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Crisis what crisis? BNP’s goldilocks view of 2014
Pictured: William De Vijlder
Multi-affiliate manager BNP Paribas Investment Partners seems reasonably bullish on the major asset classes for 2014, according to its latest annual forecasts. Bond yields will rise but so will equities, including emerging markets. More importantly, flows are likely to return to the emerging markets. And credit, especially illiquid credit, offers new opportunities.
The forecasts, in a series of client notes and interviews distributed last week, focus mainly on the two big questions to do with Europe and the US. Both look good. And then, there are the emerging markets.
William De Vijlder, vice chairman of the funds management group, said: “2014 will bring further clarity on the consequences and effectiveness of post-crisis government and central bank actions as economies move towards escape velocity, prompting questions about the need for more autonomous growth and a more laissez-faire stance by the authorities. Such regime-change issues will likely make 2014 a year of market timing as well as strategies oriented towards the long term.”
He said in a separate pre-recorded interview: “All in all we expect (bond) yields to drift higher in the US to 3.5 per cent towards the end of 2014. In such a scenario the return on US treasuries, which includes coupon payments and roll-yield, should be positive but the lowest of the asset classes in our model portfolio. In Germany, 10-year yields could hover around their current level of 1.7 per cent through the first half of 2014 before drifting higher in the second half as the deflation scare in the Eurozone fades. Although we think there is still a risk of rising spreads of government bonds in the peripheral Eurozone member states, this is not our central concern. Spreads should not fall much further either. This means an investor in Eurozone government bonds should expect a higher return than he would get from US government bonds, but lower than that from selected credit products or from equities.”
BNP Paribas does not foresee a crisis this year, even in emerging markets which have suffered in the past 18 months from capital withdrawal.
De Vijlder said that emerging markets should lead the way in a rising tide of equity markets and where economic growth, inflation and share buybacks should support 6-7 per cent earnings growth in the US.
BNP affiliates include the big US-based bond manager Fischer Francis Trees & Watts, which is run by former Australian head for the group business and current US representative, Rob Harrison.
