Presentation on theme: "Secular Forum “We’ve learned over the years that the Forum provides us with a concept, a construct and a compass to deliver consistent value for our."— Presentation transcript:
0 The New Neutral™ PIMCO 2014 Secular Outlook June 2014 PIMCO Investments LLCJune 2014
1 Secular Forum“We’ve learned over the years that the Forum provides us with a concept, a construct and a compass to deliver consistent value for our clients over a wide range of economic conditions and market fundamentals.”Rich Clarida, Executive Vice President, Global Strategic AdvisorAnnual meeting to discuss and debate the evolving investment landscapeInvestment professionals from PIMCO’s 13 global offices plus invited guest speakersThree days of discussion and debate3–5 year outlook on macro trends and the implications for investors
3 PIMCO’s 2014 secular outlook Slow and stable global growthGlobal economy will deliver slower but increasingly stable growth and experience low inflation.Multi-speed country growthCountries will continue to grow at varying speeds but rates will converge. For example, U.S. growth will accelerate while growth in China and the rest of EM will slow.Persistently low policy ratesRecord high global debt and slower growth will constrain central bankers, keeping policy rates below historical averages (2% nominal will be the New Neutral rate in the U.S.).Shifting risk/return profileMajor market returns will be lower (5% for stocks, 3% for bonds with the 10-year Treasury between 2.5% and 4%) but so will downside risk and the potential for market bubbles.Refer to the Appendix for additional forecast, outlook and risk information.
4 Multi-speed world – growth rates converging Secular Forecast:GrowthPolicyU.S.Most potential for upside surpriseNew Neutral: 2% nominal rateEurope1.25%Low rates/Possibly major QE programChina6.0%–6.5%Shadow banking presents risk/Monetary policy must remain accommodativeRefer to the Appendix for additional forecast and risk information.
5 Global debt at all-time high Source: BIS as of 31 March 2013
6 “The New Neutral:” PIMCO’s secular forecast * Neutral Rate = The expected Fed Funds Rate when GDP, inflation, and employment are stable, and monetary policymakers are neither "easing" nor “tightening.”** Assuming 2% inflationRefer to the Appendix for additional forecast information.
7 PIMCO’s 2014 secular outlook: investment implications Maintain diversificationIn a low rate environment, bonds will continue to be a natural diversifier for equity risk.Be selectiveFavor active managers who employ bottom-up research to identify countries, sectors and companies growing faster than the economy.Think outside the boxGo beyond traditional asset classes to boost return potential, including unconstrained and alternative asset strategies.Take calculated riskDownside risk is lower than many investors expect, suggesting that yields, credit spreads and P/E ratios may not be overvalued.Look to mispriced marketsPursue opportunities in mispriced sovereign bond markets (where the market has overestimated rate hikes).Refer to the Appendix for additional forecast, outlook and risk information.