Jim O’Neill, presidente de Goldman Sachs Asset Management, considera que la Unión Económica y Monetaria Europea sobrevivirá, si bien “seguirá reinando el desorden durante bastante tiempo”. Para O’Neill, mientras todo el mundo se centra en el nivel de deuda y déficit de los países, la clave está en la gobernabilidad y el liderazgo dentro de la UE, y hasta qué punto Alemania y Francia apoyarán a los países miembros y a qué precio. “Se dice que si la crisis llega a España, todo se acabará, pues su deuda es demasiado grande como para obtener un rescate europeo, pero supone sólo el 5,3% del PIB de la zona euro”, mientras en EEUU ese porcentaje llega al 80%, comenta el experto. “Si EEUU puede apoyar su deuda, Europa también”, apostilla.
Con respecto a EEUU, señala que desde que la Fed tomó medidas de relajación cuantitativa, se han sucedido las positivas sorpresas macroeconómicas. “Con la incertidumbre política parcialmente clarificada tras las elecciones, la mejora de la confianza podría llevar a las empresas a gastar alguna de sus vastas pilas de liquidez”, comenta. Según O’Neill, si este panorama se combina (una fuerte economía estadounidense y un tanto incierta en la UE), “será difícil ver otra cosa que un euro débil”.
Sobre los emergentes, cree inapropiado que algunos de ellos sigan teniendo esa denominación, explicando que en la gestora están inmersos en un proyecto para redefinir partes del universo emergente como “mercados de crecimiento”. “Con frecuencia me preguntan si creo que constituyen una clase de activo diferente: no lo sé, y quizá sólo hay una forma de descubrirlo y es viendo cómo responden ante una subida significativa de la rentabilidad de los bonos estadounidenses”. Según O’Neill, la mayoría de los mercados desarrollados lo haría de forma adversa.
Con respecto a las preocupaciones inflacionistas sobre China, el experto comenta que con sus niveles de crecimiento, es normal que se eleve la tasa prevista de subida de precios, que además está dominada por los alimentos. En tercer lugar, cree que las políticas de Beijing se centrarán cada vez más en la calidad, más que en la cantidad de crecimiento futuro.
Son algunos de los puntos destacados de su visión sobre la economía mundial en 2011 y que puede leer a continuación en inglés. Y es que numerosos economistas y gestores de EEUU empiezan a realizar previsiones para el próximo año tras la fiesta estadounidense de Acción de Gracias.
After Thanksgiving weekend, it is tradition for many to start writing about 2011, me included. As I think about next year at this early stage, there is no shortage of macro themes to focus on.
EMU. WILL IT SURVIVE?
European Monetary Union (EMU) will probably survive, but it is likely to remain very messy. And, it might stay way for some time. I devoted last week’s Viewpoints to the topic of EMU, so I won’t bore you with a repeat, but let’s just focus on a couple of aspects.
Firstly, while everyone remains fixated with the level of debt and deficits, in my judgment the key issues are the governance of EMU and the leadership of it. If Germany and, to a lesser degree France, want to support all the current members and demonstrate their clear belief of this, then the debt and deficits can be resolved. While the numbers for Greece, Ireland and Portugal are all very large with respect to their own GDP, compared to the amount of investable savings out there, the debt and deficit numbers are really not all that large. For example, while Greece has debt-to-GDP of 115 pct, Greece represents less than 3 pct of the Euro area. One of the themes of the week has been “if it gets to Spain, then the EMU is finished because their debt is just too much for Europe to handle.” Spain’s debt- to- GDP is about 53 pct according to Goldman Sachs Global Investment Research, but this is only about 5.3 pct of the Euro area’s GDP. By comparison, the US debt level is around 80 pct of US GDP. And, it is similar for the Euro area as a whole. Just as the US has no problem supporting its debt – at least for now, then at some stage, if all Europe’s leaders put their minds to it, neither will they. The next few weeks, and perhaps beyond, will be all about how Germany is going to continue to support EMU and at what price. The question of whether or not German will support the EMU is not really the main question, it is at what price.
