almost 4 years ago • 2 mins
With fresh central bank and government support for coronavirus-crushed economies looking increasingly likely, several major investors have weighed in on which areas they’re betting on benefiting… 🎲
Recent comments from the chair of the US Federal Reserve suggest that neither the country’s central bank nor its government are “out of ammunition” when it comes to funding the economic fight against the virus. The implication that more monetary and fiscal stimulus may be on the way – in addition to the more than $8 trillion of government spending already announced worldwide – sent US stock markets up on Monday. But it could also be good news for other investments.
JPMorgan Asset Management thinks that, while obvious, central banks’ landmark extension of “quantitative easing” to include purchases of corporate debt makes particularly high-quality “investment-grade” company bonds safe bets to rise. Western Asset Management, meanwhile, goes further – submitting that Asian bonds hovering on the border of “junk” status, while riskier, also stand to benefit from central bank support.
Speaking of Asia, M&G Investmentssee Chinese junk bonds as particularly well-placed for two reasons. Not only is China potentially closer to economic recovery than the rest of the world, but its government’s desire (and enhanced ability) to speed up that process may well lead to further financially supportive measures 💁♀️
The divergence of opinion on bonds is a reminder that their junk (or “high-yield”) variety is, especially with many companies undergoing a cash crisis, extremely high-risk – so much so that small-fry investors can only invest in them through exchange-traded funds tracking grouped indexes like that in the chart above.
Emerging markets are also risky bets at the moment, reflected in the gap between their stock market valuations and those of more developed economies currently sitting at its highest since 2008. Still, as Nordea Asset Management points out, that could offer an opportunity for investors willing to run the risk – especially those betting on areas where governments have considerable power to prop up demand, such as China’s services sector… 👨💼
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