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Alternative Market Briefing

Manulife A.M. recommends embracing the volatility

Monday, October 17, 2016

Benedicte Gravrand, Opalesque Geneva:

The authors of a recent Manulife Asset Management report on global economic themes for 2016 and beyond, say they do not expect fiscal stimulus any time soon, and recommend investors embrace the markets’ volatility and uncertainty.

Chief economist Megan Greene said that central bank action had pushed government borrowing costs down significantly; "In January 2015, the total value of negative yielding sovereign debt was US$4 trillion. Now, it's closer to $12 trillion." As they have become dominant fixed income buyers, some central banks could run out of bonds to buy.

However, policy makers may be restrained from turning to fiscal stimulus in the next 12 months, as the rise of an anti-elite, anti-globalization discourse in the Western world "has led to a rise in uncertainty, which is being fed back into economic and political indicators, creating a skittish loop."

Robert Boyda, co-head of asset allocation, added that investors will not get much from fixed income for some time. There will be value, however, "in a much more active, opportunistic, flexible and risk-aware approach." This means, he said, that opportunity will be found in embracing the volatility and uncertainty.

"In a low-growth, low-inflation world, equity investors have flocked to defensive, dividend-paying sectors and stocks that behave like bonds; we believe valuations here reflect too much enthusiasm," he added. "The over-indebtedness that limits gov......................

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