A Return to Fundamentals

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  • 03 mins 53 secs
Markus Schomer, CFA, Managing Director, Chief Economist of PineBridge Investments, discusses his view on what to expect during the second half of the year, global growth expectations, his top three macro-economic concerns going forward and what convergence between emerging and developed markets could mean for investors.

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PineBridge Investments

PineBridge

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After having spent much of the first half of this year listening to a lot of noise events, like the political crisis in Italy, beginnings of a trade war with the US, none of which so far have any impact on fundamentals, I think investors should expect a return to those fundamentals in the second half. And those fundamentals still look very healthy, and we still expect strong growth to be the main story that we’ll focus on in the second half of the year.

We expect stronger growth to come through in the second half of the year. We may have started the year on a slightly weaker footing, but the fundamentals remain strong, whether that’s in the developed world or in the emerging markets, and we should be able to see that in stronger growth rates for the rest of the year.

The biggest concern I have for the next 12 months are central bank policy tightenings, and in particular here the risk of policy errors of central banks overdoing it and raising rates too much. I think it’s a particular risk in the US, but it also applies to other parts of the developed world where central banks are thinking about raising interest rates. The second concern I have is the continued weakness in overall wage growth, not just in the US but also in Europe and in most parts of the developed world. I think this is a new feature in this business cycle that despite low unemployment rates, companies seem to unwilling to raise overall wages. And that shuts off consumption as the next leg in this business cycle. The third concern I have regards trade policies around the world. So far it is more of a trade spat I would say. It has not reached the level where business investment around the world is affected, but there clearly is a risk that at least business sentiment is weakening, and companies are postponing investment decisions, and that will start to weigh on overall global growth. So those are the three main concerns: central banks, wages and tariffs.

From a macroeconomic perspective, what I focus on is the convergence in economic policies, and the fact that many emerging markets have learned from policy making in the developed world and introduced best practices into their policymaking, whether its fiscal or monetary policy. And overall that makes emerging markets a much safer bet today than if you look back at the ‘90s or ‘80s.

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Last updated 6 March 2017.

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