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In his Sunday Start note, Morgan Stanley’s Joachim Fels discusses a recent investing conference held in DC with some big fixed income investing clients.At the event, there was a lot of discussion of Reinhart & Rogoff’s gloomy sovereign debt work, and all the big risks around the world, but ultimately, most of the investors remain bullish.
Why? Here’s Fels:
Yet, even though the attendees harboured an overall cautious view on the macro backdrop, the vast majority of the trade ideas they presented at the end were mostly risk-on rather than risk-off: long high yield, bank credit and EM debt in various shapes and forms (this was largely a fixed income audience). The main short ideas were euro area sovereigns, the euro and the yen. Based on our discussions, there seem to be three reasons why this group was willing to be long risk: (i) many are more constructive on the near-term economic outlook for the US than our own team; (ii) several were willing to buy into our China economist Helen Qiao’s view that China will see above-consensus growth for a few quarters as the authorities are applying more stimulus; and (iii) virtually everyone in the room agreed that central banks will do their utmost to keep real interest rates in negative territory for a prolonged time.