Market Talk

How can investors put their money to work for a better future? One way is through investing in listed equities whose products and services are tackling societal and environmental challenges. Impact equity investors focus not just on companies’ ESG risks but also on how they are serving their broader stakeholders: customers, local communities and the world beyond. In our latest podcast, Marina Iodice, senior portfolio impact equities, explains the chain of events that led her to impact investing, why investing for impact doesn’t mean sacrificing returns, and how the Covid-19 crisis has changed her thinking on societal and environmental challenges.

Investors’ attention and attraction to China has been growing for some years. Financial markets are becoming more accessible, economic reform programmes have momentum and growth prospects look better than in the developed world and in most other emerging markets. In this edition of Market Talk, Senior Emerging Markets Strategist Maar-ten-Jan Bakkum discusses the current climate for investors in this fast-growing and fast-moving market.

In January, we laid out our expectations for how the recovery could evolve throughout 2021 and beyond. Three months later, many of the trends we anticipated have materialized in the space of a single quarter. “We saw a fast decline in economic activity last year, a fast recovery ever since, a fast policy reaction and now a continued recovery that’s just very fast from a historical perspective,” said Marco Willner, head of investment strategy, in our latest Market Talk podcast.

Animal spirits – the herding behaviour of investors – have also played a central role in the speed of the recovery. Looking ahead, could the high levels of bullishness in the market lead to a correction later this year? A range of factors will determine this, including inflation expectations and equity market behaviour, according to Ewout van Schaick, head of Multi Asset. “Over-bullishness itself doesn’t create a sell-off. The market can become more vulnerable to a correction, but you still need a trigger.”

After a year of focusing on the pandemic and as the recovery gains momentum, financial markets are turning their attention to another potentially disruptive force. In today’s podcast, two NN IP experts talk inflation: Jaco Rouw, senior portfolio manager global fixed income, and Willem Verhagen, senior economist. They explore whether a short-term uptick could signal the start of a new trend towards higher long-term inflation and how, after a decade of ultra-low inflation, investors should go about preparing for what could be the beginning of a new regime.

“My biggest fear this time last year was that there would be so much focus on how to manage the crisis from a financial perspective that people would forget about climate, about social inequalities,” says Petra Stassen, senior responsible investment specialist. “But actually, the opposite happened.”

In our latest podcast, Petra and Chief Sustainability Officer Adrie Heinsbroek look back at the turbulent year behind us and explore questions stemming from our just-released Responsible Investing Report 2020. They discuss how Covid-19 and sustainability regulations are altering the landscape for responsible investing, what new trends are on the horizon, and how we tackle the thorny questions that often arise in our efforts to make a positive difference. “Some topics are not as simple as they appear on paper,” explains Adrie. “Investing responsibly is not just about mathematics. It’s about providing context and conversations.”

Joukje Janssen, lead partner for sustainable finance at PwC and Adrie Heinsbroek, NN IP’s chief sustainability officer, have been looking forward to 10 March 2021 for a while now. Today the first stage in the EU’s new sustainable finance regulatory framework comes into effect. This marks the first official step towards a greener Europe, but is just one element in a process that, for some, started months or even years ago. In today’s podcast Joukje and Adrie discuss what this milestone means to them and the effect it will have on the work they do.

The spike in government bond yields last week suggests that investors are pricing in a recovery in global growth and inflation as the Covid-19 vaccine roll-out continues. Still, the speed of the roll-out is not the only determining factor in the return to normality, as Marc Franklin, head of flexible multi asset, explains in our latest podcast. The policy response will play a key role, as governments will need to lead from the front in terms of easing restrictions.

The rise in potentially vaccine-resistant virus mutations could also be a roadblock on the path to recovery, according to Mark Belsey, senior investment analyst. The coming months will no doubt bring further surprises as new strains evolve, changing the way we approach the virus. “We’ve come a long way in the past few months, but we’re not out of the woods yet.”

Why trade finance? As far as Suresh Hegde, head of structured private debt, is concerned, its appeal is that “It’s real, it’s tangible and you can touch it.” Trade finance supports the physical sale of a broad range of products by giving parties all over the world the trust and security they need to trade with each other. In the case of NN IP’s trade finance strategy, these are mostly transactions in commodities such as agricultural goods, foodstuffs and metals, where ESG factors are also taken into account. Why now? Institutional investors are looking for new investment vehicles and this asset class offers short duration and less exposure to market movements, while paying an attractive yield.

Markets remain optimistic even in the face of weak jobs data, prolonged lockdowns and delays in rolling out Covid-19 vaccines. Many of the lost jobs are in lockdown-driven sectors and are likely to return as restrictions are pared back, and the number of vaccines ready for distribution is increasing, according to Marc Franklin, head of Flexible Multi Asset.

“People are saying that in a few months’ time, a high percentage of the population will be vaccinated, and these lock-down restrictions can ultimately be lifted or pared back,” he says.

“The market is thinking more about what will happen after this pandemic,” said Ewout van Schaick, head of Multi Asset. “If you want to play the cyclical recovery, which we still expect later this year, don’t put all your eggs in one basket. Make it a diversified portfolio of bets.”

What lies ahead for emerging market debt in 2021, and where can investors find value? For Marcin Adamczyk and Bregje Roosenboom, the answer lies in divergence. The asset class should see a substantial growth recovery, but it will be unevenly spread across regions and time periods as countries follow different paths to normalization. This divergence is already visible, as emerging Asia has led the recovery so far while the high yield segment still appears undervalued relative to our projections.

In this environment, active management with a focus on fundamentals is key to locating opportunities. Countries that can best adjust to the new normal stand to benefit most from the growth recovery and the ongoing search for yield.