Investors looking for the best opportunities in the global bond market should look at bonds in the Asia-Pacific region, which have held up better than most of the developed world, according to Natixis Asset Managers’ chief market strategist, David Lafferty.
However, he stressed that this strength was a bit misleading and not broadly represented.
According to Lafferty, the Japanese bond market proved to be more resilient against rising rates than most other Asia-Pacific markets.
“Like the US and Europe, few Asian bond markets look attractive on an absolute basis as the combination of low starting yields with rising rate pressures will lead to modest returns at best,” he said.
At the same time, investors with a higher tolerance for risk should look at India, where yields remained attractive while growth was solid.
As far as the global equities markets were concerned, Lafferty pointed to the US where the market was looking to earnings in 2019-20, after the tax cut effects had dissipated.
“We believe global equities will grind higher on the prospect for solid earnings growth over the next six to 12 months,” he said.
“For the near future, equity investors may be caught in the middle between upside fundamental support (solid economy) and constrained valuations capped by higher rates, inflationary undertones, and less central bank liquidity.”
On the question of the economies most likely to give cause for concern, Lafferty pointed to the UK as “the country that bears the greatest scrutiny today.”
“The post-referendum macro performance of the UK has been mixed at best – not great but better than many expected. However, investors could be in for a rude awakening if Britain crashes out of the euro area without a reasonable deal or transition period,” Lafferty said.
