽  
Market Liquidity ◽  
Investment Horizon ◽  
Liquidity Premium ◽  
Stock Liquidity ◽  
Content Type ◽  
Bear Market

Purpose This paper aims to empirically indicate the factors influencing stock liquidity premium (i.e. the relationship between liquidity and stock returns) in one of the leading European emerging markets, namely, the Polish one. Design/methodology/approach Various firms’ characteristics and market states are analysed as potentially affecting liquidity premiums in the Polish stock market. Stock returns are regressed on liquidity measures and panel models are used. Liquidity premium has been estimated in various subsamples. Findings The findings vividly contradict the common sense that liquidity premium raises during the periods of stress. Liquidity premium does not increase during bear markets, as investors lengthen the investment horizon when market liquidity decreases. Liquidity premium varies with the firm’s size, book-to-market value and stock risk, but these patterns seem to vanish during a bear market. Originality/value This is one of the first empirical papers considering conditional stock liquidity premium in an emerging market. Using a unique methodological design it is presented that liquidity premium in emerging markets behaves differently than in developed markets.

CEE's own risks pose a greater threat than China

2015 ◽  
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Latin American ◽  
Investor Sentiment ◽  
Government Bonds ◽  
Content Type ◽  
East European ◽  
Asset Class ◽  
Trade And Financial Linkages ◽  
Better Than

Subject CEE markets' resilience to China-induced sell-off. Significance While investor sentiment towards emerging markets (EMs) has deteriorated further because of mounting concerns about China's economy and financial markets, the currencies and government bonds of the main Central-East European (CEE) economies have proved remarkably resilient. Even equity markets, which have suffered sharp falls across the EM asset class, have fared better than in other regions, with Polish, Hungarian and Czech stocks falling by 5.0-6.0% in dollar terms in August, compared with 10.0% and 9.5% for emerging Asian and Latin American shares, respectively. CEE markets' resilience stems from the region's negligible trade and financial linkages to China, relatively strong fundamentals and the sentiment-boosting effects of the ECB's programme of quantitative easing (QE). Impacts EMs' significantly stronger fundamentals make comparisons between the current China-led sell-off and earlier crises in the 1990s misleading. There will continue to be a strong correlation between CEE financial markets and price action in the euro-area. The ECB's full-blown QE should help mitigate the adverse effects of a rise in US interest rates. Very high foreign participation in Polish and Hungarian government debt poses a risk should sentiment towards EMs deteriorate more sharply.

More nations will issue ultra-long sovereign bonds

2019 ◽  
Keyword(s):  
Emerging Markets ◽  
Interest Rates ◽  
Bond Market ◽  
Government Bond ◽  
Market Conditions ◽  
Yield Curves ◽  
Government Bonds ◽  
Content Type ◽  
Sovereign Bonds

Subject Ultra-long government bonds. Significance Interest rates are low while yield curves have flattened as longer-term bonds have appreciated more in capital terms than shorter-term instruments. In this environment, issuing sovereign bonds that will mature in 50 or 100 years is becoming increasingly popular with governments. Impacts Further government bond issuance will add to the already high global debt mountain. The combination of investors searching relentlessly for high yielding assets and populations ageing could push interest rates even lower. Many emerging markets are cutting interest rates, making ultra-long bonds more attractive; more governments will issue such bonds. Rising inflation and interest rates would reverse currently supportive bond market conditions and decimate demand for ultra-long bonds.

The dollar will determine emerging market asset moves

2018 ◽  
Keyword(s):  
South Africa ◽  
Emerging Market ◽  
Bond Yields ◽  
Government Bonds ◽  
Content Type ◽  
Local Currency ◽  
Treasury Bond ◽  
Asset Class ◽  
Capital Outflows ◽  
Firing Line

