Kristal Weekly Feed | 21st October 2019

All you need to know, in under 1 minute.
Here’s a concise report on what made headlines in the global market last week.

Positives

• ‘The end of the 60-40’ standard portfolio, says Bank of America
• The first-ever ESG junk bond ETF debuts
• Global finance officials commit to combat economic slowdown

Negatives

•  Swiss banks are charging millionaires to stash their cash
• China’s economic growth sees lowest drop since 1992

Now, for more detail.

Positives

1. ‘The end of the 60-40’ standard portfolio, says Bank of America

What You Should Know

The ideal portfolio is one that carries 60% of its holdings in equities and 40% in bonds. It is a mix that provides greater exposure to historically superior stock returns, while also granting the diversification benefits and lower risk of fixed-income investments. – This is what investors have been told for ages. But recently in a research note published by Bank of America Securities titled “The End of 60/40,” portfolio strategists Derek Harris and Jared Woodard argue that “there are good reasons to reconsider the role of bonds in your portfolio,” and to allocate a greater share toward equities. “The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies,” Harris and Woodard wrote.

What You Should Look Out For

The future of asset allocation may look radically different from the recent past, and it is time to start planning for what comes after the end of 60/40. Instead of U.S. government debt, the authors advise investors to add more exposure to equities, particularly stocks with high dividend yields in underperforming sectors, including financials, industrials and materials, which can be bought at inexpensive valuations.

Suggested Reading

2. The first-ever ESG junk bond ETF debuts

What You Should Know

Financial services firms are always on the hunt for new flavors of investments to offer, and coincidentally, investors are increasingly drawn to holdings that pay attention to environmental, social, and governance (ESG) issues. So a new fund that seems to offer high yield as well as comply with ESG principles might seem attractive, even though it raises some questions about how appropriate it might be for investors.

What You Should Look Out For

ESG includes an expectation that its returns will equal those of traditional investing strategies, so such a calculus can be complicated. There may now be more securities issued that fit both of the fund’s criteria than in the past, but there are far fewer than in a more vanilla type of offering.

Suggested Reading

3. Global financial officials commit to combat economic slowdown

What You Should Know

On Saturday, global finance ministers and central bank officials wrapped up their fall meetings with a pledge to combat the weakest global economic growth of the decade but there was little evidence of progress in easing tensions over international trade policy; a major source of the slowdown.
The policy-setting committee for the 189-nation International Monetary Fund said in a closing statement that they were hopeful of economic growth accelerating next year. However, this prediction could be effected by a range of factors; including continued disputes over international trade policy and increased geopolitical risks, officials acknowledged.

What You Should Look Out For

The World Bank has reiterated its commitment to provide a better life for the 700 million people in the world living in extreme poverty. The IMF, in an updated economic outlook, projected the global economy would expand by 3% this year, the weakest in a decade, and said 90 percent of the world was experiencing a downshift in growth. But the IMF forecast growth will accelerate slightly to 3.4% in 2020, still below the 3.6% rate in 2018.

Suggested Reading

Negatives

1. Swiss banks are charging millionaires to stash their cash

What You Should Know

Instead of paying interest on deposits, Swiss banks are starting to charge wealthy customers to store their money. On Friday, Credit Suisse (CS) said that the bank would apply a negative 0.75% interest rate to balances above 2 million Swiss francs ($2 million). This means that if an individual client or business holds 3 million Swiss francs ($3 million) with the bank for one year, they would be charged a fee of 7,500 Swiss francs ($7,600).

What You Should Look Out For

The unusual policy is the result of historically low interest rates in the banking sector. Negative rates, which have been in effect in Switzerland since 2015 and the 19 countries that use the euro since 2014, are meant to encourage borrowing and stimulate the economy.
Christine Lagarde, who takes the reins of the European Central Bank at the same time many of these policies go into effect, has said that the euro area citizens would be “worse off” without negative interest rates. But she’s promised to monitor their “adverse side effects” as ECB president.

Suggested Reading

2. China’s economic growth sees lowest drop since 1992

What You Should Know

The unfortunate and continued trade war between China and the United States has resulted into China’s growth dropping to its lowest in nearly three decades. China’s gross domestic product grew by 6% in the three months to September 30, the weakest quarterly growth rate since 1992 and down from 6.2% in the April-June period, according to government statistics released on Friday. It also missed the average forecast of 6.1% projected by analysts polled by Refinitiv.

What You Should Look Out For

Analysts from Nomura said the rebound seen in September could be short lived. They see China’s GDP growth dropping to 5.8% in the fourth quarter as exports are hit again by the slowing global economy and the trade conflict between the United States and China. “We expect the stability in October will be short lived, and expect the growth slowdown to worsen afterwards,” they wrote in a note.

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