Secondly, fear and greed are very close cousins. In a world of remarkably low government bond yields, it is currently fashionable to believe that no sensible investor would ever dream of owning a government bond of one of Europe’s troubled countries. This is despite the fact many of them now offer what devoted bond investors can scarcely find, decent real yields. Nonetheless, we have to be careful of fads. If Europe’s leaders, and especially Germany, get behind the EMU, then these yields will be chased as they might suddenly appear to be the most tempting thing in the bond world. I don’t suggest it is going to happen tomorrow. It might get quite a bit worse, before it gets better but it will.
WILL THE US ECONOMY SURPRISE ON THE UPSIDE?
After the past 2-3 weeks of data, Wednesday’s US ISM data is going to be quite important. If it displays anything like the recent Philadelphia Fed survey, then the fate of the US economy becomes a highly important question. We might start to see some different views about the US in 2011. It is quite ironic, but virtually since the moment the FOMC announced they were embarking on a new round of monetary easing last month, we have had a number of important positive data surprises. A decline in weekly jobs claims appears to be accelerating and scattered signs suggest that holiday shopping has been quite healthy. While financial conditions have given back much of their significant pre-FOMC easing, the level of financial conditions remains quite easy. With the political uncertainty partially cleared following the mid-term elections, further signs of improvement of confidence could lead to companies starting to finally spend some of their vast piles of cash. Being too cautious about the US economy going into 2011 suddenly carries some risks.
ARE US BOND YIELDS REVERSING?
Linked to the momentum of the US economy, this is possibly the key question for many markets. If yields were to continue to rise amid growing signs of more durable growth, then the consequences elsewhere are important. If the US equity market rallies and financial conditions do not significantly tighten, then US policymakers might acquiesce. On the other hand, if US financial conditions tighten significantly without a shift in Fed policy, then they would have to consider a “new” response strategy.
These alternative developments would also be important for the rest of the world and its markets.
IS THE DOLLAR TURNING?
As far as the Dollar is concerned, if the evidence of an improving US economy continues to combine with an uncertain EMU, then it is tough to see anything other than a weaker Euro. The Euro remains overvalued according to many simple models of equilibrium, with fair value being closer to 1.20. Presumably the only reasons for the overvaluation lie in widespread negative belief about the US economy and expectation that the Fed will need to stay super friendly.
As far as $/Yen is concerned, for some time, it appears to have essentially tracked US 2-year note yields. If the mood swing about the US persists, and the markets were to say, adjust the 2-years to 75 basis points, then it is likely that $/Yen will rally significantly further. At Y84 it remains significantly away from fair value, and a move to Y88 seems likely to me in coming weeks. Amidst a major reprising of US 2-year note yields, quite probably, the Yen would weaken beyond Y90.
It is unlikely that the Dollar will sustain fresh strength persistently, however, against many currencies. At the core of the wider issue about the Dollar is the topic of global imbalances, and with it, the US deficit. Any signs of the US current account deficit moving sustainably below 3 pct of GDP, especially in the event of a strong US recovery, then this might change. But in the absence of this, it is probably wrong to expect a dramatic US$ rally. In any case, against many currencies, especially Asian ones, the US$ performance will be indirectly driven by the RMB or CNY. I expect China to allow further appreciation of their currency, beyond that priced into the 1-year forward market in coming weeks. This means that other Asian currencies should resume their strength, despite what might happen to the Yen and the current turmoil on the Korean peninsula.
WHAT ABOUT CHINESE INFLATION AND POLICIES TO COMBAT IT?
In the past couple of weeks, the mood has turned sour again on China, primarily due to the rise in last month’s consumer price index to 4.4 pct and fears of the policies to deal with it. This is somewhat understandable as the central bank, the PBOC, appears to have an inflation target of 2-4 pct.
I would like to make three comments on this topic.
Firstly, as hinted at in a Chinese newspaper Friday, the PBOC may raise their inflation target from 2-4, to 3-5 pct. For an economy growing at their pace, especially with the aspirations for distributional change that policymakers have, it is possible that the central case of a 3 pct inflation target is too low.
