Turkey: The canary in the coal mine?

Should the recent financial turmoil in Turkey be considered an isolated event or is it one of those financial canaries in a coal mine? On the one hand, it is clear that local policy and president Erdoğan’s bellicose handling of foreign relations have both contributed to the slide in Turkish assets. Those who believe such factors have been the main driver of the sell-off argue that Turkey is going bust for idiosyncratic reasons, and so maintain that a relatively risk-on stance is appropriate.

To us, there is little doubt that the protracted nature of Turkey’s bubble has ensured a deep structural maladjustment, misallocated capital and financial excesses. The risk is that, should the market continue to command higher yields on Turkish assets in order to provide compensation for increased risks, those financial excesses may prove unsustainable. Should Erdoğan adopt a more market-friendly approach to international relations and a more orthodox approach to domestic fiscal policy, perhaps Turkish yields will decline to a level where financing costs are consistent with sustaining the status quo.

However, the other school of thought is to view Turkey as merely the symptom of a wider liquidity malaise globally. The evidence increasingly suggests that the environment of self-reinforcing expanding liquidity, indiscriminate buying of financial assets (speculation) and rising asset prices/bullish trends has come to an end. In this context, declines in Turkish asset prices are met with selling rather than being regarded by many as a dip to be bought. Moreover, while Turkey is the most conspicuous example of this pattern to date, we believe it is one that is becoming increasingly widespread, marking a departure from market dynamics in 2017.

Brendan Mulhern, global strategist. Newton Investment Management, a BNY Mellon company

Should the recent financial turmoil in Turkey be considered an isolated event or is it one of those financial canaries in a coal mine? On the one hand, it is clear that local policy and president Erdoğan’s bellicose handling of foreign relations have both contributed to the slide in Turkish assets. Those who believe such factors have been the main … read more

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Gearing up for a 5G revolution?

The last transition we had in the market was from 3G service to 4G which was largely about increasing the speed of online communication. But 5G is a more complex cellular technology which will enable completely new types of application, allowing users access to new wireless spectrum that was previously unusable with earlier technologies.

Lower latency – or responsiveness of 5G – opens up scope for new millisecond time applications such as controlled drones, autonomous vehicles and a host of other applications. 5G is really going to be about the internet of things and there will be a lot more machine to machine communication happening over its wireless networks.

A lot of operators have spent the last couple of years deploying fibre and today are now the owners of those fibre assets. While they have spent money on this infrastructure in many cases it is underutilised. As we move closer towards an interconnected world, we expect the market to put a higher value on those fibre infrastructure assets and for there to be opportunities to profit there. In the final analysis, smart cities could encompass a million applications which we haven’t even thought of yet, though you do have to enable it first.

Matthew Griffin, senior research analyst. The Boston Company, BNY Mellon Asset Management North America Corporation

The last transition we had in the market was from 3G service to 4G which was largely about increasing the speed of online communication. But 5G is a more complex cellular technology which will enable completely new types of application, allowing users access to new wireless spectrum that was previously unusable with earlier technologies. Lower latency – or responsiveness of … read more

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Mind the gap: why gender diversity matters.

Gender equality has proved a high profile media topic in the past year, with the #MeToo and #TimesUp campaigns garnering global support and attention. Recent UK pay-gap figures have also revealed the stark pay inequalities that still exist between the sexes in most industries and companies. Many such conversations centre around the possible social impact of supporting gender equality in the workplace. However, research shows that along with having a positive social impact, increasing the number of women in the workplace (and supporting them once they’re there), carries a host of potential macroeconomic benefits. This suggests working to achieve gender parity should be on the agenda of all investors, not just those with a social impact focus.

Research shows that global educational attainment is essentially very equal. For example, Saudi Arabia, where women have only recently been allowed to drive and enter sports stadiums, has a marginally higher proportion of women than men enrolling in primary education than Iceland – a notably progressive country in gender parity terms. However, despite accounting for 50% of the global working-age population, women only generate 37% of global GDP, suggesting they are a seriously under-utilised economic resource given their comparable levels of education.

Much of this discrepancy can be explained by two key factors. Firstly the lack of women in leadership positions, both professional and political, and secondly the huge amounts of unpaid care work being done by women compared to men. There are three primary benefits of increasing equality in female participation in the workforce – not just in terms of the numbers of women in work but also by improving equality in senior positions and across the sectors.

Lottie Meggitt – Responsible investment analyst. Newton Investment Management, a BNY Mellon company

Gender equality has proved a high profile media topic in the past year, with the #MeToo and #TimesUp campaigns garnering global support and attention. Recent UK pay-gap figures have also revealed the stark pay inequalities that still exist between the sexes in most industries and companies. Many such conversations centre around the possible social impact of supporting gender equality in … read more

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Ready to unwind? Telling the time in bond markets

Our current macro view is that bond markets are in the middle of a transition year. This is owing to the gradual US monetary tightening process currently underway, which has a negative impact on different sectors of the bond market at different stages in the economic cycle.

First to feel the negative impact of the tightening were developed-world government bonds, followed by emerging-market sovereign bonds. Finally, the effects ripple out into the real economy and thus to high-yield corporate bonds. To help map out how this process plays out, we have put together the clock below, to show which parts of the bond market are affected, and at what ‘time’ in the market cycle.

Prior to 2016, we were at midday on the clock – the growth stage – when economic growth was strong and monetary policy was loose. Then the US Treasury market started to react to the US Federal Reserve’s (Fed) decision to raise rates and talk of reducing its balance sheet, which sparked a sell-off in US Treasuries in the second half of 2016. This period equates to 4pm on the clock above.

We have been experiencing stage three – the unwinding of US monetary policy (8pm on the clock) – since the beginning of this year, as the tightening of US-dollar liquidity causes stress in emerging-market countries exposed to US borrowing. Stage four, at 9pm on the clock, is the point at which US Treasuries rally and credit sells off as the economic outlook deteriorates. At this stage, we think high-yield bonds (and probably equity markets) are likely to be in decline on the negative outlook.

Our best guess is that this could occur in the fourth quarter of 2018 as the market becomes concerned about 2019 economic growth forecasts, and is able to make an educated guess as to when the Fed will stop raising rates. As the clock shows, the tightening cycle is gradual, but eventually there will be a price to pay for assets that have run ahead of growth.

Paul Brain – head of fixed income. Newton Investment Management, a BNY Mellon company

Our current macro view is that bond markets are in the middle of a transition year. This is owing to the gradual US monetary tightening process currently underway, which has a negative impact on different sectors of the bond market at different stages in the economic cycle. First to feel the negative impact of the tightening were developed-world government bonds, … read more

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