Insights

An unprecedented situation in global equity markets The rise in global equity markets observed in 2023, through until the summer, was chiefly attributable to expanding valuation multiples in the most speculative sectors. The resulting historic peak in sector concentration is comparable to the periods preceding the bursting of the technologies-media-telecoms (TMT) bubble and the 2008 financial crisis. Consequently, the gap in growth outlook, between the most volatile and the least volatile sectors, is four times higher than the historic average. In the context of an economic slowdown, this historically wide valuation and implied growth spreads, in favour of one single sub-segment of the market, offers some genuine relative alternatives. For investors, opportunities may arise with defensive sectors and value stocks narrowing the gap moving forward.

The fixed income bond market is comprised of different types of debt. Subordinated debt sits at the lower end of the debt stack, just before equity. In case of a default, repayment of subordinated debt will come after the other bond tranches.  This implies that subordinated debt bears a higher risk for investors. Therefore, in return, subordinated debt bonds compensate investors with higher yields. As a result, the asset class offers a compromise in terms of risk and returns, positioning it in the middle of the capital structure, just between equities and senior bond tranches. European banks represent the largest sub-segment of the subordinated debt asset class. This is related to the regulatory framework and its stringent rules in terms of bank capital requirements. Issuing subordinated debt allows banks to increase their capital ratios while at the same time it serves to strengthen their creditworthiness. In 2023, after a turbulent month of March, the subordinated debt market has moved back in the spotlight. The asset class’s valuations have improved, offering an opportunity to gain access to higher yields from subordinated bonds issued generally by investment grade quality signatures. The subordinated debt market is characterised by a strong “euro” bias, resulting from technical factors (European regulatory framework) that favour issuance versus issuing equity to strengthen capital structures. According to Ostrum Asset Management (Ostrum AM), subordinated debt is an instrument which can be used to diversify fixed-income allocations, offering additional yield pick-up. And it can add value to responsible bond allocation as the sustainable subordinated bond market is developing.

Each month we share the conclusions from the monthly strategy investment committee which provides a summary of Ostrum’s views on the economy, strategy and markets. 

After a complicated interest-rate hike phase, new promising horizons are opening-up for insurance management, although there are other challenges to be met.

The current macroeconomic context is surrounded by some big questions: are we facing a recession? If so, how deep will it be? and how resilient is inflation? For Ostrum AM, it is inflation that will continue to remain the number one “sticky” topic on everyone’s mind. In this environment, what strategies could be considered by investors?  

Each month we share the conclusions from the monthly strategy investment committee which provides a summary of Ostrum’s views on the economy, strategy and markets. 

MySustainableCorner gives you monthly news on the sustainable bond market.  In 2023, sustainable bonds are still appealling, supported by investors ’and issuers’ CSR policies. Find a mid-year recap on green bonds, social bonds, sustainability bonds and sustainability-linked bonds, as well as regulatory information.

Focus on the credit market, with Philippe Berthelot, Head of Credit & Money market Since October 2022, we forecasted that 2023 would be an annus mirabilis for fixed income. And as a specialised fixed income asset manager, we were right! So far, 2023 is a marvelous year in general, and for credit in particular.

June was marked by outperformance of ‘high yield’ EM countries and in particular the ‘C’ rated segment compared to investment grade counterparts, as shown in the chart below.

Each month we share the conclusions from the monthly strategy investment committee which provides a summary of Ostrum’s views on the economy, strategy and markets. 

The year 2023 marks the 30th anniversary of the entry into force of the Convention on Biological Diversity. And yet, while major global forums – COP 15 in Montreal in December, the International Seabed Authority Council in Kingston and the One Forest Summit in Libreville in March – have punctuated the news in recent months, a detailed understanding of biodiversity issues is still limited to a college of experts. The climate threat has long dominated political, economic and media debates, with many believing that the fight against climate change automatically goes hand in hand with the preservation of life. Yet while the consequences of biodiversity loss may seem less glaring than climate catastrophes, their scale is enough to make you break out in a cold sweat: we're on the verge of a sixth mass extinction, with species disappearing at a rate 100 to 1,000 times higher than the natural rate; almost 75% of terrestrial environments and 40% of marine ecosystems are reportedly already degraded. 

The rate movement since mid-2022, both highly anticipated and surprising in its magnitude, has upset some investment paradigms anchored for several decades. The new IFRS accounting rules also change the classification of assets for a large number of insurers. The year 2023 therefore offers the opportunity to review the structure of the portfolios and to implement a more active management, in order to take full advantage of the new market conditions, while integrating accounting concerns, explains Rémi Lamaud, Expert Solutions, Insurance Management and ALM solutions department at Ostrum AM.