Overall, China’s economy must deal with excess economic capacity by stimulating domestic private activity or set growth targets at lower levels that strictly contain production.

China’s ability to sustain fairly robust economic growth despite a massive property sector downturn is now facing new tests as global trade barriers rise, and domestic demand shows fresh signs of weakness.

Looking ahead, China’s excess industrial capacity and mounting inventories are likely to intensify deflationary pressures – forcing policymakers either to further stimulate domestic consumption or to tolerate slower growth. The readout from China’s recent fourth plenum acknowledges this economic reality. However, how quickly China can shift its growth model inward remains a key question.

The post China’s growth engine faces fresh challenges appeared first on AdviserVoice.

Adam Bowe

The Reserve Bank of Australia (RBA) has cut rates three times in 2025 in line with our long-held expectations for a quarterly easing cycle. In our view, the cash rate should fall below 3% in 2026 and investors should position their portfolios for lower cash rates each quarter.

Despite equity market optimism, the RBA’s own forecasts paint a more subdued picture: inflation stabilising within its 2%–3% target band, growth only managing around 2% through 2027, and global risks still elevated. In this context, a 3.6% cash rate appears restrictive and increasingly hard to justify.

Rate cuts aren’t just a local story. Central banks across developed markets, including the U.S. Federal Reserve, are easing rates in response to subdued growth and stabilising inflation. For investors, the shift toward lower rates calls for a reassessment of income-generating strategies beyond savings accounts and term deposits. We believe the opportunity set in core bonds is as attractive as it’s been in over a decade, combining defensive characteristics with meaningful return potential.

Bond market outlook: Why investors should embrace high starting yields, steep yield curves, and elevated volatility

While tariffs, trade tensions and geopolitical uncertainty have driven volatility across global markets, core bonds have quietly delivered, posting high single-digit returns over the past year. This shouldn’t come as a surprise given that the starting yield on your portfolio today is a strong indicator of the average return you can expect over the next three to five years. With yields still elevated, it’s an opportune time to consider adding to bond allocations.

The shape of the yield curve adds to the appeal. While shorter-term bond yields have been falling, long-term rates have been rising, driving a steepening in global yield curves. This dynamic is significant for two reasons. First, despite being a year into a global easing cycle, core bond funds remain attractive because average portfolio yields are little changed. Second, steep yield curves provide a tailwind for bond returns, offering the potential for capital gains in addition to high starting yields. ; Active investors should consider positioning around the five to seven-year part of the yield curve to benefit from central bank cuts and potential capital gains through roll-down strategies.

Volatility, often seen as a risk, can also create opportunities. Active managers can take advantage of diverging global growth and inflation trends to generate returns above the market benchmark. Right now, those opportunities appear more plentiful than they’ve been in years.

The case for diversification

The global bond market, valued at close to US$150 trillion, offers a wide range of opportunities to diversify risk and seek attractive returns across developed and emerging markets.

Some investors fear a return to positive correlations between equities and bonds, especially when inflation exceeds central bank targets. But with inflation now close to target, correlations have dropped. That’s good news for portfolio construction. Correlations don’t need to be negative to be effective, just low – and right now, they are.

Fixed income opportunities as rate cuts continue

The message is clear: prepare portfolios for lower cash rates. As central banks across developed markets continue their easing cycles, global bonds present a compelling opportunity to generate resilient income and hedge portfolios against heightened volatility.

From short-term active fixed income funds to longer-duration core bond strategies, the current environment offers a wealth of options. In our view, the positive returns we’ve seen from bonds over the past year are far from over.

By Adam Bowe, Head of Australia Portfolio Management

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In this role, Mr. Watkins will work closely with Rob Mead, Head of PIMCO Australia and Co-head of APAC Portfolio Management, to lead the growth strategy in Australia and partner with Eric Frerer, Head of Institutional Account Management and Brendon Rodda, Head of Distribution, Global Wealth Management. Mr. Watkins will also have local oversight of business management functions. He reports to Alec Kersman, Head of Asia-Pacific who is based in Hong Kong.

Alec Kersman, Head of Asia-Pacific said: “We are excited to welcome Sam to PIMCO. He joins our team with extensive regional experience, proven strategic leadership and deep cross-asset capabilities built over his successful 20+ year career in the finance industry. Sam is a tremendous addition to our firm and to our business leadership in Australia. Sam will lead our talented teams in these markets to continue to deliver PIMCO’s industry-leading investment solutions.”

