Market Volatility and Opportunity in Fixed Income

What is your take on the current situation in China?

I think there's a few things going on in China at the moment. I'm going to summarise it in three broad themes. So first of all, they're going through a structural long-term change. You know, they're trying to become more international, open up their capital account, become more just generally open to the world. That's the first thing. The second thing happening in China is a growth slowdown, so I would characterise the growth slowdown as moderate. It's going from around seven to maybe five to six percent, but still significant. I'd say the third thing that's happening in China at the moment is just a general lack of understanding, people invested in different asset classes recognising that China is having an effect on their investments and investors really just don't understand China sufficiently.

What other factors are influencing markets at the moment?

To my mind China is really one element of a number of things happening in the world at the moment. To my mind we've gone from a period of almost perfect certainty to a number of very large changes have happened in the world. So, the Fed used to have rates at zero and they always would do. That's changing. China used to have a fixed currency regime. That's changed. Iran used to be a separate part of the world. Now it's coming back into the global community. Those are just a few examples, so a lot of big things are changing which is causing ramifications through financial markets, particularly through volatility. In summary when things change uncertainty grows, there should be high volatility, and I think we're just living through that change.

What kind of opportunity are you seeing in the current environment?

So what we’re seeing in the market at the moment – divergence, desynchronisation I think is another way to put it. So, I’d look at it from two sides: so, from a global, country level, you’ve got potentially the Fed raising rates while other countries are still cutting rates. So if you look across the whole of 2015 you have almost as many central banks have cut rates as have hiked this year. So that just goes to proves that there’s a massive divergence in monetary policy. Again that creates an opportunity at the currency and interest rate government bond level.

Then at the same time within the credit markets, again I think there’s a lot of differentiation happening. So, the obvious one to point to is the oil or mining industries. You know they’ve suffered as oil prices, commodity prices have fallen, fallen down. But there are also changes going on in other credit markets. There’s a big change going on in the cable market in the US, again creating dispersion of potential outcomes for different companies and again I think those are the sort of opportunities that active investors should be looking for.

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