News & Commentary
• Economic slowdown: does it present headwinds for value investing? • Targeting sustainable dividends is key to outperforming the market
Turkey’s economic problems and escalating tensions with the United States have dominated the headlines in recent days, causing a spike in risk aversion among investors globally and knocking confidence in emerging market (EM) assets. In the middle of this turmoil, NN Investment Partners (NN IP) has reduced its equity exposure to neutral. The Multi Asset team has also identified other factors than the Turkey crisis that may weigh on equity markets going forward, including a fading support from earnings momentum, weak sentiment, flow and technical indicators and other geopolitical risk factors like trade policy and the Italian budget discussion.
• The recent market correction was associated with increased value in Frontier Markets Debt (FMD) while the fundamentals remain strong. • In the very short term, NN Investment Partner (NN IP) remains cautious given headline risks and the prospect of a more challenging technical backdrop towards year-end. • After a strong snap back we continue to look for positive FMD returns on a six to twelve month horizon, with clear potential for strong idiosyncratic investment cases, in particular in some African states such as Ghana and Egypt.
Improving market dynamics, including better investor sentiment, low positioning and positive price momentum, means the chances of a major equities correction of 10%-plus are low. The likelihood is lessened further by strong corporate fundamentals, as demonstrated by one of the best US earnings seasons in Q2 of the past years; good macro data pointing to consolidation at a healthy level; gradual and predictable central bank policies; and the start of targeted Chinese easing to counter the growth slowdown and negative trade impact.
• Chinese authorities continue to push for deleveraging of the economy • High-yield property developers are affected by tight funding conditions • We prefer debt issued by larger property developers with strong liquidity profiles
NN Investment Partners (NN IP) has again received the top score for its excellent Strategy & Governance approach to responsible investing and ESG integration. The A+ score was awarded by the Principles for Responsible Investment (PRI), underlining NN IP’s performance. NN IP has been a signatory of the United Nations-supported PRI since 2008, and has been active in responsible investing since 1999.
Europe’s High-Yield Bonds market will soon present a strong entry point to investors with yields of approximately 4% on offer following re-pricing in recent months caused by new issuance, trade war fears and turbulent Italian politics, according to NN Investment partners (NN IP). Re-pricing in the market has seen yields rise from below 3% since the end of last year.
In the second quarter of 2018, NN Investment Partners (NN IP) saw a significant increase in the management of green bond portfolios. Assets under management increased from EUR 20 million in 2016 to approximately EUR 900 million in July 2018 and is expected to grow rapidly to over EUR 1 billion.
• Compensation for illiquidity in private markets under pressure from over crowding • Trade and export finance markets offer an attractive alternative source of return • Monetising operational complexity in low credit-risk assets and access stable levels of illiquidity compensation can be beneficial for investors
• Near-term indicators for the global economy are positive; consumer spending rebounds and capex is supported by rising profits and strong confidence • Even if the environment looks supportive for risky assets, several risk factors linked to trade and Eurozone politics may temper investor sentiment • Equities receive support by earnings growth, an attractive risk premium and cautious investor positioning • The risk/reward equation has deteriorated, better diversification into new alpha sources is key. Opportunities exist in Multi Asset Credit solutions, Short Duration Emerging Markets Debt, Frontier Markets Debt, Alternative Credit, Sustainable Equity, Factor Investing and Convertibles