Economic and Market Commentary

Investment Opportunities Over the Secular Horizon

Dan Ivascyn, Group CIO, highlights the attractive opportunities we are anticipating over the next three to five years across the global risk markets and where we are poised to deploy capital.


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Text on screen: Candice Stack, Head of Client Management, Americas

Candice Stack: We've been really clear and really transparent with our clients about some of the headwinds we're seeing, some of the challenges over the secular horizon. In terms of broader asset classes, sectors. Where are you most excited over the secular horizon to deploy capital?

Text on screen: Daniel J. Ivascyn, Group Chief Investment Officer

Daniel Ivascyn: Clearly, there is significant ongoing shock related to the virus situation that's led to a tremendous amount of pain out there in the economy, pain across households. But it will lead to attractive opportunities given this volatility and given this stress. So within the corporate market, there will be sectors impacted by this virus that will benefit from a recovery that we anticipate over the next couple of years.

Now within that opportunity set, there are areas that we've talked about now for several years that continue to look quite attractive.

These tend to be areas that were negatively impacted by the last global financial crisis back in the '08/'09 period. These are sectors that were heavily regulated, sectors where there's been a high degree of conservatism from investors, rating agencies, other market participants.

Text on screen: Opportunities across global risk markets – Global housing markets, Financial sector

Global housing markets are an example of that. The financial space another example of sectors that had very strong initial conditions going into this period and they are going to be key areas of focus for us.

Within other areas of the credit markets, we think you're going to need to be much more cautions, much more careful. I think this is where the opportunity to provide alpha through good old-fashioned security selection is going to be even more significant. As we work our way through this period of heightened volatility, you are going to see some unfortunate surprises in terms of weakness across segments of the corporate credit space.

Text on screen: Opportunities across global risk markets – Global housing markets, Financial sector, Select areas of corporate credit

But this will be an area of great focus to PIMCO because it's going to one of the few scalable areas to provide incremental yield and return versus more traditional government bonds.

Within the emerging market sector, we have a somewhat more mixed view. We talked about the strength, our anticipated growth strength across the Asia region.

Text on screen: Opportunities across global risk markets – Global housing markets, Financial sector, Select areas of corporate credit, Select emerging markets

I think that has to be balanced by ongoing uncertainty regarding the U.S./China relationship where we expect additional friction. But that's a region of the world where we have a favorable view. In fact, several countries within the region may benefit more directly from this tension between the U.S. and China going forward.

And let me just touch on currencies very quickly.

Text on screen: Opportunities across global risk markets – Global housing markets, Financial sector, Select areas of corporate credit, Select emerging markets, Currencies

Although from a tactical perspective we anticipate some dollar weakness over the next couple of years, as we see this post-COVID recovery gain some traction. But over the secular horizon, we're not so sure that we're going to see a sustained period of dollar weakness. We spend a tremendous amount of time with our outside speakers and our internal discussion discussing the view on the dollar and we think it's a little bit premature. When we look at the United States versus other developed regions of the world, from a growth perspective, from a policy perspective, we don't yet see the conditions in place that are going to lead to a fundamental and sustained period of dollar weakness.

Text on screen: Opportunities across global risk markets – Global housing markets, Financial sector, Select areas of corporate credit, Select emerging markets, Currencies, Private credit

I think another area that looks quite attractive on a relative basis will be opportunities within the private sector of the market. The simple reason for that is that they stand outside the direct areas of policy support. So central banks have been very, very aggressive, even here in this country in supporting the company investment grade corporate credit markets.

So that's the highest conviction opportunity that we see at the moment. We view this as a multiyear opportunity as well.

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