Global markets and economies are so interlinked and move so fast. Investors have problems keeping up with the data and making sensible financial decisions.
One of the largest UK financial firms is warning that nothing is likely to change this year, with more volatile markets changing fortunes in a blink of the eye and disparity in regional performance.
The problem for many investors is deciding where the global economy sits on the credit cycle and whether the world is heading for a boom or bust.
Craig MacDonald, Head of Credit for Standard Life Investments, has tried to answer the question in the company’s monthly global outlook published today.
Stressed credit markets
MacDonald looks at a number of traditional financial indicators to try and plot what’s happening in the global economy.
“Credit markets were stressed last year, but regional markets behaved differently leaving some windows of opportunity for investors,” said MacDonald.
“This range of performance is still out there. For high yield, Europe was a better place to be than America, for investment grade Sterling was better than the euro while Asian Pacific emerging market credit returned a good result even with the doubts over China.”
He explained that bank regulation is moving at a different pace – tightening in emerging markets and the USA but less restrictive in Europe.
“US high yield was among the worst credit markets last year with a minus 5% return,” he said.
“Almost half of bonds showed a return in the red some were distressed. Around a fifth of US high yield bonds are in energy and commodities and affected by falling commodity prices. “
Emerging markets are a continuing worry for investors as a strong dollar and falling commodity prices continues to impact on their economies.
Another issue is a question of trust – can the economic data coming out of China and Russia be viewed as accurate, for example.
“Emerging markets offer opportunities as well as risk,” said MacDonald. “The problem is how to tell one from the other. I believe little will change in the markets in the coming year, so investors should dig in for more of the same.”
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