Brandywine’s David Hoffman positions Global Fixed Income fund for 2014
David Hoffman, managing director at Legg Mason subsidiary Brandywine, has outlined expectations for 2014 and his anticipated positioning for the Legg Mason Brandywine Global Fixed Income fund
We expect structural stagnation or weakness in commodity prices due to China’s economic composition shift, fostering a continuation of the tempered inflation environment globally. Though, our recent research suggests that China can continue at 7% growth for the next decade while appropriately shifting the composition of growth away from new fixed asset investment.
Stimulus tapering will be back on the table for the Fed as that central bank gets increasingly uncomfortable with unintended consequences. Whether developed economies can stomach significantly higher term interest rates is something to which we will pay close attention-this summer’s experience suggests not. We forecast modestly better global growth in 2014 and we tend to be more bullish than markets on global growth, but if safe-haven interest rates sell off again in 2014, we would likely look to lengthen duration exposure in those markets.
We believe Japan’s economic policy will continue to gain traction in creating appropriate inflation levels and speed up nominal growth. However, we expect the yen to remain flat to lower against G3 peers as part of the mechanics of stimulating nominal growth. We live in a beggar-thy-neighbor world with each exporter fighting for restrained global demand growth, so we are closely watching for interventionist central bank policies around the world.
Emerging markets will face some growth challenges in 2014, but we believe much of the recent volatility represents a liquidity issue, not a solvency issue. Select countries look attractive today and delayed tapering gives the universe a little more room to implement structural reform. Mexican fundamentals are stronger today than ever following tax, education, and pending energy reform. Countries like Indonesia and India are cutting fuel subsidies. Essentially, emerging markets governments are making politically difficult decisions to improve efficiency and stability-that’s a positive step. We will likely be adding incrementally to select emerging markets exposures in 2014.