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In my last blog post, I asked, “Is this the end of secular stagnation?,” which I defined as low nominal economic growth due to insufficient aggregate demand. While I didn’t (and still don’t) have a simple “yes” or “no” answer, I shared my latest thinking on the topic, including some investment positioning ideas for clients.
This time, I’d like to look more closely at one of the main causes of secular stagnation — a global “savings glut” over the past decade-plus — and whether it’s likely to persist going forward.
Outside the US, the “savings glut” to which I refer dates back to before the 2008 global financial crisis (GFC). Following the GFC, the US also began to accumulate…
The short answer is no, but it’s not completely hyperbolic to suggest we could be heading in that direction longer term.
Several of my Wellington colleagues and I are collaborating on an ongoing macroeconomic and geopolitical research project around the theme of “Biden and the world.” This blog post encapsulates some of my latest contributions to that effort, with a focus on the US-China relationship and the latter country’s growing role on the world stage.
According to the International Monetary Fund, the US was the world’s biggest economy as of year-end 2020, with a nominal gross domestic product (GDP) of US$20.8 trillion, followed by China at US$14.9 trillion. However, a December 2020 report by the Centre for Economics and Business Research stated that the size of China’s economy could surpass that of the US by…
Momentous changes have taken place in India over the past 12 months that I believe have helped to fast-track the country’s nascent growth story. It’s now clear that Indian Prime Minister Narendra Modi is going all out to spur an economic renaissance.
Pre-COVID-19, there were some initial signs of positive policy reform in India, notably a substantial corporate-tax cut in 2019. Post-COVID, the Indian government has stepped up these efforts, announcing a flurry of key economic initiatives, including:
Most recently, the presentation of the country’s annual budget on 1 February 2021 and Prime Minister Modi’s speech on 11 February left no doubt as to his intentions. Never before has…
My previous inflation-related blog posts have focused on the debate around the threat of rising inflation going forward and on the potentially disruptive portfolio effects of higher inflation, particularly how it can upend the traditional equity-bond relationship in client portfolios. This time, I’d like to: 1) explain why the specific source of the inflation matters; and 2) provide a “playbook” of sorts to help asset allocators monitor and mitigate inflation risk based on its source.
Many investors use standard inflation indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), to track changes in inflation over time. While useful to a degree, these broad indices are only intended to serve as…
Over the past few years, I have discussed at length the potentially compelling long-term investment opportunity in financial technology (“fintech”) — which we define as companies creating or leveraging technology to disrupt traditional financial services. While much of our internal dialogue has focused specifically on the fast-growing digital payments space, I’d also like to share my thoughts on the fintech industry more broadly and what the increasing relevance of its products means for traditional financial services.
In future blog posts, I will explore some of the below points in more detail for investors who want a deeper dive. For now, the main takeaways I want to leave you with are…
My team and I often say recessions wipe the slate clean and create new investment patterns that will likely be dissociated from the last cycle. If there was a dominant theme of the last cycle — from the global financial crisis (GFC) in 2008 up to the onset of COVID-19 in March 2020 — it may have been “secular stagnation,” which I define as low nominal economic growth due to shortfalls in aggregate demand. Naturally, this begs the question of whether or not secular stagnation will still have legs in the post-COVID era.
I don’t claim to have a simple “yes” or “no” answer yet, but for now would like to share my latest thinking on the topic, to be followed by deeper dives on specific aspects of it (and hopefully more definitive answers) in additional blog posts throughout 2021.
By way of context, it’s helpful to consider how we got here in the first place. Economists have attributed secular stagnation to…
This is the third in my inflation “series” of blog posts based on ongoing client conversations. In the first one, I explained why rising inflation is not an imminent threat, but could be down the road. The next one compared today’s inflation worries with those that arose following the 2008 global financial crisis. Now I’d like to shift to a topic of even greater interest to many clients: the implications of higher inflation for investor portfolios.
Inflation can affect a portfolio in multiple ways over time. One way is through its potentially profound impact on the basic equity-bond relationship, which is typically critical to the performance and resilience of a diversified portfolio.
Bonds have often rallied (or at least mitigated downside) during equity market selloffs, thereby providing portfolio diversification benefits. What some investors overlook is…
The massive amounts of fiscal and monetary stimulus injected into the global system last year have sparked debate around the prospect of potentially higher interest rates going forward. And the financials sector often tops the list of likely equity-market beneficiaries in a rising-rate environment.
Our take? Without trying to make a “call” on the interest-rate outlook, we see a compelling relative return opportunity in some interest-rate-sensitive financials — select multinational banks, insurers, and diversified financial service names — with strong fundamentals and underlying growth metrics.
Understandably, the financial sector’s chronic underperformance and multiple “head-fakes” toward a possible recovery over the past five to 10 years make it difficult for many investors to…
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…
COVID-19 has disrupted a lot of things we took for granted, including how we try to manage our health. Odds are, unless someone needed urgent care in 2020, they avoided entering health care facilities and postponed many medical procedures to a later date. This trend has formed an interesting investment proposition, as previously stable surgical demand now appears positioned for a cyclical recovery.
In the recent market recovery, where there has been rotation into so-called “COVID losers” on hopes of vaccine breakthroughs, I believe investors may still be overlooking an opportunity in deferred surgery stocks within the health care sector — specifically, makers of medical devices, supplies, and equipment. Many of these stocks are likely to benefit from positive vaccine developments and gradually reopening economies in 2021, as consumers begin to regain confidence in accessing the health care system to meet their general medical needs.
