Hong Kong, January 22, 2020—Manulife Investment Management today released its biannual Global Intelligence report, a firmwide outlook highlighting notable perspectives from its private and public markets investment teams. In the new report, Manulife Investment Management draws attention to Asia and believes the region remains attractive, particularly within emerging markets, amid the economic slowdown that’s expected to continue and hit a trough later this year, and likely followed by a gradual recovery.
The report also reviews the negative-yielding debt landscape in the investable fixed-income market in detail and asserts that asset managers need to consider certain strategies, including: taking advantage of their global footprint, adopting a nimble approach, and demonstrating acumen across a wide range of less traditional and fundamentally active strategies to help generate positive returns.
According to Sue Trinh, managing director of global macro strategy at Manulife Investment Management, Asia’s expected growth rate of 5.1%1 in 2020 continues to incite envy in the developed world. Asia also occupies the quality end of the emerging-market universe, making it more appealing to investors, however it’s not immune to the global economic slowdown.
“Asia remains an attractive region, but its economic downturn has yet to hit a bottom," said Ms. Trinh. "The stubbornly low economic growth and subdued inflation leave markets vulnerable to a reversal in sentiment, and we expect a prolonged bottoming-out process with only a gradual recovery. As the world’s growth engine, the path to Asia’s economic recovery has enormous relevance to investors, but recovery is constrained by numerous headwinds to growth and governments’ ability to continue with monetary policy.”
Detailed views on Asia’s economic growth path
Negative-yielding debt represents a sea of change in the investable fixed-income market, creating undesirable knock-on effects for investors, banks, and policymakers alike. "We have now officially entered an alternate fixed-income reality," said John F. Addeo, CFA, global CIO of fixed income at Manulife Investment Management. “The incapability of traditional monetary policy, including near-zero rates, in stimulating economic growth is the primary driver for negative yields, in our view.”
Beyond policy rates, ongoing quantitative easing by central banks is driving the prices of longer-dated bonds and pushing down yields. Moreover, investors’ demand for income is bidding up bond prices as well.
“A stunning 22% of the Bloomberg Barclays Global Aggregate Bond Index carried a negative yield in November. This was led by the index’s sovereign allocation, of which 31% was negative yielding2. Investors should expect low-to-negative rates to persist for some time, though,” continued Mr. Addeo.
“The lower-for-longer scenario may persist, as inflation rates remain stubbornly below policy targets across many developed markets, with massive debt burdens, globalization, aging demographics, and technology-related price deflation all applying downward pressure. Fixed-income managers will require more tools at their disposal in generating income.”
A global research footprint will be crucial in finding opportunities in the era of negative yields. A global network with local teams in market, capturing development firsthand and in real time, will lead to better decision-making and more effective risk management. Finally, a capital structure agnostic view, an openness to high yield underpinned by strong fundamental research capabilities, and a readiness to take advantage of emerging-market debts and preferred securities are possible ways of finding income.
Detailed views on fixed-income challenges and opportunities
As environmental, social, and governance (ESG) trends are changing companies’ business models and regulators are pushing investors to think through issues such as the impact climate risk has on their portfolios, bondholders are becoming more vigilant in accurately measuring and managing these implications.
“Market interest in sustainable investment in Asia is rapidly growing," said Keisuke Tsumoto, head of fixed income, Japan, Manulife Investment Management. "In Japan alone, assets owned in sustainable investment strategies quadrupled between 2016 and 2018, making the country the world’s third-largest sustainable investing markets.”3
However, despite the improvement in corporate disclosure on ESG issues in Asia, datasets remain incomplete and inconsistent. This, in turn, presents a broad opportunity for actively managed sustainable Asian fixed-income strategies.
“Against a backdrop of sometimes conflicting and evolving paradigms for issuing and investing sustainably in Asian assets, stakeholders must conduct careful and collaborative due diligence to avoid muddled results,” added Murray Collis, head of fixed income, Singapore, Manulife Investment Management. “We believe active research and engagement are vital to identifying true areas of ESG risk and opportunity, developing cogent strategies for mitigating or capturing these factors, and strategically integrating these issues into investor portfolios.”
Detailed viewpoints on ways to identify sustainable investment opportunities in the Asian fixed-income space, and case studies from Japan and Southeast Asia on how engagement can be a useful process
Manulife Investment Management is the global wealth and asset management segment of Manulife Financial Corporation. We draw on more than 150 years of financial stewardship to partner with clients across our institutional, retail, and retirement businesses globally. Our specialist approach to money management includes the highly differentiated strategies of our fixed-income, specialized equity, multi-asset solutions, and private markets teams—along with access to specialized, unaffiliated asset managers from around the world through our multimanager model. Our personalized, data-driven approach to retirement is focused on delivering financial wellness in retirement plans of all sizes to help plan participants and members retire with dignity.
Headquartered in Toronto, we operate as Manulife Investment Management throughout the world, with the exception of the United States, where the retail and retirement businesses operate as John Hancock Investment Management and John Hancock, respectively; and in Asia and Canada, where the retirement business operates as Manulife. Manulife Investment Management had CAD$854 billion (US$652 billion) in assets under management and administration.* Not all offerings are available in all jurisdictions. For additional information, please visit our website at manulifeinvestmentmgt.com.
* MFC financials. Global Wealth and Asset Management AUMA as of September 30, 2019, was CAD$854 billion and includes CAD$195 billion of assets managed on behalf of other segments and CAD$140 billion of assets under administration.
United States and Europe
1. “Regional Economic Outlook: Stunted by Uncertainty,” IMF, October 22, 2019.
2. Bloomberg, November 2019.
3. Global Sustainable Investment Alliance, 2018 Global Sustainable Investment Review..
4. “U.S. Outsourced CIO Function 2018: Increasing Competition and Service Customization,” Cerulli, 2018