Key global central banks did not set a hawkish monetary policy stance in 2017 and investors will see this trend continue into 2018, according to Citywire AAA rated Omar Slim, fixed income portfolio manager at PineBridge Investments.
‘Our base case scenario continues to be that we will not see a hawkish monetary policy. We expect however the continuation of the trend that started this year, which is essentially a recalibration of monetary policy away from an emergency setting, which is no longer justified,’ Slim noted at a 2018 outlook media briefing held in Singapore.
According to Slim, as a stronger synchronized recovery took hold this year, deflationary fears receded and job markets tightened further.
Central bankers are, justifiably so, calibrating their policy from an ultra-accommodative stance to one which is still accommodative, but not signalling emergency policy measures.
‘However, none of the central banks are saying we are moving [away] from being accommodative to being “hawkish”.
‘When you look at where most policy rates are, you really cannot argue that monetary policy pretty much anywhere in the world, including in the US, is really tight.’
Slim does not expect a spike in inflation, but thinks that this environment is probably the most conducive post the 2008 global financial crisis for inflation to trend up.
‘In Asia, I prefer the investment grade (IG) market rather than the high yield (HY) market, as Asian investment grade remains well anchored with relatively strong fundamentals.
‘It is also less sensitive to interest rate movements compared to the US and other large markets given its lower duration profile.’
Slim believes valuations in the HY market are stretched, leaving very little room for error in an environment of rising yields which is usually not favourable for HY issuers.
Steve Oh, global head of credit and fixed income added that he likes components of emerging market debt, tranches of collateralised loan obligations and more dynamic opportunistic credit.