What's the Biggest Threat to Global Growth in 2014?
Portfolio Manager Alessio de Longis discusses the factors shaping market activity this year.
- We expect increased volatility, but nothing like in 2008 or 2011.
- We believe the biggest risk to global growth is from the U.S. or Europe, not emerging markets.
Aired: January 27, 2014 on Bloomberg
Alessio de Longis: We have to get used to a much higher uncertainty and higher volatility going in to 2014.
Host Erik Schatzker: Why? Why?
Alessio de Longis: Well, first of all because 2013 was an extremely benevolent year for asset prices, volatility, despite some very clear trends. What we’ve seen was very particular in 2013; we’ve seen some very high and risky assets such as emerging market equities, emerging market currencies underperform on a sustained basis; on a trend basis but with little volatility.
Host Stephanie Ruhle: So why should we think there’s going to be more volatility? Central banks have made it very clear that they are going to do whatever it takes, why don’t we think that’ll be the case in 2014? That’s why the market was so strong last year.
Alessio de Longis: Well, for volatility, we’re talking about rising volatility from the depressed levels it doesn’t mean incredibly high volatility; classing of a global risk aversion scenario.
Host Erik Schatzker: It’s not 2008 all over again.
Alessio de Longis: It’s not 2008 and its not 2011. The reason is that the themes we are still trading off of are old themes; what is new about everything we have described today? China’s weakness, we expected that; central banks withdrawing stimulus, but willing to go the other way if necessary.
Host Erik Schatzker: You knew it was coming?
Alessio de Longis: We knew that. So you get really sustained market volatility and global contagion with three circumstances really. Surprises and the themes are old; positioning and valuations have to be extreme, we’re not there; quite the opposite. The emerging market underperformance over developed markets, I would argue, is the consensus trade of 2014. And finally, the cyclical picture is on an upswing, I would say the biggest risk is not emerging markets underperformance here but as a surprise, it would be a major setback to European growth and US growth; because markets have come to the conclusion now they have acknowledged the fact that the Euro can grow again. Even if it is just 1%; so that where I see the real delta, if you like, in global growth, in global surprises; if the US and Europe were to surprise negatively not emerging markets that’s discounted; that’s why these currencies have underperformed by 30% over the last 3 years.
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