Prudential Market Insights | July 2020
- 09 mins 52 secs
Parit Jakhria, Director of Long Term Investment Strategy at the M&G Treasury and Investment Office discusses the key trigger points he has had to deal with over the last few months and what measures have been implemented.
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Parit Jakhria is director of long term investment strategy at the M and G investment office. He joins me now. Well, parent, over the last two or three months would have been the main trigger points in key events that you've been having to get your mind around when it comes to managing the portfolios. Uh, thanks Mark for the question and greetings, a room that the Kiev and frankly, has seen the escalation off the current crisis. And that was all the way back in March that the markets felt extremely dislocated and to such an extent that we we really wanted to make an investment decisions for the long term benefits off our for four million customers. Or so just to give you a little bit more off background. Oh, we annually set over asset allocation. Anyway, Im and that's something be weak enough to be on a regular basis to make sure we are. We are topped the markets. The most recent change prior to this was a significant reduction in risk taking into account where the global capital markets for and resulted in a 5% shift out of equities into fixed income, so that That's a £5 billion shift out of equities and fixed income, and we were certainly looking for an opportunity to reverse that and and March presented us the perfect opportunity to bring some of that back into the market. We're picking up from that March date. What have been the key decisions since then? And when did you make them great, great post remarks? So the key decision just to reel off the answer is a significant increase in risk. Assets off which there was a 5% increase across the main life fund into equities at the Kharafi creates tomorrow £5 billion sterling within equities. There was a fair bit off movement towards you can, which we felt was particularly beaten up it Brexit as well as greater greater ish Isha in terms off the equity markets with in addition to that in fixed income here were materially moved away from developed markets where you have historically low yields. So the Bank of England kind of 10 year gilt rate is the lowest, pretty much in its in its history since 16 94 and U S. And Europe, aren't you Jim O Victor? So it is going away from developed markets, skin to global emerging markets, Great Asia as well as, AH global high yield. We also reduce the waiting in U. S. Treasuries, which will introduce for the first time back in 2019 and given the extraordinary period of volatility the markets have been going through whilst you be making those decisions, how tough was it to implement them and go from thinking it's the right thing to do to actually doing it? No. Absolutely. Elect us. That's great questions. So Aziz rightly pointed out there were quite a few doubts in our minds and in particular you could hear a lot off market participants with panic and then thought the world was going to end. So so in my mind, the treaty things that really helped us get over the line with the decision. First and foremost, it was valuations. What did your day in day out is have a good and deep understanding off evaluation off different asset classes and what they expect you to return in in or 35 10 years time And even after kicking the tires on earnings, kicking two tires on the covert scenarios, allowing for second waves. There was a huge amount of margin in equity. Valuations of that game was comfort. The second item was the sheer magnitude and speed off monetary and fiscal support that central get Banks and governments all over the world were throwing at us and that that day was a huge amount of comfort just to putting into context in terms off run rate for the U. S. Friend at the height off the global financial prices, a good enough 10 15 years ago. It took about six months to reach Fiqh Beak level of spending and doctors can off all the way in March 2000 and nine. This time, it took a couple of weeks since the market turbulence. And in fact, the main item was announced over a weekend and the run rate already at that time was three times greater than the peak and the global financial crisis. Central banks and governments certainly were. We're not better prepared and there was a lot, lot more speed and kind of magnitude of decision making, but that those two weren't enough. There was 1/3 big that was really making a scratch your heads on. That was the transmission mechanism off the liquidity. Fortunately, we have we have access to a great treasury team within the business and they had the years to the ground when exactly how the liquidity was playing through. And I remember the discussion back on Friday the 13th and it had to be fried in 13 where we were talking about the transmission and they were seeing some green shoots back then and that really gave us the comfort to Goto. Awards and committees on the timing awarding committees within Mng have been extremely helpful on especially fourth for the P A C funds and they were able to give us the go ahead. Ah, head off off the main committee on the 25th of March and allow a student to get on with implement patients. A zoo said. A brave decision, but one we have not taken lightly. We're talking towards the end of July Now what are the key things you're keeping an eye on in the portfolios in the markets today? Fair question. So as we've always done, we focus on looking ahead on any particular different scenarios with long had the belief that there's one past, but many different futures. And they're certainly looking at the different eventualities, not only for coca covert scenarios. How the technology might change, how how Europe Mabel's. We're keeping a close eye on the monetary and fiscal stimulus. And finally, unfortunately, for those of us who are in UK, the specter of Brexit hasn't gone away, and we look forward to the volatilities going to bring and and the opportunities it will bring over the next six months. How do you think this period of locked down has altered the way that the world is developing? What what trends is it accelerated. What's in a business? Models on developments. Is it just cut off at the knees? No, that that's good question in in some way, it's a cliche and answer right in in terms off one off this. This is a new new normal, but until of some specific ways in terms off off the world, the way the world has changed. One thing that's very, very clear to us is each country has a very different policy and the outcomes for each individual country's very well leveraged or on the policies of supplies to just look at us, a horse's Germany horses UK or system off the merging markets. They're going down very, very different roots. And that is bringing back the country diversification and the terror Jim Unity that we cannot missed in the last two of military decades when everything was going in the same direction. Secondly, there is going to be a change in the way countries kind of trade and interact with each other's with much more cohesion at a local geographic level on it is going to be based on trust and trading partners. We think it's going to be less global off, as we all know a ways off, working at changing enough, you know, kind of that. And that has meaningful in backs to commercial real estate, the type of real estate that is needed and the purpose for which it is used. And finally, there is also regime change. We feel in terms off off the type of companies that are successful in the environment, and technology in particular, plays a big factor. And the companies that are more adept at technology are certainly going to be winners compared to those who are struggling with the technology assessment On finally pair as a team. How have you been operating? Given lock down. You look to be based on the Greenwich Peninsula. Absolutely. Somehow Mexi it at home. And this, this is this is what my my wife kindly pain tender a few years ago, which is of unity off the bridge in Selma. But pretty much everyone in the team is based from home. Ah, couple from from a different, different country. We have very, very regular contact and collaboration in terms off, off, a daily contact with with everyone in the TV Ah, virtual team meeting and then a working meeting that myself, to my managers and Peter appears is about within within the organization were extremely ably supported by technology, and it actually feels quite natural to be doing so. So I suspect when When? When the lockdowns ease that sector and we have to go back, we will have a genuine choice about how we want to do it. And this is actually a big step change in the ways off, working not only for us, but what we see across the rest off the industry's well, we have to leave it there para chakra. Thank you for joining us. Thank you. Work