In 2024, the market will pay attention to the global economic growth prospects, investment opportunities in the equity and fixed income sectors, the interpretation of the commodity market under geopolitical conflicts, the outlook of the energy market, the global allocation strategy of large types of assets, and how to view China's economic growth prospects and investment opportunities in the coming period. To this end, the Global Wealth Management Forum (GAMF) is co-organized with the China Wealth Management 50 Forum (CWM50)".2024 Global Market Outlook and Investment StrategyThe symposium invites global market professionals, experts and scholars to discuss investment strategies under the current situation, and provides a platform for institutional investors to communicate and communicate. Stephen Chang, Managing Director and Head of Asia Investment Research at PIMCOParticipated in the meeting and made a keynote speech.
Stephen Chang shares his insights on the world of fixed income bond investment. He said that the combination of inflation in the United States and unemployment has begun to rise has prompted many central banks to consider cutting interest rates. When the Fed starts cutting interest rates, it is possible that it will be more aggressive and faster, but of course it will depend on the feedback from the economic data that follows. Pinhao will adopt a range-trading strategy. Based on the combined return analysis, Pinhao believes that bonds remain attractive. Appropriate allocation of duration and bond yield curves and diversification of global allocation is the optimal solution.
Pictured is Stephen Chang).
Today, I would like to share with you the investment of fixed income bonds from the perspective of global investors. Last week, we released a research report entitled "Outlook 2024", in which many of the new ideas are shared with you.
Jump right into the investment themes that PIMCO is focusing on in 2024. These themes may already be well known to you, but I will focus on how they fit into the core allocation decisions of PIMCO's investment strategy.
The first topic was talked about by the previous guestsQuestions about inflation and unemployment in the United StatesThis is also a common problem facing the developed economies of the West. It was observed,The combination of inflation and unemployment has prompted many central banks to consider cutting interest rates。The question that then arises is whether we are on the verge of a recession, or how difficult will it be for advanced economies, which are the main engines of economic growth, to achieve a soft landing? To this end, we analyze hypothetical scenarios including recessions, mild recessions, soft landings, stagflation, and other economic overheatingThe current fixed income market has priced in interest rate cuts in its **。In addition, we believe that major bond markets such as the US, Europe, Japan, and China, which have very different inflation and growth structures, will treat central bank rate adjustments in 2024 very differently. We will also be looking at specific markets where the economy is still in its infancy and there is plenty of room for interest rate cuts.
Now let's talk about inflation. As shown in the figure, compared to.
A year or two ago, the current macro CPI or other data showed that inflation had fallen significantly, but the high inflation rate in the core services sector remained stalemate. After excluding the housing market factor,High inflation in the services sector is mainly due to a strong labor market and rising wages under the wage negotiation mechanism。But given the large net inflow of immigrants to the United States, although there is a problem of skills mismatchLabour shortages will be corrected for some time, so we remain optimistic about inflation in the services sector.
The Fed has two key indicators, one is inflation and the other is the labor market. I just talked about the supply and demand of the labor marketNext, we will analyze whether the Fed will cut interest rates in time when the unemployment rate is high。Although the current level of unemployment is not that high, there is already an upward trend in the unemployment rate. As for when the Fed will cut interest rates, we extrapolate that it will be around mid-2024, which is later than the consensus expectation, but coincides with the Fed's dot plot. Our views may be a little different from those of the marketWe think it's likely to be more aggressive and faster when the Fed starts cutting rates, but of course it will depend on the coming economic data。However, the current market expectations for a rate cut by the Fed reflect a soft landing scenario, with rate cuts of around 2% throughout the cycle. Historically, if there is a major recession, we have seen a rate cut cycle close to 5%. Of course, if such a sharp rate cut is achieved, the economy must be in a deep recession accompanied by a mismatch in financial markets. Therefore, it is common sense to make a judgment about the Fed cutting interest rates now, and we will adopt a range-trading strategy, adjusting between different market scenarios to identify opportunities. We believe that in terms of rate cut expectations, the market will see the present as a middle balance point for now.
Next, let's talk about investing in the fixed income market in 2024. Based on the combined return analysis, we believe bonds remain attractive. Although there are still concerns about a potential recession, we want to pay more attention to the quality of credit itself and try to avoid pro-cyclical sectors in order to avoid recession risks. We also look to explore global opportunities in the context of central bank policy differentiation.
Finally,I believe that the optimal solution is to appropriately allocate duration and bond yield curves, and maintain a diversified global allocation。On the one hand, the expectation of a slightly lagged interest rate cut is taken into account, and on the other hand, the supply of long-term bonds has increased due to concerns about the fiscal deficits of some countries. We find initial yields in fixed income markets attractive because, looking back over the past 10 years, targets such as the US or emerging market core indices and residential mortgages** have all been priced at historically low levels. Credit spreads, by contrast, are not so cheap. As a result, lending to high-yielding targets in the U.S. dollar market is not a significant yield. Therefore, the credit market should be wary of overvaluations.
It's important to note that when we talk about bond yield levels, we tend to talk about the yield at maturity under normal circumstances. When you have a good initial return level, you can use it as a reference for the final return. The current U.S. core index yield is 45%, we think the attraction is sufficient. Just 4With the 5% figure itself, what other market can do it and do it better? In fact, some non-US market ** bonds can do it. The Australian market is a case in point. The Australian market is highly interest rate sensitive, so economic growth will come back down more quickly as interest rates are raised. Specifically, the Australian housing market, which has the attribute of floating loan interest rate, is the only choice suitable for allocation at present。As the economic situation changes, there will be a number of other markets around the world that will show similar return characteristics.
Let's go back and share a little more thoughts on inflation. The U.S. has an inflation-hedging tips, which is also favored by PIMCO. The market is generally pricing in a 2% inflation target (although we believe that inflation will most likely be kept around that target).However, if the 2% inflation target cannot be met, inflation-hedging**tips can provide sufficient protection for investment as an asymmetric return. Therefore, we remain bullish on this US inflation hedging** target.
Let's talk about it againInstitutional Home Mortgage Loans in the United States**. These targets are AAA rated and have excellent liquidity。Right now, we think these targets are cheap and attractive, especially when combined with current Treasury yields. If you hold a home mortgage from one of these institutions**, you can make a lot of money. In addition, we believe the Fed is also selling off these agency mortgages**, making pricing more affordable. Therefore, PIMCO is happy to enter the market to buy these high-quality, high-liquidity targets.
There is not much time to say about all aspects of the fixed income market. A quick summary of PIMCO's judgment on the fixed income market. We strongly believe that bonds remain very attractive, as evidenced by the trend of our investors and the large inflows. The level of bond yields is substantial, and comparative.
A year or two ago, the current allocation of bond investment was sufficiently diversified and could act as a hedge. At present, we are looking to link with other asset classes such as equity to help investors fully diversify. Of course, there are still concerns about weak growth and recession in the future, so more attention should be paid to the quality of credit and investment targets.
Finally, the market is changing, and the differences are becoming more and more apparent. 2024 is another ** year, and there will be many policy changes. We will remain proactive and seek global opportunities for our overseas investors to differentiate.
This article represents the views of the author and does not necessarily represent the position of the forum. ）
Editor in charge: Zhang Keke.