Is this a sure sign of a Chinese slowdown?

Infrastructure investment has been a great source of interest for investors in the wake of Donald Trump’s election as US president, with his campaign pledge to spend US$1 trillion on US infrastructure projects clearly playing on their minds. Away from President Trump’s Twitter feed and speeches, China is a more pressing concern.

While the country is trying to rebalance to become a more consumption-driven economy, overcapacity in the construction industry remains a big issue. The country is considerably overbuilt in relation to GDP. Worryingly, if a slowdown in GDP growth occurs, we expect the Chinese government to try to plug the gap with further building. As such, with overcapacity remaining a problem and rebalancing of the economy continuing, we believe it is best to avoid businesses related to Chinese construction, including materials and building companies.

Nick Moss – Newton, a BNY Mellon company

Infrastructure investment has been a great source of interest for investors in the wake of Donald Trump’s election as US president, with his campaign pledge to spend US$1 trillion on US infrastructure projects clearly playing on their minds. Away from President Trump’s Twitter feed and speeches, China is a more pressing concern. While the country is trying to rebalance to … read more

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Why rate hikes in the US won’t kill high yield

While a rate hiking cycle in the US might affect other areas of the fixed income universe, the high yield market basically ignores rate hikes unless they are sharp and steep, which would cause a recession and therefore increased defaults. There is no historic correlation. Meanwhile, investment grade corporate bonds have a greater potential to be affected by duration and have historically been more correlated to interest rates. Another factor to take into consideration is leverage, which has been on a downward trajectory for high yield since the end of 2015. Investment grade firms, in general, have been increasing leverage in order to finance acquisitions or expand in a bid to appease shareholders.

April La Russe, Insight

While a rate hiking cycle in the US might affect other areas of the fixed income universe, the high yield market basically ignores rate hikes unless they are sharp and steep, which would cause a recession and therefore increased defaults. There is no historic correlation. Meanwhile, investment grade corporate bonds have a greater potential to be affected by duration and … read more

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The chart that tells the truth about US growth and its importance

The three largest economic areas in the world are growing: China, the US and Europe. They are growing at different rates but compared with last year when people were really concerned about Chinese growth disintegrating and the lack of growth in Europe the trends are improving.

While the US still contributes the largest amount to global GDP growth, the phrase “when the US sneezes the rest of the world catches a cold” is nowhere near as relevant as it was a few years ago.

The emergence of China and some other emerging economies is significantly more important in terms of global trade and global growth, particularly for investors interested in emerging markets (EM). Elsewhere in EM, India certainly doesn’t have the economic heft or weight of China but it is growing at a rapid rate and other countries are also showing an improved rate of growth compared with the past couple of years.

Colm McDonagh- Insight, a BNY Mellon Company

The three largest economic areas in the world are growing: China, the US and Europe. They are growing at different rates but compared with last year when people were really concerned about Chinese growth disintegrating and the lack of growth in Europe the trends are improving. While the US still contributes the largest amount to global GDP growth, the phrase … read more

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UK elections: then and now

There is a strong consensus in the market, despite recent variations in polling data, that the current Conservative government and policies are very likely to remain in place after the election on 8 June. We believe the market consensus is correct, and so we do not expect a significant market impact as a result of the election – this would probably only occur if there was a shock result.

Shortly after the election, negotiations over the UK’s departure from the European Union will begin, and these could have a significant impact over the longer term. While the market will refocus on these negotiations after the election, we expect there to be little impact for some time – while there will be jostling by politicians over different proposals and potential deals, no firm conclusions are expected early on in the process, and so we expect this to be a slow burn.

Paul Lambert – Insight, a BNY Mellon company

There is a strong consensus in the market, despite recent variations in polling data, that the current Conservative government and policies are very likely to remain in place after the election on 8 June. We believe the market consensus is correct, and so we do not expect a significant market impact as a result of the election – this would … read more

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European elections: where moderation wins?

With over 66% of the vote, Emmanuel Macron’s recent election win in France was a decisive result. Clearly it was a case of the electorate wanting the country to avoid the extremism we’ve seen with Marine Le Pen. The next step is for Macron to name a prime minister ahead of the legislative elections in June.

We think the French presidential election should be seen against a broader move away from populism across Europe. We witnessed this in the Austrian elections in December 2016 and in Bulgaria in February this year. The same thing was apparent in the Dutch elections in March and in the Finnish municipal elections in April. All of these elections had the potential to bring populist politicians into power but instead resulted in more orthodox centre-ground candidates winning the vote – often, as in the Netherlands, with a large, and largely unexpected, majority. The same trend is now apparent in Germany where Chancellor Angela Merkel gained ground in the German state elections, which boosts the prospects for her Christian Democratic Union (CDU) party in the all-important Federal election in September.

Suzanne Hutchins – Newton, a BNY Mellon company

With over 66% of the vote, Emmanuel Macron’s recent election win in France was a decisive result. Clearly it was a case of the electorate wanting the country to avoid the extremism we’ve seen with Marine Le Pen. The next step is for Macron to name a prime minister ahead of the legislative elections in June. We think the French … read more

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