Secondly, in any case, the increase in inflation appears to be dominated by food prices, and so called “core” inflation still between 1-2 pct, actually below their headline target. This means that the PBOC needs to be careful about not going overboard in tightening measures to combat the recent surprising acceleration in headline prices. While many analysts now forecast a period of significant interest rate increases, I am not sure this will be right. Some tightening on lending standards and quotas, some tightening on price controls, and perhaps some more interest rate “tweaking” would be my best guess.
Thirdly, and as I wrote about on return from my last trip to Beijing recently, I suspect Chinese policies are going to be more focused on the quality, rather than the quantity of growth going forward. In this regard, policymaking may tolerate less GDP growth in coming years in order to ensure strong longer term sustainability and to assist the shift to an economy with greater domestic consumption and smaller current account surpluses. Continued CNY appreciation will be part of this policy framework.
INVESTING IN RMB FUNDS.
As I travel around and speak to many people, linked to widespread views about the outlook for a stronger CNY, many institutions are rushing to introduce RMB bond funds. While this is understandable, as I mentioned above, one needs to be careful about fads. While not only is it likely that the CNY will rise more, it is even more likely that the CNY- denominated bond market will develop considerably. However, if Chinese inflation doesn’t turn out to be as modest a challenge as I suggest above, then investing in Chinese bonds at their current negative real yields will not turn out to be such a great move.
Last week, I met some private investors who told me about how fashionable CNY bond funds are. Given the current restrictions on the use of CNY outside of China (and Hong Kong), I think it is appropriate to start modestly.
Moreover, as I think about it more, it is almost definitely better to think about a “balanced” fund in which investors can choose between bonds and equities.
ARE EMERGING MARKET COUNTRIES DIFFERENT?
As readers should be aware, I have believed for many years that it is inappropriate to think of all emerging countries as “emerging” in terms of investing. The 9th anniversary of the introduction of the BRIC phrase has just passed, and it is probably a good five years since I first suggested that, in order to be regarded as a “BRIC”, I believe an economy should be at least 5 pct of GDP or reasonably likely to be so in the decades ahead. At the same time, I don’t believe that such countries should be regarded as “emerging” when it comes to economics, whether it is analysis or policymaking. And, I don’t believe that they should be regarded as “emerging” when it comes to investing either. In my view, investors’ allocations to BRIC countries, markets or funds shouldn’t be regarded as “EM”.
When it comes to the rest of the emerging countries, life gets a bit trickier. And , in the event of any sustained rise in US bond yields, we might find out what is truly emerging still.
We are currently working on a project to redefine parts of the EM universe to treat them more as “growth markets”. Trying to find a cut-off point is somewhat arbitrary, but consideration to this is necessary. Some significant “N11” countries that have legitimate aspirations to be “mini BRICs,” such as Indonesia and Turkey would be obvious. So too, Korea and Mexico. These are all economies that are more than 1 pct of global GDP and are developing some depth in their local markets. The N11 is likely to have some “growth” and some “EM” which actually gives it quite some special properties in terms of diversification.
As you move beyond this group, and as you move smaller, it is more likely they will have more of the attributes that have been described as “EM” historically, i.e., small and less liquid. So called “frontier markets” should probably also be regarded this way.
I am often asked how strongly I believe that emerging markets have truly emerged as a “different” asset class. My view is “I don’t know” and there is perhaps only one way to truly find out, and that is how they all respond in the event of a significant rise in US bond yields. Of course, it is quite likely that all other global markets, many accepted developed country markets included, could also respond adversely. But, as much as I believe some past EM economies should be regarded as “growth” in terms of strategy, it is almost definitely not the case that this should apply to all of the EM economies. It also seems to me that investors in so-called emerging markets need to be thinking “balanced” funds where they will have their investments in bonds or equities, and not just one or the other.
Finally after this weekend’s football results, perhaps there is another B that should be regarded as something beyond emerging. Thanks to Mr. Berbatov of Bulgaria.!
Jim O’Neill
Chairman, Goldman Sachs Asset Management
