NEWARK, N.J.--(BUSINESS WIRE)--Five major global macroeconomic themes could drive financial markets through 2020 as global expansion slowly continues, according to a new Global Insights paper from Prudential Fixed Income, a $560 billion asset management business of Prudential Financial, Inc., (NYSE: PRU) and among the world’s largest fixed income managers.
“The idea of a five-year outlook covering major themes may appear ambitious,” said Arvind Rajan, managing director and head of global and macro for Prudential Fixed Income. “But institutional investors have longer time horizons, so we examined the most important macroeconomic themes that could affect how they build their portfolios.”
In Five over Five, Rajan considers the investment implications of five key trends. “Global growth should continue but at a slow place,” Rajan said. “Over the next five years, credit spreads should remain broadly attractive, especially for financials, structured products and selected high yield. Duration also looks attractive in certain developed and emerging currencies.”
The paper outlines the following themes:
A multi-speed world: G10 and emerging markets splinter into medium and low growth camps. Asynchronous growth should continue for several years, which is a healthy phenomenon that allows the global economy to avoid coordinated booms and busts as it slowly expands.
Cyclical and quantitative “reflation” battles secular deflation, but ultimately loses the war: Secular disinflationary forces including an aging population, high indebtedness, technology and economic inequality should hold reflation in check, creating a long-lasting, but volatile and uneasy low interest rate equilibrium.
Liquidity and credit—scarcity amid abundance: While investors fear the kind of liquidity withdrawal experienced in 2008, the higher probability is that markets will see episodic, moderate losses of liquidity, especially in single sectors of such asset classes as high yield. That environment should give active investors an opportunity to take advantage of price dislocations.
Commodities—divergent supply and demand dynamics ahead: After becoming accustomed to rapidly rising—then plummeting—commodity prices, investors may find themselves surprised by range-bound prices going forward. Also, commodities will likely follow global demand rather than lead markets over the next five years.
Lurching toward a multi-polar world: As U.S. influence wanes, the world is expected to continue to reshape old alliances and create new ones as its problems grow too complicated to be managed by a single superpower. Against that backdrop, serious geopolitical threats from cyber attacks, terror attacks and regional tensions in the Middle East, North Korea and elsewhere could significantly roil markets and test global political leadership in the coming years.
For a copy of the report, you may download a copy at Prudential Fixed Income’s website. This outlook, which is for informational purposes only, sets forth Prudential Fixed Income views as of this date. The underlying assumptions of these views are subject to change.
Prudential Fixed Income, with $560 billion in assets under management as of March 31, 2015, offers institutional investors needs-based solutions across all fixed income markets, with a focus on credit strategies and liability-driven investing. The company has portfolio management and research teams in Newark, N.J.; London, Singapore and Tokyo. For more information, please visit http://www.prudentialfixedincome.com.
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