Current crisis is “somewhat reminescent of 1997-98”, Amundi says
Amundi has reviewed recent market troubles in its latest update.
According to Pascal Blanqué (pictured), global CIO, head of Institutional Investors & Third Party Distributors at Amundi and Vincent Mortier, deputy CIO at Amundi, the global market downturn can be imputed to a shift in the global growth outlook.
An outlook that had been “too optimistic” at the start of 2015.
“At current levels, the stock markets appear to reflect a pronounced global slowdown, particularly in the advanced economies. This scenario does not correspond to our analysis of these economies’ domestic fundamentals, and it does not account for the likely response of economic policy, particularly from central banks,” Blanqué and Mortier said.
Amundi warned that “the chaos” of recent trading sessions may continue to produce its effects, “perhaps spilling over into other asset classes.”
“The risk of a downward spiral and financial contagion—a self-fulfilling prophecy reinforced by herd behaviour—remains high. In this regard, the current crisis is somewhat reminiscent of 1997-1998. The repricing of asset classes is probably not yet complete.
“This is particularly true in the emerging economies which do not form a homogeneous bloc and where the consequences of recent events for individual countries are still not very clear,” Blanqué and Mortier stressed.
Amundi said it is being more cautious and vigilant in the current context.
“In the fixed income markets we are keeping a very close eye on liquidity in the portfolios. In the equity markets it is still too early to increase exposure to risk. In relative terms, we continue to favour the markets of the eurozone and Japan in our asset allocation.
“These markets stand to benefit from strengthened domestic demand, lower commodity prices and potentially more aggressive asset purchasing policies by central banks,” Blanqué and Mortier explained.
In its latest market update, Amundi also shared its views on the Chinese situation and the devaluation of the renminbi against the US dollar.
Fears of a hard landing of the economy and a possible currency war are “exaggerated” for two reasons according to Didier Borowski, head of Macroeconomics at Amundi.
Borowski explained that the unpegging of the renminbi from the US dollar largely resulted because the peg had become unsustainable.
“The primary (medium-term) objective of the authorities remains the rebalancing of China’s growth regime in favour of household consumption. A sharp depreciation of the currency would not be compatible with this goal,” he said.
Borowski also highlighted that “the slowdown in manufacturing taking place is inevitable in the sense that it is the byproduct of significant excess production capacities.”
“On the other hand, there is no reason consumption by Chinese households should collapse, which should help cushion the shock and thereby prevent a hard landing,” he added.