Rob Mead, Head of Australia and Co-Head of APAC Portfolio Management, said: “Sam brings a differentiated skill set that will further empower our team and help deepen and broaden PIMCO’s client relationships. We look forward to partnering with Sam to continue to deliver innovative solutions and exemplary client service.”

Mr. Watkins joins PIMCO from Goldman Sachs where he was most recently Managing Director and Head of Equity Finance Product, Asia Pacific, responsible for marketing, distribution, development and structuring of equity finance products for the region. Before Goldman Sachs, Mr. Watkins also worked at Deutsche Bank AG, Credit Suisse AG and Macquarie Bank in Australia where he held various key positions in their equities and derivatives businesses.

The post PIMCO appoints Samuel Watkins as Head of Business in Australia and New Zealand appeared first on AdviserVoice.

Robert Mead

It was way back in May 2013 when PIMCO first uttered the phrase “The New Neutral” in relation to Australia’s cash rate. At that time, we estimated the “New Neutral” rate for Australia to be about 3%. We stand by that view.

Today, over 4 years later, the RBA explicitly referenced 3.5% as their estimate of the neutral nominal cash rate, while also acknowledging significant uncertainty around this estimate.

The clear takeaway from both of these estimates of neutral rates is that versus the pre-Global Financial Crisis (“GFC”) period, we should expect interest rates to be significantly lower than historical cycles.

Additionally, we also know that Australian households have binged on debt since the GFC, taking advantage of lower and lower mortgage rates. More recently, borrowing rates have started to increase for certain borrower cohorts due to regulatory changes designed to limit the potential for systemic risk.

From PIMCO’s proprietary studies, we know that Australian borrower confidence is dominated by two factors: first, the level of borrowing rates; and second, recent changes in house prices. Given the latest housing and interest rate data, it appears we may be approaching an important inflection point, which will limit the flexibility for increases in policy rates.

Given these dynamics, the start of any hiking cycle in Australia will not be possible for at least 6 to 12 months, so it is important to consider the likely global economic dynamics expected to be in place at that time. The Chinese Party Congress will have been concluded before the end of 2017 and in PIMCO’s view there is a high probability of additional economic growth volatility. Also, the level of the Australia Dollar will be key. The RBA reminds us that the depreciation of the Australian dollar since 2013 has assisted Australia’s economic transition which is true, however it is also important to note that the Australian dollar has appreciated by over 15% since early 2016.

Investment Implications: When considering any investment, the expected destination valuation is very important, but even more important is the path and the time required to reach the destination valuation. When it comes to Australian interest rates, we believe the hurdle for RBA action (either higher or lower policy rates) remains high and just like the Federal Reserve, when the time eventually comes to neutralise policy, the path towards the “New Neutral” will be a slow and measured one.

By Robert Mead, Managing Director and Co-head of Asia-Pacific Portfolio Management

The post It’s Official – The New Neutral Arrives Down Under appeared first on AdviserVoice.

Robert Mead

After 25 years of steady economic growth, Australia is on the verge of wresting bragging rights from the Netherlands for the longest period on record without a recession. While this historic event should be celebrated, the future may not be as rosy.

PIMCO’s base case calls for Australia to keep growing moderately over the next three to five years, in a range of 2% to 3%, with inflation well contained in the 1.5% to 2.5% range. On a positive note, Australia’s sovereign balance sheet is relatively healthy, and its credit rating was just affirmed at ‘AAA’ last month by Standard & Poor’s. But if there is any hint of a downturn in developed markets, or if China migrates toward a worse-than-expected outcome, the resilience of the Australian economy over the next three to five years will be extremely challenged.

Mining and housing: past their prime

Australia’s GDP growth has averaged 2.6% since the end of the global financial crisis, and during this time, the two most important marginal contributors have been mining and housing. Australia produces some of the highest-quality and lowest-cost ore and remains a reliable and competitive energy exporter; however, the demand for these exports would suffer under a weak China scenario, given that Asia represents almost 50% of Australia’s export volumes. As for the housing sector, Australian households are already highly leveraged and major city property prices are elevated, so room for housing to add significantly to the economy would be limited in a period of global weakness.

Australia’s economic growth since the financial crisis has also been supported by other important factors: first, steady growth in the U.S. economy, which is in the midst of its third-longest recovery on record; second, China’s uninterrupted growth, which has been driven by an increase in the national debt level from 161% to 258% of GDP; third, Reserve Bank of Australia (RBA) rate cuts from 7.25% to 1.5%, which have kept the economic engine ticking; and finally, Australian households, which have increased debt to well over 100% of GDP even as household debt in other developed nations has decreased. It follows that any changes to this supportive environment could have ramifications for Australia’s economy.

