COVID-19, inflation, pension reform and China are the four things investors should watch in today’s global income markets, according to Eaton Vance’s co-directors of global income, Michael Cirami and Eric Stein.
They pointed out that the US daily case growth was slowing and beginning to match the world global growth rate which was encouraging news, suggesting that the outbreaks occurring in the south and southeast were under control.
“We are going to be watching whether or not the so-called blue states can sustain their low rates of growth. If they can, we think it demonstrates that all of America can maintain a lower growth rate after having first-hand experience with a sharp spike in COVID cases,” Cirami and Stein said.
When it comes to inflation, investors should be aware that supply chain interruptions led to upside surprises to inflation in countries like Canada, New Zealand, India and even Thailand, which had a current account surplus — meaning that more is being exported than imported into the country, leading to greater demand for the Thai baht.
Although that typically helped to keep inflation under control, we are currently seeing an inflation spike in those countries — even in Thailand and this should be closely monitored going forward, as it would certainly have an impact on investors’ assets.
As far as pension reform was concerned, Eaton Vance’s directors said that in Latin America, there were private and public pensions that owned assets, particularly government bonds.
“Populist governments, particularly in Peru and Chile, have decided to allow individual citizens to access to their retirement funds early. That means the assets need to be sold to fund the consumption or withdrawals that come from early access to those pension plans, which is also placing pressure on the local assets as a policy development,” the firm said.
According to Eaton Vance, the one thing that unified Americans was that 76% have an unfavourable view of China. By contrast, two years ago only 50% of Americans held an unfavourable view with regards to China.
Therefore, the firm cautioned that the presidential candidates would try to out-hawk each other on China topics going into the November election, which may lead to some geopolitical headline risks that disturb the market for the next several months.