Monday 26 May 2014 

Prague 

Lunch meeting with an important client. A good part of the discussion is on whether there is froth in the markets. With respect to equities, we think earnings will grow sufficiently to justify rising prices in an environment of supportive monetary policy. In the media, credit markets have received even more attention than stocks, with anecdotal evidence of investors becoming less discriminating (the comeback of ‘covenant light’, whereby fewer covenants are in place when providing funding to companies). This is one of the topics I touch upon in a market outlook presentation in the afternoon to institutional clients. An improving economy and very low rates imply default rates will be low, hence the spreads (carry) on high yield, which admittedly have declined a lot, still provide enough of a reward for the risk. 

Tuesday 27 May 2014 

Paris 

I’m recording a video which will be used during an offsite for our Human Resources team. It covers the long-term trends in asset management and what it implies for human resource management. The trends are the increasing use of passive strategies, the change in the distribution model (from closed to open to guided architecture), and the role of consultants. Our business is characterised by uncertainty – about index returns (‘beta returns’) and, in the case of active management, about the excess returns (‘alpha returns’). The former creates opportunities in terms of advice and portfolio optimisation. The latter imposes a lot of discipline on the investment process: the more discipline, the more past performance is considered as being repeatable. 

Wednesday 28 May 2014 

Paris 

I have my monthly call with the CIOs of our investment teams across the globe. Our discussions include the election outcome in India (the new government seems to be in a hurry to implement changes); the growth outlook in India (our CIO in India expects 8% annual GDP growth in three years’ time); Turkey (where the central bank was able to cut its rate); China (10 local governments are now allowed to issue bonds, which should alleviate their funding burden; the likelihood of a cut in the reserve requirements; the risk that trust funds become a source of concern again in July); and Brazil (macroeconomic data continues to be bleak). 

Thursday 29 May 2014

Paris / Ascension 

Client presentation in the morning on “Divergence as an investment theme”. The economic and investment environment is indeed characterised by increasing divergence: developed versus developing world economic growth; US versus eurozone monetary policy outlook; US versus European equities valuations; developed versus emerging equities valuations. There is also convergence, in particular of risk appetite to the high levels seen in the previous cycle. Divergence/convergence is creating opportunities for asset allocation. 

Friday 30 May 2014 

Bank Holiday 

 

William De Vijlder

Vice – Chairman of BNP Paribas Investment Partners