Policy and interest rate outlook

Rising household debt and property prices in major Australian cities have created a high hurdle for the RBA to move the policy rate from its current record low of 1.5%. With Sydney now the second-most unaffordable housing market in the world (according to Demographia), the RBA would not want to be blamed for inflating housing bubbles with a rate cut. On the flip side, the relatively tepid state of the domestic economy should ensure that any RBA rate hikes are delayed at least until well into 2018.

If the Federal Reserve continues on its path of raising interest rates in the U.S. as expected, then for the first time in more than 15 years we may see the U.S. fed funds rate and the RBA policy rate reach the same level. As we move into 2018, there is a strong likelihood that the RBA cash rate will actually be below the fed funds rate.

Investment implications

The likely crossover of Australian and U.S. policy rates also has implications for investors: Expected returns from hedging U.S. dollar investments back to Australian dollars, which have provided a boost to many portfolios in recent years, will likely fade. In this environment of interest rate convergence, we expect Australian bonds will continue to provide a robust diversification anchor in balanced portfolios.

For more on our long-term views on the global economy, read PIMCO’s 2017 Secular Outlook, “Pivot Points.”

By Robert Mead, co-head of Asia portfolio management in Sydney.

The post Australia’s long-term outlook is less rosy: PIMCO appeared first on AdviserVoice.

U.S. President Donald Trump is close to completing his first 100 days in office, a somewhat arbitrary marker that entered the American lexicon during President Franklin D. Roosevelt’s time. While many believe a president’s influence and capacity for action may be greatest in this period, there is nothing particularly magical or predictive about the first 100 days in office. For some presidents, a productive first 100 days has translated into a relatively industrious time in office (Ronald Reagan is one example), while others who have struggled in the first 100 days have gone on to achieve key elements of their agendas (e.g., Bill Clinton). Looking at several metrics – legislative achievements, staffing in key areas and executive orders – President Trump’s first-100-day track record has been mixed.

On one hand, Trump has had no major legislative achievements, and his relationship with Congress – a predictor for future legislative success – is not particularly strong (at least as of now). Additionally, vacancies in vital positions remain throughout the executive branch, potentially hindering President Trump’s ability to advance his agenda at the executive level.

On the other hand, the president has been active in terms of issuing executive orders, ranging from financial deregulation, to trade, to the tax code. Of course, executive orders without subsequent congressional action often have limited effectiveness and are frequently more symbolic than substantive. Nonetheless, President Trump, similar to his predecessor, is finding executive orders the most straightforward way to leave his fingerprints on Washington.

While the first 100 days will make headlines, the first year is arguably a more important gauge of success, making the balance of 2017 critical for the Trump administration. This is for the simple reason that as we get closer to the midterm elections in November 2018 – when every House seat and a third of the Senate seats are up for re-election – it becomes increasingly difficult for members to take politically difficult votes. For instance, if we do not see some action on healthcare in the next few months, it’s doubtful Congress would bring it up again in 2018.

The same can be said about tax reform, another potentially politically thorny, not to mention highly complicated, issue. Real tax reform has not been done for 30 years – and even then it took several years to complete – for the very reason that it entails winners and losers. And the unveiling of the president’s tax plan may in some ways complicate tax reform even further, given that it is somewhat different from the House Republicans’ tax plan. It will likely take time to reconcile the different plans to get to one unifying, comprehensive tax bill that both chambers can pass.

We’ve been skeptical that comprehensive tax reform would pass through Congress quickly; our view remains that if we see action on tax reform at all, it won’t be until the end of 2017 or the beginning of 2018, and it will likely be smaller in scale and scope than any of the proposals we have seen to date. And if action on taxes slips beyond that time frame, it would become increasingly likely that we won’t see action until after the midterm elections (if at all), a development that markets would not welcome.

By Libby Cantrill, head of public policy 

The post Trump’s First 100 Days: Should Investors Take Notice? appeared first on AdviserVoice.

Andrew Balls

PIMCO, a leading global investment management firm, has launched a dedicated Environmental, Social and Governance (ESG) investment platform globally, offering fixed income solutions to investors seeking attractive returns while making a positive social impact.

As part of this platform, the PIMCO ESG Global Bond Fund has been launched in Australia. The Fund, which marks PIMCO’s first dedicated ESG fund offered to Australian clients, has been launched to meet demand from clients looking to incorporate responsible and social considerations in fixed interest investing.