Adding to my conviction, most of this industry’s products and services are not really discretionary in nature, as no one truly “elects” to undergo surgery. Many of the elective procedures that were put off in 2020 cannot be…
In light of the recent positive news on the COVID vaccine front, it is possible that a vaccine could be authorized for use in the US as early as late 2020. Additional vaccines could be authorized or approved during the first quarter of 2021.
The logistics of vaccine distribution will be daunting. Under Operation Warp Speed, vaccine developers have already been manufacturing vaccine inventory at some risk, in anticipation of favorable efficacy and safety data. Nevertheless, the immediate demand will likely far exceed the initial supply.
Priority will be given to high-risk health care workers and first responders; then to people of all ages with comorbid conditions that put them at elevated risk of poor outcomes, along with older adults living in crowded circumstances; then to all adults over age 65; and so on. It’s likely to be well into 2021 before everyone in the US can be offered a vaccine.
It’s a moving target and depends on several factors, including the underlying health and age of the patient, the ever-improving medical knowledge of optimal case management, and the availability of medications active against the virus.
The observed death rate from COVID-19 has dropped considerably since the pandemic first reached the US and now stands at…
Citing consumer welfare and competition concerns, a rising chorus of voices is calling for more government regulation of the most dominant players in the US technology sector. As recently as late 2019, the co-founder of one household tech name even opined that government should step in and regulate the tech giants. The sector’s perceived impact on the upcoming national elections has helped fuel what some observers describe as growing “anti-big-tech” fervor.
So, what might come of it? It depends who you ask, but in my view, probably not a lot. I think federal privacy legislation will be on the roadmap if an agreement can be reached, but changes to antitrust law and/or content regulation seem…
Earlier this summer, I virtually participated in an institutional conference with about 100 other asset managers and prominent asset owners from the US, Canada, Europe, Australia, and New Zealand. It was well worth my time. Here are my main takeaways, along with some personal observations on the post-COVID-19 industry landscape.
1. Economic assumptions and forecasts were more dire than I’ve seen internally. While Chinese gross domestic product (GDP) is expected to reach pre-COVID levels this year, the US may not get there until mid-2021 and likely only on the strength of “50% of the economy in steep recovery,” according to one conference participant. The other half of the US economy may..
In my April 2020 blog, “Where to buy the future,” I encouraged investors to consider buying well-positioned technology companies at potentially bargain-basement prices. With two-thirds of the year now behind us, I’d like to share my latest thinking on the e-commerce industry in the wake of its (unsurprisingly) lights-out performance amid COVID-19-induced fears and economic shutdowns.
Broadly speaking, I think e-commerce names should continue to post solid sales growth through 2020, but then fall short of analysts’ and investors’ expectations in 2021. And for this to be the case, I don’t necessarily think…
Over the years, we have done extensive on-the-ground research to understand consumer behavior across China and other emerging markets (EMs), with an emphasis on the two age demographics — millennials and Generation Z — that drive much of these countries’ total consumption.
In keeping with this tradition, we recently conducted our first post-COVID-19 survey of Chinese consumers. As everyday life begins to return to normal in China, we wanted to get a pulse on consumption and lifestyle trends in the aftermath of the pandemic. We focused on respondents in higher-tier Chinese cities, between 20 and 40 years old, with “middle” incomes of 50K – 70K renminbi per year. Here’s some of what we learned.
Unlike their predecessors, post-1980 generations in China are generally prosperous and tend to spend much of what they earn, with an eye toward enjoying life as much as possible. However, with COVID-19 affecting their lives in ways they have not experienced before, we wondered if…
Just random text here. Nothing to worry about.
In many ways, the COVID-19 crisis has fundamentally altered the way we live and work (and continues to do so). From an investment standpoint, that has been a big catalyst for long-term value creation across certain sectors. The technology sector is a notable case in point.
To illustrate, consider how my own life has changed over the past several months:
All of this is enabled by technology. None of it is new per se, but what has changed on the back of COVID-19 is the speed and alacrity with which…
By its very nature, the financials sector is a highly macro-exposed area of the equity market. As we have already witnessed over the past several months, what happens on the global macroeconomic front as a result of the COVID-19 crisis will directly impact financial stocks.
The rub, of course, is that no one really knows what will happen from here. Indeed, there is considerable uncertainty around the global macro outlook, with a wide range of potential economic outcomes in play. Financials generally don’t like macro uncertainty, and that’s reflected in the discounted valuations of many such stocks (particularly more balance-sheet-oriented companies like banks and life insurers). In effect, broadly speaking, I believe the sector offers a…
The health care sector is in the midst of some exciting and potentially profound changes. But unlike the shorter-term disruptions from COVID-19, many of the longer-term opportunities in the sector have yet to be reflected in health care stock prices. Looking beyond the current crisis, here are five sector trends of interest to investors that I think are here to stay:
The US equity market (as measured by the S&P 500 Index) has staged a remarkable rebound over the past few months, gaining 40% from its COVID-19 low on March 23. Notably, the shape of the rally has shifted during that time. In mid-May, market leadership rotated from growth to value stocks, raising a provocative question: How sustainable is value’s outperformance going forward?
Longer term, I suspect the global economy is not set up for strong growth, given the accumulation of massive government debt, the demographics of an aging population, and increased costs associated with deglobalization. Therefore, I still prefer growth stocks overall. In the near term, however, here are four points to consider in favor of value:
Understandably, many investors are gun shy about jumping into value when its performance has been so disappointing for so long. Ironically, this may be precisely why…
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