Jorge Nuño, Manager Fidentiis Global strategy
The global economy follows a weak path held back by developed countries and the adjustments done by exporting emerging economies. On one hand, we have the anemic growth in developed countries with their structural factors, that the authorities refuse to deal with decisively and on the other China, which could give us a surprise with lowered growth expectations. We believe that these fundamental changes with falling productivity, demographic changes and increased inequality have reduced the rate of potential growth and as a consequence has affected the behavior of the basic economic variables: equilibrium real rates and inflation.
We think that many of the economic authorities still do not recognize this diagnosis, and think the financial hangover and European debt crisis have been the cause of the delay and the weakness of the cycle. But the reality is that monetary policy has limitations and side effects that pose a risk to financial stability globally.
Only consumption has sustained US growth, driven by employment which now starts showing signs of exhaustion.
Outside the structural factors, which in our opinion restrain the activity, the greater short-term risk is the evolution of the United States, which is already at an advanced economic cycle with investment, the foreign sector and the public sector contributing nothing or very little to growth. As said, only consumption has contributed to US growth, which has been driven by strong job creation that is beginning to show signs of slowing down. With these long-term expectations, we maintain a defensive position without equity exposure, and focusing on fixed income strategies via coupon payments and dividends. Our biggest bet is corporate bonds, which include hybrid and financial AT1s. In equities we have exposure to real estate and European telecommunications.