A lack of stress
Russel Matthews, Portfolio Manager, European bond strategies at BlueBay Asset Management, is one such, pointing out that despite the turmoil in Turkey, an ECB meeting and issues with Italian banks, it was still “a quietish in financial markets”.
Focusing on the Italian banking issues, Matthews said, while Bluebay feels that over the medium-term there will ultimately be a pragmatic solution, “the mood music in the EU capital was not all that constructive”.
“We believe there seems to be a lack of urgency and we have come away with the impression that stress may need to rise somewhat in the near term before a satisfactory outcome is delivered.”
This lack of urgency, he said also seems evident in other areas. “Our mantra has always been that policy makers are likely to be lazy and under deliver if there is no pressure from markets. We have been through two major risk events in the last six weeks (Brexit, Turkey) and risk assets have continued to perform. We expected and anticipated this outcome, but that does not prevent us from becoming uneasy at the level of calm that we are witnessing, and the growing confidence that the market has with policy makers,” he said.
This sentiment was echoed in European Wealth’s latest investment insights note, wherein it pointed out that at the moment, markets remain hooked on the next moves by central banks and said that if it were to sum up equity markets right now, it would be to say that returns look limited while volatility may pick up again. Perhaps sharply.
“This, then, leads us to question whether we should be further de-risking and, if so, how would we do it? To our thinking, the two areas that stand out are our emerging markets and Asian positions. Both have performed extremely well given both market and, particularly, currency movements. There is a growing sense that banking some of this in the short term would be prudent. This is something we will now be exploring in more detail.”
Portfolio Adviser has already explored the difference between the new and the not normal, but equally important is deciding whether or not the remarkable calm in which markets currently find themselves are finally clearing skies, summer doldrums or the eye of a storm.
