Perspectives Blog

Neutral funds rate going up?

Zach Pandl, Portfolio Manager and Strategist | May 16, 2014

…e are two distinct (but often conflated) ideas for why the neutral funds rate has come down: (1) lower potential growth, and (2) headwinds driving a wedge between risk-free rates and broader financial/economic conditions. Activity data strongly suggest that potential growth increased at a slow pace over the last five years—which economic theory says should translate into a lower neutral funds rate. On average, GDP growth has increased only about…

The beginnings of a new moderation in Asia

Soo Nam Ng, Head of Asian Equities | June 2, 2014

…ons of the Great Moderation hold relevance for equity investors in Asia as we confront a slower pace of economic growth. There are three sets of questions we need to explore. First, are the big picture conditions for a Great Moderation also starting to fall into place? Second, what are the implications for corporate Asia in the current growth slowdown, and the opportunities going forward should it evolve into more moderate yet sustained growth? T…

Investing selectively in Asia

Soo Nam Ng, Head of Asian Equities | July 14, 2014

Beneath the surface of slowdown headlines lay pockets of exciting growth opportunities. As companies step back from chasing revenue growth and start emphasizing profit delivery, better cash flows and dividend payouts typically follow. We see the greatest contrarian opportunities in sectors where market sentiment has been most depressed. In my previous two articles, I argued that big picture conditions for more sustainable growth are beginning…

Where’s Waldo? Be on the lookout for rising costs in a low growth world

Paul DiGiacomo, Senior Analyst | August 18, 2014

Broad measures of cost inflation (PPI and CPI) growth rates have remained near 2% for the past three years. Sharp increases have occurred in isolated areas like trucking, but the effect is far-reaching. Investors must be on the lookout for accelerating expense growth within a company or industry cost structure, as high inflation can lead to lower stock returns. Over the past three years, Producer Price Index (PPI) and Consumer Price Index (CPI…

Quality milestone in the European recovery story

March 17, 2014

…ing quantitative easing. There are also fears of deflation, which we think are misplaced. If current German wage growth of around 3.5% persists, Europe is likely to experience a period of disinflation and low rates. This would only deteriorate into a deflationary spiral should German wage growth fall below 2%, but few expect this to happen. What is more, to achieve the ECB’s medium-term inflation target of 2%, aggregate euro area wage growth need…

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

…tary policy will begin to normalize in 2014 The economy’s performance will be an important metric for markets as growth needs to catch up The key to getting growth beyond 2% is for business to borrow to improve/expand productive capital It’s happening again—a fourth quarter bounce in economic activity that extends into the first quarter and supports the view that growth really, finally, has started to accelerate. Such bounces have disappointed s…

A less certain world favors high-quality stocks

Philip Dicken, Head of European Equities, Threadneedle International Ltd | October 6, 2014

Current sentiment indicators do not suggest that Europe is heading back towards recession, though GDP growth will remain subdued. If Q3 sees a rebound, full QE may be unlikely this year, but any further weakness will increase the pressure on the ECB to act. In a less certain growth environment, we believe stocks that are able to deliver earnings growth will command a justifiable premium. Recap: excessive optimism at the start of 2014 As 2014 b…