Notes from J.P. Morgan's Pension Blog - The Show Must Go On!
A recent posting on our blog offered a guest opinion from Portfolio Manager Nicholas Gartside of J.P. Morgan Asset Management.
Well, well, more of the same? A quick look back over the year reveals a consistent pattern. Yet again markets, economies and returns have been dominated by the actions of policymakers and officials.
Prime Minister Abe set the tone early in the year, throwing down the gauntlet: can 3 arrows = 2 in 2 (i.e., two percent inflation in two years)? Well, the jury is still out, but it seems to be pretty clear that a plan B is not in sight and the question is what Japanese officials would have left to do once a problem emerges.
In similar fashion other policy makers have become increasingly assertive as they recognize they have to get consumers spending again. Whether it's the British Government's Help to Buy scheme, Governor Carney's adoption of forward guidance or the ECB's recent interest rate cut, the message is the same: we have more tools and we'll deploy them until consumers get traction.
What does this mean for markets? Well, our forward-looking quantitative models now suggest GDP surprises to the upside even in peripheral Europe, and it's difficult to see government bonds rallying much more from current levels. Equally well a large, uncontrolled sell-off is in nobody's interest as the subsequent increase in the cost of capital could be corrosive for economic growth.
This is an environment where there's no need to panic. The tension between a gradually improving economic backdrop and policy activism will keep market moves contained. Scouring international bond markets, there's also plenty of opportunity. A theme for 2014 is that the bond show will continue, but it is likely to be the year of the security selector. Quality and resilience are likely to be rewarded over vulnerability, and there are plenty of opportunities in government, corporate and emerging market bonds.
Excerpt from a recent posting. To learn more or to comment, please visit www.jpmorganpensionblog.com. Note: the J.P. Morgan Pension Blog is a secure, online community for pension fund trustees and managers.