Weekly Webinar Series
Recorded on March 27, 2020
- China’s industrial production is rebounding faster than expected.
- Q1 GDP in China could decline 7% to 13% but should increase 5% to 9% over the balance of this year. That would mean 2020 GDP would be slightly positive.
- China is using its version of monetary policy, including easing reserve requirements among financial institutions, and implementing limited fiscal policy measures, to avoid mass unemployment.
State of Fixed Income Markets
- Trading activity across all fixed income markets is improving. The Fed is purchasing a significant amount of Treasuries. That’s important in unlocking fixed income markets.
- Primary markets are reopening, particularly in investment grade. The week of March 23–27 saw U.S.$99 billion of new corporate issuance, a one-week record, bringing 2020 issuance to U.S.$400 billion.
- The best-quality companies are shoring up their balance sheets and investors are taking advantage of more attractive pricing for BBB and A-rated securities.
Fiscal and Monetary Response
- A global recession is almost a certainty, but we don’t know how deep or protracted it might be.
- The size of the measures of global fiscal response could be 2.6% of global GDP, compared with 1.7% during the Global Financial Crisis in 2008–09.
Are We Nearing a Bottom and What are the Opportunities?
- We will get a good sense in April from Q1 earnings guidance and economic data.
- Recent better performance doesn’t suggest markets are repaired. Recoveries can take years.
- Valuations in high yield and floating rate are compelling and these asset classes are much higher quality than they were going into the GFC.
- We recommend upgrading quality. There’s no need to take balance sheet risk as many great companies have sold off.
- We need to stay focused on fundamentals and remain invested because when the recovery comes, it is likely to come very sharply.
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