Presentation on theme: "PIMCO 2014 Secular Outlook The New Neutral ™ June 2014 PIMCO Investments LLC."— Presentation transcript:
PIMCO 2014 Secular Outlook The New Neutral ™ June 2014 PIMCO Investments LLC
pg 1 36456 Secular Forum Annual meeting to discuss and debate the evolving investment landscape Investment professionals from PIMCO’s 13 global offices plus invited guest speakers Three days of discussion and debate 3–5 year outlook on macro trends and the implications for investors “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 Advisor
pg 3 36456 PIMCO’s 2014 secular outlook Slow and stable global growth Global economy will deliver slower but increasingly stable growth and experience low inflation. Multi-speed country growth Countries 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 rates Record 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 profile Major 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.
pg 4 36456 Multi-speed world – growth rates converging Secular Forecast:GrowthPolicy U.S. Most potential for upside surprise New Neutral: 2% nominal rate Europe1.25%Low rates/Possibly major QE program China6.0%–6.5% Shadow banking presents risk/Monetary policy must remain accommodative Refer to the Appendix for additional forecast and risk information.
pg 5 36456 Global debt at all-time high Source: BIS as of 31 March 2013
pg 6 36456 “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% inflation Refer to the Appendix for additional forecast information.
pg 7 36456 PIMCO’s 2014 secular outlook: investment implications Maintain diversification In a low rate environment, bonds will continue to be a natural diversifier for equity risk. Be selective Favor active managers who employ bottom-up research to identify countries, sectors and companies growing faster than the economy. Think outside the box Go beyond traditional asset classes to boost return potential, including unconstrained and alternative asset strategies. Take calculated risk Downside risk is lower than many investors expect, suggesting that yields, credit spreads and P/E ratios may not be overvalued. Look to mispriced markets Pursue opportunities in mispriced sovereign bond markets (where the market has overestimated rate hikes). Refer to the Appendix for additional forecast, outlook and risk information.
pg 8 36456 What opportunities exist in The New Neutral?