Investment

Timing is good for emerging market sovereign bonds – Investment Executive

Published

3 years ago

September 7, 2021

Sovereign bonds in emerging economies like South Africa and Mexico could outperform those of developed economies over the next year, says Anujeet Sareen, a portfolio manager with Brandywine Global Investment Management.

Sareen, portfolio manager for Brandywine’s global fixed income and related strategies, said certain developing nations could lead the bond market as world economies return to normal following pandemic-induced strains.

“Where are the places to invest? I am still going to return to emerging markets, local emerging markets bonds, particularly in countries like South Africa and Mexico,” he said.

“We want to invest in countries that have higher real interest rates than others,” he said. “The less you’re being compensated for inflation risk, the less attractive it is to own those bond markets.”

South Africa’s annual inflation rate has fallen steadily since 2016 and was 4.6% for the month of July. Meanwhile, Sareen said, 30-year bonds are offering 10.5% or 11% return.

“That is a lot of excess yield above the run-rate of inflation,” he said. “Investors are being well compensated to own those bonds.”

While he said that the country has “some significant challenges” with regard to long-term fiscal debt, president Cyril Ramaphosa is taking steps to address those concerns.

“So, that’s a bond market that we think is really worth considering at this stage,” he said.

Similarly, Mexico has a fiscally conservative leader in Andrés Manuel López Obrador, who is guiding the economy well and creating opportunities for investors, Sareen said.

The window for developed-economy sovereign bonds, on the other hand, has closed.

“The bond markets that we are avoiding are the higher-quality government bond markets that you are mostly looking to hold during times of economic stress. We’re not in that kind of a period anymore,” Sareen said. “The opportunities that presented themselves last year have diminished.”

He said negative nominal and real interest rates in some developed markets have steered investors in different directions.

Those bonds are “just fundamentally unattractive assets because your starting point — the yield — is already telling you you’re going to lose money over time,” he said.

The prognosis for many developed economy sovereign bonds is uncertain due to concerns that inflation could be more protracted than optimists are suggesting. He said those who believe inflation is transitory are downplaying the effects of massive government stimulus spending in the past 18 months.

“We printed a lot of money this past year and a half. Because central banks pursued quantitative easing policies back in 2009–2011 that did not lead to inflation, there is a sense today that it’s not going to do so again. It just doesn’t create inflation. We would disagree,” he said. “Don’t think that monetarism is dead. It is still alive, and I think we’re going to get a taste of that over the coming year.”

Sareen said the main reason we didn’t see runaway inflation after the Great Recession was because banks were crippled with their own accounting problems and stopped lending money. That is not the case this time around.

“There is scope, we would argue, for a bit higher inflation,” he said. “We’re not talking about runaway inflation but maybe something a little less sanguine than what central banks expect.”

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

1 week ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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