PIMCO’s unique ESG framework is underpinned by three key pillars: Exclusion, Evaluation and Engagement. The process not only excludes companies with business practices that are misaligned with sustainability principles, but also evaluates their ESG credentials and favours those with best-in-class ESG practices. Further, the team engages collaboratively with companies, encouraging them to improve their ESG practices and influence long term change.

The founding belief of this new strategy is that investors in ESG portfolios should not have to sacrifice their financial objectives in order to achieve an ESG impact.  The Fund aims not to compromise on investment returns to achieve social objectives by benchmarking itself against a traditional global bond benchmark, and invests in a range of sovereign and investment grade corporate bonds from around the world. The fund is managed by a team led by Andrew Balls, Managing Director and CIO of Global Fixed Income and Alex Struc, Portfolio Manager and head of ESG portfolio management at PIMCO.

PIMCO globally has also launched a dedicated ESG fund in Europe and the U.K, and enhanced two of its socially responsible funds in the U.S. to incorporate a wider range of ESG considerations into the investment process.

Andrew Balls, Managing Director and CIO of Global Fixed Income, said:  “For many investors, screening out undesirable investment categories isn’t enough anymore; they want to use their investments to promote change in the world. Our ESG Fund provides the tools to do that without compromising on returns.”

Alex Struc, Portfolio Manager and head of ESG portfolio management at PIMCO, said:  “Historically, this type of strategy has been pursued by equity investors but we firmly believe that engagement as a debtholder is equally important. Across the vast fixed income universe, small change can have an enormous positive impact.”

Adrian Stewart, Head of PIMCO Australia and New Zealand, said: “Sustainable investing is increasingly an important focus for many of our clients, yet there is a shortage of compelling ESG-oriented fixed income solutions available to investors. Having spent the last few years developing our processes and team, we are excited to invite Australian investors to participate in what we believe is an engagement-driven, industry-leading ESG platform. We think that PIMCO is in a great position to fill this leadership vacuum in this maturing market.”

The post PIMCO Australia Launches ESG Global Bond Fund appeared first on AdviserVoice.

Morningstar Australia said: “PIMCO’s wide-ranging expertise in fixed income investing was on full display again during 2016. The firm achieved excellent results across several different capabilities, and as volatility returned to bond markets, showed that it can deliver when it really matters. All of this stems from the highly-capable team’s sophisticated and insightful research and application of a robust process. These traits have underpinned sound decisions for many years, solidifying PIMCO’s case as this year’s outstanding fixed interest manager.”

Adrian Stewart, Executive Vice President and Head of PIMCO Australia and New Zealand, said: “It’s an honour to have PIMCO selected by Morningstar as best in class for fixed interest for the third consecutive year. We are incredibly proud of our investment teams and the results they
consistently deliver for our clients in Australia and globally.”

Robert Mead, Managing Director and Head of Portfolio Management at PIMCO Australia, said: “With ongoing bouts of volatility and a convergence to New Neutral growth rates globally, it is important for investors to remember that the bond market remains an important part of a portfolio’s asset allocation. Overall, we believe the income, capital preservation, steadier returns and portfolio diversification of bonds will continue to offer value to both Australian and global investors in The New Neutral.”He added, “With substantial uncertainty surrounding the global outlook, patience and nimbleness

He added, “With substantial uncertainty surrounding the global outlook, patience and nimbleness will be required to add value and we believe bond investors need to more than simply rely on passive market exposures to improve upon low passive returns. We believe investors should favour active managers who employ bottom-up research to identify opportunities in countries, sectors and companies that are growing faster than the economy.

In determining the winners of the Morningstar Awards 2017, Morningstar takes into consideration a combination of qualitative research by its manager research analysts; riskadjusted returns over the one-, three- and five-year periods; and performance in the 2016 calendar year. Morningstar said: “The objective is to screen for fund managers that have provided consistently strong returns and not just reward those with the most impressive oneyear
return that have otherwise struggled to impress.”PIMCO’s Australian Bond Fund still remains the only Gold rated fund (Morningstar Analyst

PIMCO’s Australian Bond Fund still remains the only Gold rated fund (Morningstar Analyst Rating assigned at 24 Jan 2017) within the fixed income universe by Morningstar Australia. Morningstar said in its Global Fund Report published 10 Jan 2016: “PIMCO Australian Bond continues to be our top-rated Australian bond strategy owing to the experienced team and its consistent, time-tested process.”

