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Industry experience
With Wellington
Mike is a member of the firm’s Global Macro Strategy Group. In this capacity, he focuses on macro forecasting and analysis for the dollar-bloc economies, including the US, Canada, and New Zealand, and on US fiscal policy and politics. He contributes to the management of global portfolios for the firm’s clients around the world, and his research is critical to investors throughout the firm as he translates macro data into investable ideas and themes.
Japan has experienced deflation for much of the past 30 years (Figure 1). That’s the general consensus, so why my titular question? Because what Japan has not had over the past three decades is the sort of broad wage-service deflation that is most feared by economists. Instead, I would characterise Japan’s deflation as having been mostly idiosyncratic in nature.
Japan’s protracted battle with deflation was largely attributable to specific dynamics, including the country’s botched policy response to its 1980s asset-price bubble, whose collapse in 1991 ushered in Japan’s so-called “lost decade” — a period of economic stagnation that lasted until 2001. In addition, I believe the massive…
Factor investing – tilting a portfolio toward securities that have certain attributes (e.g., attractive value, quality, momentum, etc.) – has become widely accepted and practiced in the world of equities. Within fixed income, it is in a more nascent stage.
However, we believe that applying a factor-based investing framework can lead to valuable insights into what is driving performance in different sectors of the bond market. Even more important, it may allow investors to better position their portfolios to take advantage of…
With an unstable relationship between the US and China looking like a long-term geopolitical reality, pressure to relocate manufacturing away from China is growing. Could neighbouring India, which has a similar population size and rate of economic growth, be positioned to benefit from the shift?
I believe this is not a realistic expectation. Understanding why requires a quick recap of India’s industrial history.
In the decades after India gained independence in 1947, while East Asia was opening up to the rest of the world, Indian manufacturing stagnated under a series of protectionist trade policies and a socialist industrial model that stifled competition, discouraged innovation and encouraged downsizing rather than expansion. Labour was protected to the point of dysfunction, while education and skills languished in the hands of a corrupt and inefficient bureaucracy. India’s location did not help — in a historically poor region far from key sea routes, with poor connections with the West and East Asia.
Reform came in the early 1990s when a spike in oil prices sparked by the Gulf War coincided with a trough in remittances from Indians in the Gulf. With FX reserves for imports and debt servicing running dangerously low, a desperate Indian government secured an emergency loan from the International Monetary Fund in 1991. In exchange, the government implemented sweeping reforms to open up the economy.
By the 1980s, India’s growth was accelerating fast. But it was arguably too…
When I think of “old school” emerging markets (EMs), I think of Mexico. What started out as an exercise to determine if Mexico could be a “Biden trade” soon turned into my belief that some Mexican equities could perform well going forward regardless of the election outcome.
Mexico is not a “COVID reopening” trade, in my view, because President Andrés Manuel López Obrador (AMLO) neither locked the country down aggressively amid the pandemic, nor took any bold steps to stimulate the market. In fact, by not pursuing deficit spending in response to COVID, Mexico’s balance sheet may hold up better than most EMs’ heading into 2021.
More to the point for investors, some Mexican companies appear to be pivoting toward…
I was recently asked, “How can you be confident that value investing will work again, when the historical results look so skewed to growth?” It’s a fair question. Looking at the Russell 1000 Growth and Value indices, growth is ahead on a one-, three- five-, 10-, and 30-year basis, and indeed since 1978, when data is first available. Among the most striking results are the one-year returns (37.5% for growth and -5.0% for value) and the 10-year annualized returns (17.3% for growth and 9.9% for value).1
However, these numbers mask how quickly the picture has shifted. As recently as February, value was beating growth since inception. And before the global financial crisis, value was ahead by more than 2% annually over almost three decades since 1978. Perhaps more importantly, there has been a strong cyclicality to the performance of growth and value that makes some “extreme” periods seem a bit more ordinary.
In 1999 and 2000, growth was beating value since inception — and on a trailing one-, three-, five-, 10- and 20-year basis. Then, too, investors were asking, “Is value dead?” But value was…
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…
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