Intervention skews bonds most of all
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Philippa Yelland is a journalist with InvestorDaily, a Morningstar publication.
Intervention has caused prices to divorce most significantly from fundamentals in the bond market, Schroders head of Australian equities Martin Conlon has said.
"Many would argue that much of this can be ignored and we should focus solely on bottom-up stock picking," he said.
"We could think of nothing better. However, this isn't Neverland and I'm not Peter Pan."
Almost every industry and business was affected to varying degrees, either here or offshore, he said.
"So how should we invest in an environment of such intervention? Probably the first step is to ascertain where intervention has caused prices to divorce most significantly from fundamentals," he said.
"There is little doubt that bond markets should be the centre of attention in this regard."
Fidelity Worldwide Investment chief investment officer Asia Pacific John Ford said investors had moved to "high-quality bond markets such as Canada and Australia, in an effort to escape eurozone uncertainty. But long term, the levels of their interest rates are unsustainable and will weaken".
Conlon said Basel and other regulatory reforms forced banks and insurers to become buyers of sovereign bonds; central banks were using their own balance sheets to manipulate prices; and Europeans were desperately trying to create artificial buyers of government bonds to salvage insolvent governments.
"Virtually all fundamental buyers have disappeared, crowding instead into the corporate bond market. Fortunately, additional supply in this area, as corporates seek to disintermediate banks and secure longer-term funding, has prevented prices from reaching the ridiculous levels seen in sovereign bond markets," he said.
Ford said he expected in a low-growth world, "not all sectors are performing poorly. Some have done and continue to do well".
Investing in assets that provided real returns irrespective of daily market movements was more important than ever.
One way to do this was by investing in corporate assets, because much of the corporate sector was doing better than governments and sovereign investments. Assets such as corporate bonds, high-dividend-paying companies and some property funds were rewarding investors whether the market moved up or down.
Corporate balance sheets, in particular in Asia, were stronger than ever.
"Many companies have paid down debt and locked in low interest rates and continue to generate income. Many of these companies are rewarding their investors with returns, be it dividends or bond yields," Ford said.
There had been substantial inflows into the traditional havens of United States 10-year Treasury bonds and German bunds.
"We've also seen investors moving into other high-quality bond markets such as Canada and Australia, in an effort to escape eurozone uncertainty. But long term, the levels of their interest rates are unsustainable and will weaken," he said.
Fidelity's portfolio managers favoured high-yield and investment-grade corporate bonds, again because many of the corporates that are offering them are in comparatively good financial shape, he said.
"We've also seen an increased appetite for Asian bond markets, as many Asian economies do not have the same debt problems faced by the eurozone and many other developed markets," he said.
"In particular, demand for Asian investment-grade bonds is increasing. Investors are also looking at Chinese RMB bond funds, where the appreciation of the currency is now available to global investors."