Transcript
Matt Jones
Welcome to Idea Jeneration with Stephen Jen, a podcast series offering insights into long-term themes within global markets.
This is a production of Eurizon SLJ Capital, and has been recorded for professional investors. My name is Matt Jones, Head of Distribution for Eurizon SLJ Capital.
In this episode, we ask Stephen why Chinese onshore bonds should be considered as safe haven assets.
Stephen Jen
In emerging markets, bonds tend to be very unstable and very vulnerable to idiosyncratic negative shocks, whereas in China bonds behave like developed market bonds - they rally in times of stress.
What we did was we looked at the past five risk of episodes in the last 20 years, starting with GFC [global financial crisis] in 2008; we then had the European debt crisis in 2011; emerging markets sell off in 2014-15 following the taper tantrum; then we had the Chinese equity market crash 2018; and finally, the coronavirus pandemic. We calculated the performances of the various markets, the Chinese bonds, global bonds, European bonds, emerging global diversified and sterling, then the equity indices - illustrative equity indices - and we calculated how well they performed in these five episodes and we added up their performance during this these periods. And you can see the dramatic difference in performance.
The point I want to make - stress - is that there are plenty of risk on assets in the world. You've got Bitcoin, you've got the traditional equities in the world in DM and EM. But we have a shortage of reliable, safe haven assets. Even the US Treasuries can no longer be counted on as a reliable, safe haven because the yields are so low and the risks of yields rising are much higher than yields retreating back below 1%; the same with the European bonds.
The Chinese bonds still offer a high interest rate and the elasticities of Chinese bonds with respect to risk are still very well behaved - in times of stress, they rally in good times, they sell off. And in particular, the Chinese bonds seem to be the perfect ballast for UK equities.
Matt Jones
Further information can be found within the episode description, and more insights are available at eurizonsljcapital.com/insights.
The views expressed within this podcast were accurate as at the time of publication. Opinions expressed by the speakers are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
Source
Audio taken from the Capitalmarket.events web conference Emerging Market Perspectives, recorded on 21st April 2021
Disclosure
This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
ESLJ-010621-PO1
View more content from
the Capitalmarket.events web conference Emerging Market Perspectives
Our Research
Our written research products aim to provide unique and orthogonal insights on key global economic and policy issues in a timely fashion.
