Market insights

 
With Jair Bolsonaro’s election, Brazil avoided the worst-case scenario from a market’s perspective, the potential return of the Workers Party to power. Now, the question in our minds is what a Bolsonaro administration will really entail.

 
Volatility has returned to oil markets and we believe it is here to stay in the short- to medium-term. In the past five weeks, global crude oil prices have moved from 4-year highs into a bear market.

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While high yield bonds also weakened during the recent equity market correction in October, they performed relatively well compared to other asset classes, particularly equities. Their lower sensitivity to interest rate movements and their carry provided a safety buffer against the volatility. Peter Jeggli, senior portfolio manager at Fisch Asset Management in Zurich, believes the late phase of the economic cycle still offers opportunities in high yield bonds, and is focused on bonds backed by strong fundamentals.

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Stephanie Zwick, Head of Convertible Bonds at Fisch Asset Management in Zurich, expects to see inflows into the convertible bond asset class during the remainder of the year. “In the current market phase, convertibles make for an attractive alternative to both equities and bonds. Equity market levels are high and the economic outlook is starting to look bleaker, so equity investors are increasingly on the lookout for downside protection, while bond investors need investment opportunities capable of generating higher returns due to concerns about interest rates.”

 
The market is rightfully focused on Argentina, Turkey and Russia at the moment, and so are we. However, there is another key event brewing in the background, and we see the next focus of investors to become Brazil with the October Presidential Election coming up.