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Several of my 2020 blog posts have explored China’s thriving innovation ecosystem and rapid transition to a digital economy — a hugely important investment theme for sure, but I’d like to shift gears this time to the subject of Chinese debt and domestic consumption.

Our internal investor dialogue around China has raised a number of provocative questions. One of the best ones asked recently was: Will rising debt ultimately derail Chinese consumption? The short answer, in my view, is no.

On the topic of debt, some of my colleagues have studied China’s consumer debt and concluded that the pace at which it is growing looks unsustainable in the long term. I tend to…

MACRO
THEMES

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Santiago Millan headshot
Santiago Millán
CFA
Macro Strategist
Hong Kong

Remote learning, social distancing, and student safety aren’t the only challenges facing the higher education sector amid the protracted global health crisis. Colleges and universities worldwide are also currently grappling with declining enrollment rates, relatively flat tuition, and steep discounting to entice prospective students. In response, to make up for lost revenue, many institutions are cutting salaries, delaying retirement contributions, and slashing non-essential capital expenditures. Some are even eliminating academic programs and increasing endowment spending.

Despite these headwinds, we continue to like the higher ed municipal bond sector for many of the same reasons laid out in our June blog post and see attractive opportunities in select areas of the market. Of course, deep credit research will be critical to…

MARKETS

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Paul Ko
Paul Ko
Fixed Income Credit Analyst
Boston
MACRO
THEMES

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Santiago Millan headshot
Santiago Millán
CFA
Macro Strategist
Hong Kong

The Federal Open Market Committee’s (FOMC’s) December statement and press conference provided additional assurance that asset buying would continue for the foreseeable future, noting that purchases of US Treasuries and agency mortgage-backed securities (MBS) would proceed at their current pace at least until “substantial further progress has been made” on the labor market and inflation outlooks.

The US Federal Reserve (Fed) appears committed to its dovish monetary policy stance and will likely continue to provide extraordinary accommodation as long as necessary. This is largely because, despite ongoing improvement, the US economic outlook remains highly uncertain. A downside surprise regarding… 

MACRO

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Jeremy Forster
Jeremy Forster
Fixed Income Portfolio Manager
Boston

Near term, our view on the high-yield market remains that a neutral-to-slightly cautious risk posture, with a heavy focus on security selection, is warranted amid spiking COVID numbers, the US political transition, the waning effects of government stimulus, and credit spreads having tightened from earlier this year. Longer term, however, our outlook is more positive as we see plenty of reasons to be optimistic as we look out nine to 12 months from now.

Macro: Strong medium-to-longer term

  • We anticipate a difficult short term marked by increased credit stress over the next couple of months, along with a possible reacceleration in high-yield defaults, followed by a much more supportive medium-to-longer term.
  • We expect the global economic backdrop to rebound strongly in 2021 and into 2022, particularly as COVID vaccines become reality and if governments deliver additional stimulus.
  • European economies could begin to show improvement as early as the first quarter of 2021, while the US economy is likely to strengthen in earnest starting in the second half of the year.
  • One big question for high-yield investors right now is: Will the market engage with the near-term downside risks or look through to…
MARKETS

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Christopher Jones
CFA
Fixed Income Portfolio Manager
Boston
Michael Hong headshot
Michael Hong
CFA
Fixed Income Portfolio Manager
Boston
Konstantin Leidman headshot
Konstantin Leidman
CFA
Fixed Income Portfolio Manager
London
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