In the April issue of ‘Perspectives’
Interesting times for China, some scepticism about the recent market rebound, and prospects for private equity investing are some of the themes in the April edition of 'Perspectives', out now in English
In the April issue of Perspectives, Christophe Donay, head of macroeconomic research at Pictet, argues that the Chinese fiscal and monetary authorities still have plentiful resources to ensure that China achieves a growth rate of 6.5-7.0% this year and next. But China will sooner or later face Donay’s version of a ‘financial trilemma’ stemming from its impossible aim to liberalise the exchange rate, control rates across the entire yield curve and regulate the growth of credit—all at the same time. Failure to achieve one or other of these objectives could sap confidence in China and eventually lead to a ‘Minsky Moment’—with dire consequences for the global economy.
Also in April’s Perspectives, Pictet economists review prospects at a delicate moment for the global economy. Recent data out of the US has been largely upbeat, and they still expect US GDP growth of 2%. There are also signs of a modest rise in growth in Europe, thanks to improving sentiment and an ECB-inspired recovery in bank lending. But investor confidence globally has not fully returned. Expectations for corporate profits have plummeted, especially in the banking and energy-related sectors, Banks in particular face pressure on their margins because of negative rates, while China’s economic transition is proving challenging. Asset prices in emerging markets rebounded during the first quarter, but they remain vulnerable to any rebound in the US dollar. The stockpiles of US dollar-denominated debt accumulated in emerging markets when interest rates were rock bottom remain a particular source of concern.
Given the uncertainties facing financial markets, Pictet strategists believe that investors can best hope to book gains by favouring more tactical, short-term plays over large scale strategic bets, while US treasuries still have an important role to play in diversifying portfolios.
Private equity funds are the ‘Topic of the Month’ in the April issue of Perspectives. At a time when prospects for returns from a variety of asset classes are being lowered, private-equity is coming into its own again. Private-equity investments were restrained in 2015, but rising corporate distress and the ongoing repricing of assets could make for an attractive entry point for potential investors in private-equity funds. However, securing premium returns from private equity portfolios depends on a disciplined approach, according to Pictet’s experts.