MAS names sustainability head; Malaysia’s EPF appoints COO and CFO; GIC PE head for SEA leaves; State Super hires new exec; Hesta appoints chief growth officer, chief Debby Blakey appointed to corporate governance board; ex-BlackRock exec joins IQ-EQ in Singapore; HSBC AM builds direct real estate team; ex-Vanguard head of distribution joins LGIM; Sanne names Singapore head; and more
In an interview with AsianInvestor, Bill Gross, managing director and CIO in Newport Beach, California, says, "US Treasuries are totally overvalued," noting the current 375 basis point yield for 10-year US Treasury bonds is unlikely to last in the face of rising inflation.
The June edition of AsianInvestor magazine will provide an in-depth analysis of how US portfolio managers are positioning themselves as the financial system nears the end of the credit crunch, and the implications for returns on investment for global investors.
Pimco was among a handful of bond investment firms that overweighted Treasuries in the run up to the US housing-inspired credit crisis that begun last summer. Since then a flight to quality has driven many investors to Treasuries while the US Federal Reserve has sharply eased monetary policy û moves that Pimco predicted early.
Now Gross thinks that recent undertakings by the Fed and the US Treasury Department to support the housing market will bear fruit, and while this doesn't suggest the US homeowner (and consumer) can expect a return to pre-2007 conditions, he expects the economy will barely avoid a recession.
That should give the Fed room to eventually raise interest rates, which it needs to do as inflation becomes a bigger threat. The current 2% level for the federal funds rate is negative in real terms, and although the Fed could cut it further, the consequences for the dollar and for inflation could be severe.
That would be good news for policymakers in Asian countries including China, which have effectively adopted this loose monetary policy through fixed or managed exchange rates. Low US interest rates are therefore feeding inflation in Asian and other emerging-market economies, at a time when many Asian countries also suffer from rising prices in commodities as well as marginal increases in labour prices.
The Fed's ability to raise interest rates depends on the US housing market, says Gross. If a number of policies and legislative measures to boost liquidity in the financial system, ease access to credit and avoid mass foreclosures on home ownership are implemented, then housing prices should stabilise, and Pimco's new bets on spread products will pay off.
If not, however, then the Fed could be forced to keep short-term rates at 2% well into 2009, which threatens to undermine the dollar and will accelerate global investors' desire to find alternative channels of investment.
But Pimco has decided it looks like housing prices will stabilise and mass foreclosures will be prevented, and has therefore begun to move away from expensive Treasuries into high-quality credit institutions, particularly financials that should survive the crisis.
The Fed's act as midwife to the liquidation of Bear Stearns, the United Kingdom's nationalisation of Northern Rock and other policy decisions (including providing investment banks with access to the Fed's discount window) have expanded the net of government protection beyond commercial banks. Pimco considers financial institutions such as AIG, Wells Fargo and Bear Stearns-cum-JPMorgan as 'money good' and their ongoing issuance of bonds to recapitalise now offer yields far more attractive than US Treasuries.
The AU$85 billion ($61.6 billion) Australian super fund has some exposure to indebted property developer Evergrande. Meanwhile, China’s construction finance is part of its core strategy in real estate.
Investors are seeing the risks, but also the opportunities of the logistics sector. Warehousing their fears for the moment, they can see it's a good conduit to high-growth assets.
Insto roundup: GPIF staff say J-Reits more attractive than traditional assets; Hong Kong's strict Spac criteria
EISS Super hit by another scandal; China's CSRC launches consultation on disclosure requirements for new BSE securities; Hong Kong issues consultation paper on Spacs; New World Development partners with China Taiping to focus on Greater Bay Area projects; GPIF employees say Japanese Reits have grown more attractive; Taiwan's BLF invites bid for $1.7 billion mandate; and more
SGX’s new framework for Spacs will likely provide investors with a much-needed channel for direct deals, but the verdict is still out on whether it will bring liquidity to the bourse.