Register to get unlimited access to all of Citywire’s fund manager database. Registration is free and only takes a minute.

GSAM expert: four investment strategies to watch

Philip Moffitt is underweight US rates, while neutral on European and Japanese rates.

Markets outlook

Against the backdrop of gradually strengthening US economic data, Goldman Sachs Asset Management is positioned for continued strength in the US dollar and is underweight US rates, Philip Moffitt, head of fixed income, Asia Pacific, at the firm noted in a Global Fixed Income Weekly commentary.

Moffitt said there was also stronger activity and inflation data from China, including a rise in producer price inflation to 5.5% year-over-year in December, and an increase in the Caixin manufacturing index to the highest level since January 2013, supported the firm’s relative value positioning over the week.

In this gallery, Moffitt outlines four investment strategies that the fixed income team has been looking into and how the team has positioned its portfolio against the current economic backdrop.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

US, European and Japanese rates

Moffitt is underweight US rates and neutral European and Japanese rates.

‘Although the rise in US Treasury yields has moderated into the New Year, we expect yields to continue on their upward trajectory, provided financial conditions remain contained,' he said.

‘US non-farm payrolls indicated 156,000 new jobs in December and the unemployment rate rose slightly to 4.7%.

‘Wage growth accelerated to the fastest pace since 2009, with average hourly earnings rising 2.9% year-on-year, further supporting rising inflation expectations and the possibility of a Fed rate hike in March.'

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

German, Australian, Canadian rates

In terms of countries, Moffitt is overweight German, Canadian and Australian rates. Meanwhile, he is underweight UK real yields.

‘Unlike the US economy, where rising inflation reflects a strong labour market and prospects of higher growth, the recent rise in German and broader euro area inflation is largely due to an increase in oil prices,’ said Moffitt.

‘We expect monetary policy divergence between the US and Europe to continue throughout 2017 and we are overweight German rates versus the US.’

‘We are also overweight German rates versus the UK. Rates in the UK have outperformed and we expect this to reverse on forthcoming supply and the likelihood that the Bank of England’s quantitative easing program nears its end in the coming months.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Currencies

When it comes to currency, GSAM is positioned for the US dollar to strengthen versus G10 currencies and a basket of Asian currencies he considers vulnerable to a slowdown in Chinese growth, according to the head of fixed income.

‘Currency volatility over the week was centred on the offshore renminbi, which appreciated 2.6% versus the US dollar over a two-day period. The currency rebounded from the lowest level since its launch seven years ago to its strongest level since November 2016.’

Furthermore, a combination of tighter controls on capital leaving China, limited liquidity and seasonal factors are thought to have been behind the sharp move, according to Moffitt. ‘The rise checked the pace of the US dollar’s recent ascent versus currencies such as the Japanese yen,’ he said.

‘The US dollar resumed its upward trajectory versus G10 currencies on Friday, following the release of positive US economic data, which included the employment report and ISM manufacturing index reading, which rose to a two-year high.’

‘We continue to be positioned for US dollar strength, in particular versus a basket of Asian currencies that we think are vulnerable to a slowdown in Chinese growth.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Value positioning

Moffitt holds relative value positions based on divergence in financial conditions, and in currencies versus rates and commodities.

‘Key data impacting our cross macro positions over the week included the US payrolls report and stronger activity and inflation data from China,’ he said.

‘The British pound’s weakening on uncertainty over Brexit negotiations continues to support our trades based on looser UK financial conditions versus Europe and the US.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Asia Retreat 2016

    Citywire Asia Retreat 2016

  • Citywire Asia Retreat 2016

    Citywire Asia Retreat 2016

  • Citywire Asia Retreat 2016

    Citywire Asia Retreat 2016

  • Citywire Thailand 2016

    Citywire Thailand 2016

  • Citywire Thailand 2016

    Citywire Thailand 2016

  • Citywire Thailand 2016

    Citywire Thailand 2016

  • Citywire Hong Kong 2016

    Citywire Hong Kong 2016

  • Citywire Hong Kong 2016

    Citywire Hong Kong 2016

  • Citywire Hong Kong 2016

    Citywire Hong Kong 2016

  • Citywire Singapore 2016

    Citywire Singapore 2016

  • Citywire Singapore 2016

    Citywire Singapore 2016

  • Citywire Singapore 2016

    Citywire Singapore 2016

  • Citywire Singapore 2015

    Citywire Singapore 2015

  • Citywire Singapore 2015

    Citywire Singapore 2015

  • Citywire Hong Kong 2015

    Citywire Hong Kong 2015

  • Citywire Hong Kong 2015

    Citywire Hong Kong 2015

  • Citywire Asia 2014

    Citywire Asia 2014

  • Citywire Asia 2014

    Citywire Asia 2014