European banks’ bonds, Saudi Arabia’s EM arrival, and fed pivot impact on correlation

Genuine Impact
Jul 1 · 3 min read
Alister Sneddon, CTO

Here are the top 3 insights for July 1st, prepared by Alister, our CTO.

Today’s Brief

  • Alliance Bernstein: European Banks’ Bonds: Winter is Coming — But Not for a While
  • Franklin Templeton: The “Halo Effect” of Saudi Arabia’s Emerging Markets Arrival
  • Janus Henderson: What the Fed Pivot Means for Asset Class Correlation
  • European banks are up against it.
  • Profits are under pressure, and disruptive technology is a huge challenge.
  • But for banks’ bondholders it’s still summer — and will be for a while, we think.
  • Since the global financial crisis (GFC), European banks have addressed one big challenge by rebuilding their balance sheets and reducing their bad debts.
  • Now they face an even tougher struggle as they strive to lift profitability in the face of low rates, a weak euro-area economy and a flat yield curve.
  • Despite this wintry background, skilful equity investors can still find winners, but we believe that bond investors can enjoy the best balance between risk and reward — particularly in selected subordinated bonds.

Genuine Scores for the top 3 Banking stocks

  • Barclays, 74
  • ING, 73
  • Banco Bilbao Vizcaya, 72
  • Saudi Arabia’s inclusion in the MSCI Emerging Market Index marks a significant milestone for the MENA region, according to Salah Shamma, Franklin Templeton Emerging Markets Equity’s Head of Investment, MENA.
  • He explains the “halo effect” from this move that mirrors that of other prominent index providers, and shares why the region is becoming much harder for global investors to ignore.

Genuine Scores for top 3 Emerging Market focused funds

  • BlueOrchard Microfinance, 100
  • DoubleLine Low Duration Bond Fund, 99
  • Vanguard Emerging Markets Govt Bond Index ETF, 84
  • Central banks have shifted their policies to be more accommodative, causing stocks and bonds to move up.
  • A couple of scenarios could result from this shift in stance — the worst-case scenario being that stocks and bonds both fall together.
  • We believe a focus on diversification is more important than ever in this environment, but caution that investors should be aware of how different types of strategies are correlated with the market.

Genuine Scores for the top 3 US focused Bond funds

  • PGIM Core Short-Term Bond Fund, 100
  • iShares Ultra Short-Term Bond ETF, 100
  • GMO US Treasury Fund, 100

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All the best,
Alister and the Genuine Impact Team

p.s. all Genuine Scores are accurate as of the 13th of June

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