Brief : The COVID pandemic has added $24 trillion to the global debt mountain over the last year a new study has shown, leaving it at a record $281 trillion and the worldwide debt-to-GDP ratio at over 355%. The Institute of International Finance’s global debt monitor estimated government support programmes had accounted for half of the rise, while global firms, banks and households added $5.4 trillion, 3.9 trillion and $2.6 trillion respectively. It has meant that debt as a ratio of world economic output known as gross domestic product surged by 35 percentage points to over 355% of GDP. That upswing is well beyond the rise seen during the global financial crisis, when 2008 and 2009 saw 10 percentage points and 15 percentage points respective debt-to-GDP jumps. There is also little sign of a near-term stabilisation. Borrowing levels are expected to run well above pre-COVID levels in many countries and sectors again this year, supported by still low interest rates, although a reopening of economies should help on the GDP side of the equation.
Brief: Global institutional pension fund assets in the 22 largest major markets (the P22) continued to climb in 2020 despite the impact of the pandemic, rising 11 per cent to USD52.5 trillion at year end, according to the latest figures in the Thinking Ahead Institute’s Global Pension Assets Study. The seven largest markets for pension assets (the P7) – Australia, Canada, Japan, the Netherlands, Switzerland, the UK and the US – account for 92 per cent of the P22, unchanged from the previous year. The US remains the largest pensions market, representing 62 per cent of worldwide pension assets, followed by Japan and the UK with 6.9 per cent and 6.8 per cent respectively. According to the study, there was a significant rise in the ratio of pension assets to average GDP, up 11.2 per cent to 80.0 per cent at the end of 2020. This is the largest year-on-year rise since the study began in 1998, equalling the increase recorded in 2009 as pension assets bounced back after the global financial crisis. Whilst the measure usually indicates a stronger pension system, the sharp rise also underlines the economic impact of the pandemic on many countries’ GDP. Among the seven largest pensions markets, the trend was even more pronounced with a 20 per cent rise in the pension assets to GDP ratio to 147 per cent in 2020, from 127 per cent the year before.
Brief: Unpaid debt from pandemic-stricken borrowers has ravaged profits at Europe’s big banks and kick-started a debate among politicians about whether they may ultimately need state help. Reflecting on the pandemic impact, many bank executives say the worst is behind them, with Societe Generale CEO Frederic Oudea and BNP Paribas CEO Jean-Laurent Bonnafe predicting an imminent rebound. “Optimism is ... a weapon of war,” Philippe Brassac, chief executive of Credit Agricole said in January, decrying “doom-mongers”. “And this war, we can win.” All three French lenders saw profits shrink last year and profits at Spain’s Santander and Dutch bank ING also dipped. While executives voice confidence, European officials worry the banks’ problems have barely begun. They fear more borrowers will default when government support, including billions of euros of loan guarantees in France, Spain and elsewhere, is unwound.
Brief: Investors are building bets against the largest corporate debt exchange-traded funds as spreads shrink and interest rates rise. Short interest as a percentage of shares outstanding on the US$48 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (ticker LQD) jumped to more than 15 per cent, up from 5.9 per cent at the start of the year, according to data from IHS Markit Ltd. That’s the highest level since last March, when high-quality bonds sold off as investors raced to raise cash in the face of a quickly spreading pandemic. Now, with the vaccine rollout underway and an economic reopening in sight, investment-grade credit spreads to Treasuries have tightened sharply. Meanwhile, building reflation bets have boosted long-dated Treasury yields to the highest levels in a year, renewing concerns about relatively high LQD’s duration -- a measure of sensitivity to interest-rate changes. Against that backdrop, the risk-reward for high-grade corporate bonds looks less compelling, according to Wells Fargo Investment Institute.
Brief: For the last year, market commentators and investment professionals have blamed volatile markets on bored retail investors trading on Robinhood while stuck at home during the pandemic. Turns out they were right, according to a new study from a top Australian university.Researchers from the University of Western Australia used Google mobility data and internet traffic to analyze how much individual investors in the U.S. paid attention to stock markets and publicly traded companies while under lockdown. The academics found that the extended periods at home led to higher market engagement by retail investors, especially among younger populations and in states where fewer people worked from home prior to the pandemic. “The stay-at-home duration increases retail attention and contributes to heightened trading activity in the financial market,” authors Daniel Cahill, Chloe Ho, and Joey Yang wrote in their paper. To measure how much attention individual investors paid to public companies, the trio looked at pageviews for those companies’ Wikipedia profiles. They found that the daily average views for company Wikipedia pages increased from March to April, as people spent more time at home due to Covid-19.
Brief: CQS, Sir Michael Hintze’s long-running multi-strategy credit-focused hedge fund firm, has launched a new actively-managed strategy which aims to generate higher returns across corporate sub-investment grade opportunities against a backdrop of increased volatility and unpredictable markets. The CQS Total Return Credit Fund targets a range of geographies, asset classes and sectors, across various ratings classes, using a bottom-up, fundamental research process. The UCITS compliant strategy - managed by Craig Scordellis, head of multi-asset credit, and Darren Toner, head of high yield investment grade and financial portfolios - will use an unconstrained investment approach to scope out the strongest opportunities and maximise risk-adjusted returns while aiming to curb volatility and potential defaults. The fund will also use ESG (environmental, social and governance) processes as part of the portfolio-building process, including engaging directly with debt issuers to influence long-term corporate behaviours, promote responsible practices, and mitigate ESG risks.