Investment Insights

Listen to our quarterly asset allocation podcast with global head of multi-asset Maya Bhandari and chief market strategist Daniel Morris. They review the four key determinants of financial market behavior this year and the investment opportunities that follow from that assessment for the main asset classes.  

Given China‘s pivotal role as the world’s second-largest economy, its recent refocusing on lifting growth should be a tailwind for other economies. The shift should support those countries benefiting from the expected pickup in Chinese travel abroad and domestic consumer spending after Beijing scrapped its stringent mobility-restricting rules to contain the spread of Covid. 

Picking investable assets for a portfolio can be hard. Fundamental analysis focuses on what investors believe will happen in the future. Quantitative investing, by contrast, focuses on the facts: how historical data relationships may give us insight into future market moves, helping us to systematically select assets on the basis of signals or factors. 

After a bright start, US mortgage-backed securities face a sunnier year in which this fixed income asset class could reverse part of the gloomy outcome of a challenging and volatile 2022. With the peak in inflation behind us and the end of the US Federal Reserve’s rate rising cycle in sight, investors have an opportunity to benefit for a likely bounce-back. 

In what can be expected to still be volatile currency markets, the US dollar looks set to lose further ground in 2023 as its lustre as a high-yielding hedge fades. Expect the euro and the Japanese yen to pick up the baton as both economies profit from the gradual reopening of the Chinese economy now that Beijing has dropped its strict Covid-fighting regime. 

We anticipate a better year for emerging market corporate debt on the back of a brighter outlook for China and the wider Asian region. However, a raft of uncertainties including those concerning inflation and geopolitics, could make for a volatile environment in 2023.

Since biodiversity loss affects large swaths of the economy, it should be front of mind for investors. Not least because, as Adam Kanzer, head of stewardship for the Americas, points out, nature loss also makes meeting the world’s climate goals harder. 

Sergey Pergamentsev, head of Institutional Structured Management in the Multi Asset Quantitative and Solutions team, and co-head of the Investment Insights Centre Andrew Craig discuss recent developments in liability-driven investing (LDI), a strategy institutional investors such as pension funds use to match investments and future liabilities. 

The sell-off in bond markets this year has driven yields to levels that merit closer attention, says Victoria Whitehead, senior portfolio manager for European investment-grade (IG) credit. Victoria sees eurozone IG credit as attractive on the basis that risk premia are commensurate with much higher default rates than she thinks will actually materialise.    

Slower growth (and eventually, lower rates of inflation) will likely come in 2023 thanks to restrictive central bank monetary policy. What conclusions should investors draw for their allocations to equities and fixed income around the world? 

Thematic environmental strategies face countervailing forces in the near term. Support may come from the ‘green shoots’ of the recent growth stock recovery, offset by the downdraft of recessionary risk. Investors with a longer-term view should stay focused on the tailwinds and enduring drivers of demand including regulatory and legislative support. 

While many bond investors have felt the earth move under the feet this year as the asset class experienced the finale of a 50-year bull market, the denouement has not stripped them of opportunities, Arnaud-Guilhem Lamy, head of euro aggregate bond management strategies, tells chief market strategist Daniel Morris. 

As part of its contribution to the low carbon energy transition, BNP Paribas Asset Management is taking action and implementing best practice, including in its investment strategies. This includes working with clients on decarbonisation and setting internal targets to progressively increase the share of assets under management aligned with net zero greenhouse gas emissions. 

The tide is rising for water as an investment theme as it benefits from a growing awareness of both climate change and years of underinvestment, particularly in water infrastructure. This focus should have a direct positive impact on companies providing water solutions, Justin Winter, water strategy co-manager, tells Andrew Craig, co-head of the investment insights centre. 

Tumultuous geopolitical and economic times may be clouding the prospects for the high-growth renewables sector now, but investors should not lose sight of the longer-term potential of areas such as solar and green hydrogen, Edward Lees, co-head of the Environmental Strategies Group, tells chief market strategist Daniel Morris on our weekly Talking heads podcast. 

Thematicinvesting, which centres on the long-term forces that shape consumer needs and industries, is a way for investors pivot away from traditional 60-40 portfolios to a broad and diversified set of opportunities that can create market-beating returns spanning several generations. 

Investors shell-shocked by the fallout from high inflation, rising interest rates and slowing economies and looking to alternative markets for portfolio diversification and attractive returns might want to consider a relatively young and little known asset class: direct small lending.

While equity markets are feeling the pinch from rising real rates, earnings reports and guidance are yet to reflect the effects of the encroaching recession. This leaves markets vulnerable to a downside correction once the message sinks in.  

Listen to this Talking heads podcast with Edward Lees, co-head environmental strategies group, and chief market strategist Daniel Morris. They discuss opportunities ranging from US infrastructure and securing supply chains for electric vehicle batteries to EV software and residential solar panels. Lees warns that funding support for under-pressure households should target the beneficiaries of high oil and gas prices without jeopardising the capital spending needed to speed up the energy transition.

Listen to this Talking heads podcast with Vanessa Ritter, Head of Global Loans as she discusses the current environment and perspectives for the global loan market. She outlines the current opportunities and rational for investing in this asset class.