Perspectives Blog

How bad is China’s credit crisis?

Weili Jasmine Huang, Senior Portfolio Manager | February 3, 2014

only about 7% of total banking sector assets. Another shadow banking product is wealth management products issued by banks at Rmb10trn, less than 10% of bank’s total deposit base. • China has only 10% of gross external debt of gross domestic product (GDP), almost the smallest among all emerging countries. That means debts are largely domestically funded, and by adding in all forms of non-loan and off-balance sheet credit, the resulting ban…

Comments on the effect on global markets from the Ukraine crisis

Mark Burgess, Chief Investment Officer, Threadneedle Investments | March 12, 2014

To date, the fallout from the Ukrainian crisis has been largely confined to the emerging market debt, emerging market equity and commodity markets. At current levels, emerging market local currency debt appears to offer value, although we expect both the hard and local currency markets to remain volatile in the short term. Emerging equities reflect concerns not only around Russia and Ukraine but also the weaker growth outlook in Brazil and China…

The role of income inequality

March 3, 2014

e global financial crisis. Most studies now point to the lack of income growth for the bottom 95% of the income distribution in combination with an unsustainable rise in borrowing as a causal factor that escalated the crisis. Debt levels relative to income escalated during the same period, but more perilously for the bottom 95% (see Exhibit 2). Debt is merely borrowed spending from the future, and becomes particularly onerous if incomes do not ri…

Trouble in paradise: Q&A about Puerto Rico bonds

Chad Farrington, CFA, Head of Municipal Bond Research | January 2, 2014

Why has Puerto Rico become such an issue now? Should investors be concerned with a downgrade or default? Is Puerto Rico a systemic risk for the municipal market? Historically, Puerto Rico (PR) bonds’ high yield and triple tax exemption (federal, state and local) had been a big lure for many institutional investors, such as mutual funds. PR debt exposure in municipal bond funds, namely single-state municipal bond funds, proved advantageous for sh…

How will the Volcker rule impact capital markets?

Richard Manuel, CFA, Senior Analyst | January 6, 2014

…r holding as many securities in their capacity as market makers. However, there have been many other regulatory changes beyond Volcker that serve to discourage banks from holding inventory. Dealer inventory as a percentage of debt outstanding Source: Bloomberg, November 2013 Despite the reduction in inventory levels, the fixed-income markets have been functioning rather efficiently. However, it might by premature to declare victory. Over the las…

A primer on preferred securities

Carl Pappo, Head of Core Fixed Income | March 10, 2014

…including the structures, the motivation of issuers and investors and why we think preferred securities make sense in the current market environment. What is a preferred security? Preferred securities carry attributes of both debt and equity securities. Preferred securities rank higher in the capital structure relative to common equity, as they have a priority claim on dividend payments and a higher claim on assets in a bankruptcy. Preferred secu…

Surveying the landscape for M&A

Robert McConnaughey, Director of Global Research | March 3, 2014

…being rewarded as a more efficient use of cash than hoarding, so is the purchase of a competitor’s shares, where hope springs eternal for additional synergies as well. Also, the valuation spread between equities and corporate debt remains high (Exhibit 2). Taking on long-term leverage to invest in equities looks like a reasonable bet (at least if you believe that current margins can be sustained). Two other factors support the current optimism fo…