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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Here's why investors like Warren Buffett don't like gold as an investment – CNBC
But not all investors are in love with gold. Warren Buffett has spoken out numerous times on his doubts, calling it an asset with “no utility.”
“It doesn’t produce anything and that’s why from a long-term perspective, it’s a hard asset to invest in,” Odyssey Capital Advisors chief investment officer Jason Snipe said. “It’s prudent portfolio management to have maybe a small allocation there but this is not an asset that you want to be heavily entrenched into if you’re looking for long-term yield.”
Since 2011, the S&P 500 has returned more than 16% on an annualized basis. The annualized return for the 10-year Treasury note sat at just over 2% in that time period. Gold, meanwhile, has fallen slightly over the past 10 years.
“Early on, you see strong performance, strong return or yield from commodities such as gold. Generally, as we move into a different cycle, gold is not as great a performer as we move into a normalized environment,” Snipe said.
Whether gold is an effective hedge against market volatility is also widely debated among experts.
“Gold is not necessarily a perfect hedge against inflation but it can be a strategic hedge against inflation,” according to Suki Cooper, executive director of precious metals research at Standard Chartered Bank.
“Various studies have shown us that if gold is held for 12 to 18 months before inflation takes higher and then it’s held for an additional 12 to 18 months while inflation moves higher, it can be a good inflation hedge,” Cooper said. “But if it’s just bought for a short period, let’s say a month, it may not prove to be an effective inflation hedge.”
Watch the video to find out more about how gold performs as an investment.
Ontario supports investment of $31.5M in Wellington, Perth county businesses – CTV News London
London, Ont. –
Ontario supports $31.5 million surge within the Southwestern Ontario economy with $2.6 million being invested in Wellington County through the Regional Development Program.
The investment by Wellington County manufacturers, which will build on domestic manufacturing is being supported by the Ontario government, will help to create 71 jobs and retain 150 jobs.
“Through the Regional Development Program, our government is making targeted investments in local manufacturers to help them create good, local jobs,” said Vic Fedeli, Minister of Economic Development, Job Creation and Trade in a statement.
“These projects are making a significant impact in communities and economies across the Wellington County region and Southwestern Ontario by helping to secure the private-sector investment that will support strong regional growth.”
The investments are as follows:
- Weberlane Manufacturing is investing $4.8 million to build a new 115,000 square foot manufacturing facility in Listowel.
- Nieuwland Feed & Supply is investing $16.2 million to consolidate its production facilities as well as build a second feed mill on the property.
- Bold Canine is investing $6.5 million to expand and renovate its facility, purchase equipment, and invest in research and development.
- Wellington Perforated Sheet and Plate is investing $3.9 million to develop new products, and produce more steel parts in-house.
The Regional Development Program for Eastern and Southwestern Ontario was launched by the government in November of 2019.
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