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Have you missed the boat on bonds? No, says our head of bond strategies Tim Hext.
“Australian 10-year bonds did briefly touch 5% at the end of October. People may look at that and say, ‘Oh, I’ve kind of missed it’.
“But around 4.5% is still very attractive if you believe inflation is going below 3%.
“When I look across the spectrum of what you can buy in bonds, government bonds are around 4.5%, state government bonds 5.25%, and bank debt around 6%.
“On term deposits, my question to investors would be: Okay, let’s assume term deposits are at 5% and you’re locking yourself into those with no liquidity.
“Where do you think on average they’re going to be over the next five or 10 years?
“I think most people would assume they’re going to be a little bit lower, not higher; and that cash rates will come down rather than go up a lot more.
“The other advantage of bonds is that they’re liquid.
“That’s particularly important if you saw a sudden sharp sell-off in equities and you’re wanting to buy them – but your money’s locked up.”
India may have fallen short in the Cricket World Cup this month, but it’s been on a winning run since hosting its previous world cup in 2011.
Since then the country has changed massively, becoming a more attractive location for emerging markets investors, says Paul Wimborne, who co-manages EM investing at Pendal.
“The most significant changes have been in internet connectivity and digital infrastructure.”
The nation’s Digital India program, launched in 2015, has digitised government services and built national internet infrastructure.
The project is now a blueprint for developing nations, Wimborne says.
“India has always had a strong services export economy based on software and services. This is going to kick things along even further.
“We are going to see huge changes in things like healthcare and digital commerce. Small-to-medium enterprises will have much greater ability to sell online.
“India is going to become an even bigger powerhouse.”
The failed coup at artificial intelligence leader OpenAI suggests investors are better off ignoring ideology and instead relying on tested market principles such as profit and self-interest.
That’s a lesson investors can take away from the astonishing episode, says Samir Mehta, who manages Pendal’s Asian equities strategy.
The ouster of CEO Sam Altman was engineered by OpenAI board members who reportedly feared that his plans for unbridled development of AI technology posed a threat to humanity.
Altman was later reinstated with the backing of major shareholder Microsoft – and the dissenting board members were replaced.
“It reminded me of when Xi Jinping came down on Chinese companies like Ant Financial and Alibaba’s founder Jack Ma,” says Mehta.
And yet capitalism continues unabated in China, points out Samir. Fast-growing Chinese fast-fashion retailers Shein and Temu are a case in point.
“Chinese and American ideologies are ostensibly diametrically opposite, but when it boils down to business there is very little difference between the two.”
This week Pendal’s head of income strategies Amy Xie Patrick was asked in a Bloomberg webinar about her highest conviction call for 2024.
“While markets are pricing in a soft landing, I argued there would likely be a US recession in 2024,” says Amy.
“A lag in the impact of policy tightening has been evident in the slowdown of inflation and wages in recent months.
“This can be seen particularly in shifting trends in the labour market. The most obvious signal is a falling ‘quits rate’, signalling workers are becoming less confident about alternative job prospects.
“In my view, lagged effects will continue to appear in the data next year – and as we all know from history, recessions happen slowly, then suddenly.
“Likely in the second half of next year markets will realise disinflation is no longer immaculate – and is being caused by recessionary forces.”
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