Prudential Market Insights | July 2019

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  • 04 mins 12 secs
We sat down with Sahil Shaikh, Portfolio Manager at Prudential to discuss how the market is looking at the mid-point of the year, asset classes & more.

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Prudential
PRESENTER: For an update on the global economy, I’m joined down the line by
Sahil Shaikh, Portfolio Manager at the M&G Prudential Treasury and Investment
Office. Sahil, we’re now halfway through 2019. Talk us through what you’ve seen
in the markets so far this year.
SAHIL SHAIKH: So we’ve seen a continuation of many of the themes that we
saw at the end of 2018. Equity markets started the year very positively after a
poor end of 2018. This continued throughout most of the year; however, one of
the main snags in this has been the US-China trade negotiations with the US also
focusing a bit more on Europe. This has led to an increase in volatility in most
asset classes and bouts of equity market weakness. On another note, one of the
major themes has been how much US short-term rates have reduced from above
3% last year to under 2% this year.
On the economic side global PMIs and softer economic data have been weakening
and haven’t bottomed out yet; although I should note that the harder economic
data hasn’t turned negative and is still broadly expansionary. On the currency
side, despite US rates falling, the DXY, the Dollar Currency Index, has stayed
fairly range bound, and more domestically sterling has continued to weaken to
about under 1.26 versus the dollar on the back of Mrs May’s resignation and the
ongoing Conservative Party leadership contest.
PRESENTER: So what would you say are the main risks to markets in the
months ahead?
SAHIL SHAIKH: Now, we’re hearing a lot of chatter about US recession risk,
global recession risk in the media and from other investment managers. A simple
index that we look at that tracks the key word recession in news articles has
already doubled this year and is at levels last seen in 2016. Now, there are many
reasons for this; the US-China trade war, domestically potential for a hard Brexit
and inversion in the US yield curve. Now, from our perspective as long-term
investors we have to gauge whether things have fundamentally deteriorated,
whether we are being rewarded for the appropriate amount of risk we’re taking.
Touching on the US yield curve inversion, most recessions have been preceded by
an inversion in the yield curve; however, not all inversions have been followed by
PRESENTER: So what asset classes interest you the most at the moment?
SAHIL SHAIKH: So coming into this year we were quite bullish equities in
particularly the US and emerging markets. The US seems to have paid off fairly
well; however, given the year-to-date rallying in global equities in general we are
less bullish than we were at the beginning of the year. What we are struggling
from a short-term perspective is which other asset classes represent good value.
You’ve had US credit and global credit in general rally significantly on the back of
narrowing credit spreads and falling sovereign rates. And in the high yield space
we think we are better rewarded for the risk taken in equities. There are certain
markets such as Japanese equities and global emerging market equities that are
interesting to us from a valuation point of view; however, again, like I mentioned,
with potential fears around global growth and particularly trade wars there could
be some increased volatility in these asset classes going forward.
PRESENTER: Sahil Shaikh, thank you for joining us.

SAHIL SHAIKH: Thank you.
PRESENTER: And thank you for watching. Do keep an eye out for more multi-
asset news here on asset.tv. From all of us, thank you for watching and goodbye
for now.
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