Subject Emerging market asset gyrations. Significance Emerging markets (EMs) are under strain as the dollar has risen by nearly 4% since the middle of April, triggered by a sharp increase in US Treasury bond yields and increasing evidence of slower economic activity in the euro-area. Argentina and Turkey are in the firing line as they hold a high proportion of their external debt in dollars, but the entire EM asset class has suffered sizeable capital outflows, and year-to-date returns on dollar-denominated and local currency government bonds are now firmly negative. Impacts US sanctions could squeeze Iran’s oil exports, putting upward pressure on the oil price though US shale should cap prices below 80 dollars. Foreign holdings of EM local currency sovereign bonds, at risk of a sell-off, are highest in South Africa, Indonesia, Malaysia and Russia. Bank for International Settlements Chief Agustin Carstens recommends EMs build up reserves as “sometimes whatever comes in … will … go out”. For the Institute for International Finance, China, Argentina, South Africa and Turkey are high risk; Russia, Brazil and Philippines lower. US Fed Chair Jerome Powell has reminded investors that tighter monetary policy has been well signposted and should be “manageable” for EMs.

scholarly journals Investment outlook and Asset Allocation in US Pension Funds

2020 ◽  
pp. 38-41
Author(s):  
Rutuj Dodal ◽  
Keyword(s):  
Emerging Markets ◽  
Interest Rates ◽  
Asset Allocation ◽  
Corporate Bonds ◽  
Pension Funds ◽  
Government Bonds ◽  
Bond Returns ◽  
Investment Opportunities ◽  
The Future ◽  
Current Scenario

The classic balanced portfolio for more than 7 decades has been the blend of equities and bonds in the ratio of 60% to 40% respectively. But declining interest rates have forced investors to divert from this investing strategy and look over other alternatives. This has affected bond returns. And once again due to pandemic interest rates were cut down to near zero resulting in very little returns in bonds. To overcome this, alternative investment opportunities should be looked for and several factors which are important in deciding the future investments are to be considered. Some of them are interest rates, valuations, volatility, etc. Based upon the factors and other parameters, the best alternatives will be Equities (cyclical industry, stocks providing dividends, etc), Corporate bonds (with higher investment grades), and government bonds of emerging markets (like China and Peru). These alternatives will act as better investment alternatives to traditional 60/40 asset allocation in the current scenario.

Euro-area bond sell-off will be a technical correction

2015 ◽  
Keyword(s):  
Euro Area ◽  
Sovereign Debt ◽  
Government Bonds ◽  
Content Type ◽  
Bear Market ◽  
The Past ◽  
Us Economy ◽  
The Us ◽  
Technical Factors ◽  
Global Growth

Subject Reasons behind the current bond sell-off. Significance The sharp fall in the prices of government bonds, which has wiped 450 billion dollars off the value of sovereign debt over the past month, is attributable to crowded positioning by investors. It is unlikely to be the start of a 'reflation trade' stemming from a sudden improvement in the prospects for global growth and inflation. While there is debate about whether the sell-off in longer-dated government debt since mid-April amounts to the start of a bond bear market, the modest recovery in the euro-area and the renewed weakness of the US economy suggest technical factors are at work. Impacts The two main consensus trades (long European equities and government bonds and short the euro) are being unwound. The euro-area government bond sell-off is probably a 'buy the rumour, sell the news' trade after the ECB's QE announcement. The sell-off in long-dated government bonds is not spreading to corporate debt and to EM currencies.

Fed's rate caution unsettles global markets

2015 ◽  
Keyword(s):  
Monetary Policy ◽  
Emerging Markets ◽  
World Bank ◽  
Financial Institutions ◽  
Central Banks ◽  
External Factors ◽  
Global Markets ◽  
Content Type ◽  
The World Bank ◽  
The World

Significance Her comments followed the Fed's September 17 decision to keep rates unchanged because of concerns about financial turmoil and economic weakness in emerging markets (EMs). The Fed's dovish decision, although defensible given subdued inflationary pressures, illustrates how economic and financial uncertainties in China are influencing global policymaking. Impacts The future conduct of US monetary policy is leading to sharp divisions within global financial institutions. The IMF and the World Bank urge the Fed to stand pat, while the BIS highlights risks of ultra-loose policies. The Fed's reluctance to raise rates and the related volatility impede the exit from unconventional policies of other major central banks. Sentiment towards EMs will also be hit by domestic vulnerabilities which, in some countries, are more important than external factors.