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What’s in store for Trup’s first year?

With the inauguration of the 45th president imminent and the market’s high expectations for policymaking, what is realistic for investors to expect from Washington in 2017?

We think the bottom line is that governing is harder than campaigning. Many of the items that President-elect Trump and congressional Republicans are looking to tackle in 2017 – a healthcare overhaul, tax reform, infrastructure – are inherently complex and time-consuming, even with Republican majorities in both chambers of Congress. So, while we expect policymakers to focus on advancing the Trump agenda, there is a good chance that some of these agenda items slip into 2018 given the realities of Washington.

Key policy initiatives

Obamacare: Repeal and replace?

One of the primary issues of overlap between President-elect Trump’s policy agenda and that of congressional Republicans is the repeal of Obamacare. However, there is less agreement about what comes after repeal – with Trump and some Republicans advocating for a “repeal and replace” approach, while other Republicans supporting “repeal and delay.”

If Trump’s approach is pursued – which seems more likely – it could have implications for the timing of the rest of his agenda. Healthcare policymaking is notoriously complex and time-consuming; it took Congress 14 months to pass Obamacare after holding more than 100 hearings in the Senate and 80 in the House, and Obamacare still managed to pass only on a party-line vote. Also, the committees in Congress that would be tasked to write at least part of the replacement bill will also be in charge of the tax reform bill, another complicated and formidable undertaking. Lastly, Trump has promised that a replacement bill will provide “insurance to everybody.” While Trump may walk back from these comments, the pressure for congressional Republicans to deliver a comprehensive, Trump-endorsed healthcare overhaul has increased, which might take longer (most of 2017?) than many expect.

Tax reform or tax cuts?

Another area of agreement between Trump and congressional Republicans is the issue of addressing the country’s tax code to make it more competitive. However, there is less agreement about how actually to do this. House Republicans want to proceed with tax reform on the individual and corporate side, while Trump has put forth a plan that focuses on tax cuts. Tax reform – simplifying the tax code, lowering rates and broadening the base – is notoriously more difficult and time-consuming than tax cuts, since it necessarily results in winners and losers. Yet, many would argue that only tax reform – not tax cuts – at this point in the economic cycle would lead to real improvements in productivity and therefore sustainable economic growth. For this reason, we expect House Republicans to try to advance a tax reform package, at least initially.

But there is a long way to go from here to there. No bill has yet been written, and it is not clear whether Senate Republicans are on the same page as House Republicans, especially when it comes to more controversial topics such as the “border adjustment tax,” which would tax imports and exempt exports.

Assuming tax reform is pursued (not just tax cuts), it will likely take longer than most expect given its complexity and may be a smaller package (e.g., rates not lowered as much) depending on where Republicans fall out on different controversial issues (e.g., the border adjustment tax). While the market appears to be pricing tax reform to be completed in 2017, there is a real possibility we don’t see a bill passed and signed by President Trump until 2018.

Infrastructure

While this is a topic that President-elect Trump discussed often on the campaign trail and one where there is generally bipartisan support, Trump has provided few policy specifics, and this is yet another issue where the devil is in the details. Given the ambivalence many Republicans have for increases in non-defense spending, Trump may need Democrats to help pass an infrastructure bill. It is not clear what the appetite for that would be among congressional Democrats. So this also could slip to 2018.

Trade

Unlike the aforementioned issues, which need congressional approval, the White House has significant discretion around trade. Indeed, one of the first actions President Trump is expected to take is to withdraw the U.S. from the Trans-Pacific Partnership. While this move is expected, Trump’s approach to trade broadly is unknown: Does he follow the advice of his U.S. Trade Representative Robert Lighthizer, who worked under President Reagan and will likely use a more carrot-and-stick approach with trading partners like China? Or will he follow the more extreme and protectionist advice of Peter Navarro, the head of the newly formed National Trade Council? At this point, we don’t know, and as such, trade remains the primary area for a more “left tail” (downside) outcome.

By Libby Cantrill, PIMCO’s head of public policy

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The recent bout of market volatility that followed sedated summer trading may be a guide to what lies ahead: occasional remine switches between periods of relative calm, (supported by benign macroeconomic data and sedative monetary policy) and periods of rising volatility and uncertainty caused by… “whatever”. This is why we favour a more cautious portfolio positioning despite our relatively benign baseline macro outlook, in line with our “Stable But Not Secure” secular theme…

Click here to download the full PIMCO outlook.

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