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Weekly Investment Research Digest - 7 Sep 2013



September 07, 2013 – Comments (0)

This edition of the Research Clippings Weekly Investment Research Digest features insights features research on emerging market inflation linked bonds, municipal bonds, broader emerging market debt, upside risks to the oil price, the improving global economy, Japan's recovery, some important points on equity portfolio strategy, and some notes on the German election.

Emerging Market Inflation-Linked Bonds - A Primer
This primer on emerging market inflation linked bonds from AXA Investment Management provides an interesting look at this 'emerging' specialist asset class. The emerging market inflation linked bond sector has grown strongly and offers the potential for yield enhancement.

Has the Muni Sell-Off Gone Too Far?
Jack Tierney of Invesco reviews some of the recent developments in the US municipal bond market, and points out that investors may have overreacted to the Detroit bankruptcy; and that the resultant steep discount to NAV in closed-end funds may provide buying opportunities.

The Emerging Markets Debt Evolution
Pioneer investments review the evolution of the emerging market bond asset class, noting how the asset class universe has expanded rapidly (now larger than the US+EU high yield bond markets), and how it has become more diverse; with better issuer quality.

Oil Risks To The Upside
BCA research suggests that oil prices will be flat to higher over the next 6 to 9 months, and that factors such as "product-pull" (e.g. diesel related demand) and capacity reductions due to Middle East tensions present upside risks to the oil price.

Global Manufacturing Growth Edges Higher 
The JPMorgan Global Manufacturing PMI report from Markit showed the global manufacturing sector expanded at a faster pace in August. The key areas of strength were China, the UK, US, Japan, and Europe in particular; while emerging markets were broadly a drag. New orders and output were strong, while input prices also rose.

Japan’s Recovery Remains on Track 
Guy Bruten of AllianceBernstein reviews the Japanese economic recovery and notes that the stimulus driven recovery is still well on track despite a slight disappointment on the June quarter GDP results. Indeed Bruten points to higher frequency data which shows improving sentiment in the manufacturing and nonmanufacturing sectors, a falling unemployment rate, and rising inflation. Thus the recovery appears on track, driven by "Abenomics", and fiscal reforms are likely the next step.

Stocks - Why It May Be Time to Get Selective
This short research note from Lord Abbett points out the recent dip in equity correlations (to the index); and note that it reflects a waning of the risk-on/risk-off regime, and that active portfolio managers tend to perform better when this correlation measure is lower. The theory is that when stocks are not moving together due to macro factors, individual stock selection is more important as the market rewards earnings growth and stock-specific factors.

German Elections - Not as Boring as you Think
Maxime Alimi of AXA Investment Managers details the key issues in the upcoming German elections, how it is not a done-deal, and why it should be of interest for investors. Merkel's CDU/CSU party is the favourite, but exactly the mix in terms of coalitions will impact on perceived receptiveness and commitment to European integration. The risk is a more left-leaning coalition falls into place, which could raise questions and uncertainty for EU geopolitics.

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