Trade and tech uncertainty will boost ‘safer’ assets

2019 ◽  
Keyword(s):  
Stock Market ◽  
Emerging Markets ◽  
Crude Oil ◽  
Stock Markets ◽  
Oil Price ◽  
Crude Oil Price ◽  
Government Bonds ◽  
Content Type ◽  
The Us ◽  
New Phase

Significance US President Donald Trump’s decision last month to intensify the US-China conflict by raising the tariff rate and targeting Chinese tech firms is straining stock markets and making government bonds more attractive. Marking a dangerous new phase, sentiment towards the tech sector is deteriorating, after powering the stock market 'bull run' for a decade. Impacts Uncertainty over both US policy and geopolitics globally will continue to make the dollar more attractive, outweighing Fed dovishness. Emerging markets enjoyed a surge in inflows from January-April 2019, but suffered sharp outflows in May, and investors will remain cautious. The VIX Index, Wall Street’s so-called ‘fear gauge’, has surged by around 50% since May 3, and is likely to remain elevated. Rising US output means that the Brent crude oil price is likely to stabilise rather than rebound, having fallen by about 20% since April.

Evaluation of Australian industry superannuation fund performance; asset allocation to property

2016 ◽  
Vol 34 (4) ◽  
pp. 301-320 ◽  
Author(s):  
Wejendra Reddy
Keyword(s):  
Asset Allocation ◽  
Dynamic Models ◽  
Performance Measure ◽  
Theory And Practice ◽  
Portfolio Optimisation ◽  
Investment Strategies ◽  
Fixed Income ◽  
Content Type ◽  
Strategic Approach ◽  
Asset Class

Purpose – Property is a key investment asset class that offers considerable benefits in a mixed-asset portfolio. Previous studies have concluded that property allocation should be within the 10-30 per cent range. However, there seems to be wide variation in theory and practice. Historical Australian superannuation data shows that the level of allocation to property asset class in institutional portfolios has remained constant in recent decades, restricted at 10 per cent or lower. This is seen by many in the property profession as a subjective measure and needs further investigation. The purpose of this paper is to compare the performance of the AU$431 billion industry superannuation funds’ strategic balanced portfolio against ten different passive and active investment strategies. Design/methodology/approach – The analysis used 20 years (1995-2015) of quarterly data covering seven benchmark asset classes, namely: Australian equities, international equities, Australian fixed income, international fixed income, property, cash and alternatives. The 11 different asset allocation models are constructed within the modern portfolio theory framework utilising Australian ten-year bonds as the risk free rate. The Sharpe ratio is used as the key risk-adjusted return performance measure. Findings – The ten different asset allocation models perform as well as the industry fund strategic approach. The empirical results show that there is scope to increase the property allocation level from its current 10-23 per cent. Upon excluding unconstrained strategies, the recommended allocation to property for industry funds is 19 per cent (12 per cent direct and 7 per cent listed). This high allocation is backed by improved risk-adjusted return performance. Research limitations/implications – The constrained optimal, tactical and dynamic models are limited to asset weight, no short selling and turnover parameters. Other institutional constraints that can be added to the portfolio optimisation problem include transaction costs, taxation, liquidity and tracking error constraints. Practical implications – The 11 different asset allocation models developed to evaluate the property allocation component in industry superannuation funds portfolio will attract fund managers to explore alternative strategies (passive and active) where risk-adjusted returns can be improved, compared to the common strategic approach with increased allocation to property assets. Originality/value – The research presents a unique perspective of investigating the optimal allocation to property assets within the context of active investment strategies, such as tactical and dynamic models, whereas previous studies have focused mainly on passive investment strategies. The investigation of these models effectively contributes to the transfer of broader finance and investment market theories and practice to the property discipline.

Emerging Markets Benchmarks: Understanding an Evolving Asset Class

CFA Digest ◽  
1997 ◽  
Vol 27 (4) ◽  
pp. 33-34
Author(s):  
Frank T. Magiera
Keyword(s):  
Emerging Markets ◽  
Asset Class
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