Investing in infrastructure: Part 1
This two-part series examines the expanding capital requirements for infrastructure globally as developed markets confront ongoing replacement needs, and the urbanization of emerging markets place additional stress on the existing foundation. This first part looks at sources of funding, and the second part will explore what this macro trend may mean for investors.
Infrastructure is the backbone of every economy, providing essential public services such as water supply, energy and mobility. And for investors, infrastructure also has the potential to provide unique benefits.Read More
Current risks highlight the need for professional credit selection
The changing tides of today’s global macro environment remind me of a recent family trip to the Florida coast. As the sun began to fade one late afternoon on our trip, the once-mighty waves died down, and the water’s edge crept further and further away from our beach chairs planted in the sand. Much to my children’s delight, the receding tide exposed numerous live shells on the sandbar, which suddenly became vulnerable in their new environment.
Like those shells, I believe global changes are exposing some vulnerabilities for investors in certain sectors. For example, a decade ago, a weak US dollar and rapidly growing emerging markets acted as a tailwind for investment in basic materials companies. A construction boom in China was driving prices higher for nearly all commodities.Read More
Despite the apparent risks, the US equity market is pricing limited risk from China
The Chinese equity market has declined sharply over the past month, with the Shanghai Composite Index off 34.9% from its June 12 high to a July 9 low.1 This decline is on par with the 1987 US stock market crash, but has yet to reach the depths of the 2007 sell-off in China or the US financial crisis of 2007 and 2008. The steep drop has touched off fears that the Chinese economy will suffer an adverse wealth effect and a material slowdown in growth — and we’re already seeing signs of such a slowdown:
- Audi recently indicated it was abandoning its Chinese sales target, noting weaker demand, while Jaguar Land Rover cut prices and its sales target due to slowing demand. 1
- Bloomberg ran a story on July 16 highlighting forced real estate sales to meet margin calls. A broker from Centaline Group was quoted as saying the stock market decline had delayed or terminated home purchases.1
- Chinese consumers are leveraged to the equity market. Margin debt outstanding is elevated at 918 billion yuan. That is about double last year’s level and is putting pressure on consumer balance sheets.1 How does it get repaid?
- Income growth and the Chinese labor market are both softening. Per-capita disposable income expanded 4.75% on a year-over-year basis in the second quarter — well below China’s 10-year average of 11.5% — while the ratio of jobs-to-applicants declined to 1.06 in June, down from a peak of 1.15 in December 2014.1
Does China matter?Read More
Understanding a manager’s process and philosophy gives necessary context to backward-looking data
Choosing the right fund manager is an important decision for investors, and many rely on data screens to help them sift through mountains of performance numbers. But screens alone don’t tell you the whole story — to get a clear view of how a fund might fit into your portfolio, you also need a window into the mind of the manager.Read More
We examine the headwinds and opportunities in the asset class for the remainder of 2015
The size of the emerging market (EM) corporate debt market has grown significantly over the last decade. The asset class has also been resilient to some recent price declines brought on by a strengthening dollar and slowing emerging market economies.
The Invesco Fixed Income Emerging Market Debt team believes a well-allocated portfolio of emerging market corporate debt can potentially generate attractive returns though the end of 2015 because of its income potential and the prospect of capital gains.Read More
A sharp reversal in May and June has resulted in the highest discount levels in some time
“Markets climb a wall of worry.” That old saying certainly pertains as the second half of 2015 begins with a litany of potential portfolio worries — debt problems in Greece and Puerto Rico, timing of the Federal Reserve’s (Fed) first rate hike, the direction of the dollar, the price of oil and, of course, global unrest. Not to make light of these concerns, but as Saturday Night Live’s Roseanne Roseannadanna famously said, “It’s always something!” So true, in life, as well as in investing.Read More