Sharing our convictions

As the cycle of market excesses comes to an end, how can investors prepare? Tilt towards a portfolio of less-cyclical companies with pricing power and don’t mistake quality companies for those with an exciting story. The good news is that human ingenuity is not limited by the macro environment.

US voters have hit the polls in a vote that determines the power dynamics in US Congress. While the Democrats have retained control of the Senate, Republicans have taken control of the House of Representatives. So, what does the outcome mean?

Will the US midterm results shape the country’s foreign policy? What to expect in terms of economic blocs? Where does the EU fit into it all? As investors juggle economic and geopolitical challenges, are there underlying trends? Lord Patten joined Dr. Reto Cueni, Vontobel Chief Economist, to share his insights.

With Egypt’s Sharm el-Sheikh being the venue of this year’s United Nations Climate Change Conference (COP), it’s worth remembering that developing economies bear most of the negative effects of emissions mainly produced in industrialized nations. Therefore, the onus is on western companies to go “net zero carbon”, but how to measure their progress? One common yardstick for investors is the carbon footprint method – or the more encompassing “potential avoided emissions” method propagated by Vontobel’s impact investing team.

The renewables industry looks set to benefit from tightening regulation in the European Union, or a recently signed US law aiming to decarbonize the US power sector. The nascent “clean energy” industry, which encompasses areas such as electric vehicles, batteries, or hydrogen produced in a sustainable manner, opens new opportunities for investors as well.

Feeding a starving person is important, we all agree on that. But from an investor’s point of view, allocating capital to companies working towards the same end is perhaps even more appropriate. But first, go find promising ones active in areas such as increasing land yields, reducing food waste, or preserving biodiversity, to name a few.

As the cycle of market excesses comes to an end, how can investors prepare? Tilt towards a portfolio of less-cyclical companies with pricing power; don’t mistake quality companies for those with an exciting story; and watch out for underestimated risks, such as carbon emission liabilities.

Price action on Monday has taken the implied equity risk premium to 10.7%, the highest since 2008. Foreign investors appear to have interpreted the composition of newly appointed Standing Committee in China as offering less likelihood of a change in policy direction on the government’s dynamic zero-Covid stance. However, the announced policies were in-line with expectations and there were no negative surprises.

The 20th Party Congress of the Chinese Communist Party is likely to make Xi Jinping the most powerful leader since Mao Zedong. Sven Schubert, Senior Investment Strategist at Vontobel discusses what the congress has in store and whether it marks the beginning of a new political and economic cycle.

As part of Vontobel’s FT Moral Money Forum partnership, Christel Rendu de Lint, our deputy head of investments, weighs in on the complexities that accompany ESG in emerging markets.

Looking back to previous cycles in the high yield market, data have shown down periods have usually given way to strong returns years. While spreads are set to stay volatile until inflation starts to slow down, Portfolio Manager Stella Ma sees valuations becoming more attractive as we near the end of 2022.

George Curtis looks at market conditions in the third quarter of 2022.

TwentyFour Portfolio Manager, Johnathan Owen, explains how investment grade markets have performed in Q3 2022.

With some UK bank bonds now trading with higher yields than their counterparts in Turkey, Mark Holman questions whether the dumping of UK and sterling assets has gone too far.

TwentyFour Partner and Portfolio Manager, Douglas Charleston, explains how ABS markets have performed in Q3 2022 and provides his outlook for the rest of the year.

Asset owners are increasingly demanding net zero plans from their investment managers, who need to determine how to track and reduce portfolio emissions. Issues include: rebalancing vs rate of reduction, whether it’s too early for Scope 3, and ensuring engagements go beyond the more receptive European and US markets.

With rates volatility persisting and developed markets likely sliding toward recession, Jack Daley revisits our research on BBB defaults and returns and explains why we tend to maintain a significant allocation to BBB credit.

EM GDP growth remains higher than the rest of the world, EM central banks have been more proactive than developed markets in managing inflationary pressures, and the US dollar’s precipitous rise this year has had a greater impact on developed country currencies vs. emerging markets.

Geopolitical tensions, an energy crisis and inflation have marked global activity in 2022. The ball is now in the court of central banks, which in the months ahead will have to quell runaway inflation without risking a global economic freeze.

The Corporate Credit team reveals how they plan to navigate the fourth quarter of 2022

The first round of Brazil’s general elections will take place on Sunday, October 2nd, with former president Luiz Inácio Lula da Silva and the current president Jair Bolsonaro facing each other. Thierry Larose, Portfolio Manager at Vontobel, discusses how markets are viewing the two candidates.

With central banks speeding though their hiking cycles, a return to rates stability could allow investors to reap the rewards of bond yields that are unusually high for this point in the cycle.

After a decade of underperformance, are emerging markets (EM) equities on the road to recovery? The potential for stronger earnings growth, particularly in Asia, along with a widening differential in emerging versus developed market real GDP growth could be a catalyst for the re-rating of global EM.

With reaction to the UK’s mini-budget roiling markets for a second day, Felipe Villarroel looks at what higher rates and a weaker currency mean for the UK economy.