Mark R. Kiesel
Investors are experiencing numerous macroeconomic headwinds today, including a global economic slowdown, the European sovereign debt challenge, a looming U.S. fiscal cliff and lingering uncertainty about monetary policy’s effectiveness in light of high developed-market government debt levels. Because of these significant concerns, the demand for most high-quality, income-producing assets continues to exceed supply. These powerful factors have driven interest rates lower and credit spreads tighter across many bond markets and in numerous sectors. Given current valuations and all the headwinds, investors should consider taking a more defensive and selective approach when evaluating current global investment opportunities.In the global credit markets, we have been reducing risk across our portfolios, selling some cyclical companies exposed to areas where we expect continued weak or weaker growth, and also have trimmed risk to companies with lower-quality assets and balance sheets. Yet we still are finding numerous opportunities globally through our bottom-up research that targets areas around the world where fundamentals are supportive and the outlook remains constructive.To get down to specifics, we see value in select companies across several industries, including pipelines, airlines, gaming, lodging, autos and chemicals, as well as in investments that should benefit from a recovery in U.S. housing. As we visit companies around the world, we are finding asset-rich companies with solid balance sheets that are currently benefiting from improving fundamentals, as well as a select group of credits that are being supported by a host of helpful factors, including: demand growth, improved market discipline, capacity reductions, high barriers to entry, supply constraints, efficiency gains, material cost advantages, and an improving outlook for pricing due to a reduction in inventory. Here's a look at these global industry sectors – and the credit opportunities they are providing – in greater detail:PipelinesThe pipeline sector can offer investors opportunities for exposure to asset-rich companies with stable cash flows. Our research has focused on a few pipeline companies that we believe are uniquely well-positioned to benefit from significant growth opportunities as a result of the emerging supply of energy resources being developed in the U.S. (See “Game Changer,” our March 2012 Global Credit Perspectives.) The increased development of oil shale assets and expansion of horizontal drilling throughout the country has resulted in a significant pick-up in U.S. crude oil production (Figure 1). U.S. pipeline companies that have gathering, processing, storage and transportation capabilities near these emerging oil and gas shale regions are currently benefiting from growth in U.S. energy production.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. PIMCO may or may not own the securities referenced and, if such securities are owned, no representation is being made that such securities will continue to be held.
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