Inigo Fraser Jenkins and team, Sanford C. Bernstein strategists
“The deeply negative correlation of stocks and bonds that has persisted for most of the last two decades is not a permanent feature of markets but in fact is contingent on a certain macro regime of low and not volatile inflation,” the strategists wrote. “That regime may be coming to an end.”
Charlie McElligott, Nomura Holdings strategist
“Any semblance of an inflation impulse will always act to stoke volatility — as market participants had become utterly cynical as to the prospects for a sustained ‘hot’ economy and its implications for interest rates,” McElligott wrote. “You’re now combustible for brief but violent deleveraging and momentum shocks.”
Charles Chang, greater China country lead at S&P Global Ratings
“If that regulatory push is working, you should see an increase in timely action that flags underlying distress . . . that doesn’t mean there is an increase in distress, it just means that there is an increase in the indication of that distress,” Chang said. “China’s default rates would need to double or triple to reach the level that you see in the US, in Europe and emerging markets,” he said.
Xiaoxi Zhang, an analyst with Gavekal Dragonomics
“The government wants to take advantage of the strong growth momentum of the post-Covid rebound to deal with structural problems,” she wrote. “But it’s also because the current tightening of credit and withdrawal of supportive economic policies could cause broader financial stress if hidden debt is not handled well.”
Thede Ruest, head of emerging debt markets at Nordea Bank’s investment management unit
“We felt it was a compelling idea.” He expects the strategy to deliver “slightly better yield without too much risk-taking,” and it will “make a difference where it arguably will matter more.” “What we always look for is to have credibility in the issuer, we want to see credible plans in the whole transition of the issuer,” Ruest said.
Burton Flynn and Ivan Nechunaev, fund managers at Terra Nova Capital
“Of course we like best-in-class ESG companies,” they said. “But we really love to invest in companies with opportunities for improvement.” “Investing only in companies that have high ESG standards doesn’t fix problems,” they said. Companies with “stellar ESG reputations” tend to be expensive, which could add to the risk of an “ESG bubble.”
Karine Hirn, founding partner and chief sustainability officer at East Capital
“You want to invest in companies that are improving in terms of ESG.”
Tai Hui, chief Asia market strategist at JPMorgan Asset Management
“There is still meaningful scope to generate returns within EM as long as investors are able to differentiate,” said Tai.
Shamaila Khan, the head of emerging-market debt at AllianceBernstein
“Local markets are becoming more attractive,” said Khan, singling out South African, Russian and Mexican local bonds as among the most appealing. “Selectively, we are finding value.”
On inflation risk sinking 80% of Europe’s company debt sold this year
Vincent Benguigui, a portfolio manager at Federated Hermes
“Duration is already a problem when you see that rate-sensitive sectors underperform and this is going to increase,” said Benguigui. “Clearly everything is stretched.”
Cem Keltek, a credit strategist at Commerzbank AG
“While the extended recovery in fundamentals should provide another layer of support, higher yields in the euro government bonds space should limit euro investment grade’s ability to attract inflows and limit tightening potential once rates stabilize,” wrote Keltek. “Pressure on rates and tapering prospects later in the year render long-end risk-reward unattractive.”
Martin Hasse, a portfolio manager at MM Warburg & Co.
“It’s more or less carry at this point,” said Hasse. “Maybe a little tightening but not so much. High yield and subordinated notes can see more of that.”