Trader profile: Riskier assets well supported with questions over Greece’s euro future

Name: Simon Fasdal

Position: head of fixed income at Saxo Bank

Years of trading experience: 18

Based: Copenhagen

What is the asset class and geography you are focused on?

I am in charge of bond and fixed income trading at Saxo Bank. But my approach is multi-asset, so I also focus on equities. The environment in 2015 changes my focus, as I believe that the lower oil price will have a major impact on regional and global investment opportunities. The odds of Greece leaving the euro are much lower than they were in 2011, even with a new Greek government and the renegotiation of bailout terms. Therefore I believe that Greece will not have much room to negotiate, and the government will find it a huge task to fulfil its election promises. The EU’s quantitative easing policy will serve as a cushion should the Greek crisis escalate. So riskier assets like corporate bonds should be well supported.

What is the outlook for the months ahead?

The major factor affecting bonds in the coming months will be the low oil price. Remember that for the last five years we have had an average price of above US$100 per barrel. In the last four to five months, that price has halved. I think the market will be surprised by the magnitude of the economic impact, and by the way it will influence investment opportunities. In particular, there will be a long time lag between the oil price fall, and what could be quite dramatic effects on the real economy.

Is the Middle East’s fixed income market likely to be affected? How?

The Middle East’s fixed income market will not be negatively affected, despite the importance of oil to the region’s economies. First of all, both Saudi Arabia and UAE are backed by huge national investment funds, which make their economies resilient even to very low oil prices in the medium term. The technical backdrop is also favourable, because Middle East asset classes will benefit from investment flows so long as global central banks continue their loose and unorthodox monetary policies. At the same time, we can expect the overall global yield environment to stay suppressed for a long time – again, due to the lower oil price.

What are the main risks, either upside or downside, to the outlook?

My two top picks are bonds in Asia and Europe. I believe that Asian economies will benefit from the lower oil price in two ways: firstly the lower cost for consumers and producers will boost economies, secondly the lower price will dampen inflation. Bonds in higher-yielding countries and corporate bonds with higher credit spreads, both local and dollar-denominated, look attractive.

In terms of upside risks, I firmly believe that the market underestimates the positive global economic impact of oil prices remaining at their present level. The lag between a lower oil price and the impact on the real economy is typically up to nine months, so we are nowhere close to seeing the impact yet.

The main downside risk to this outlook is aggressive tightening from the Federal Reserve. I believe that would be a mistake, since the strength of the dollar, and the lower oil price, should keep inflation in check.

What was the best investment you were ever involved in?

The best investment I have witnessed in the bond market has been the massive rally in peripheral Europe – Spanish 10-year bonds from the spike in 2012 at 7.50 per cent to levels below 2 per cent. It was the start of a multi-year bond rally.

What was the worst?

After the Lehman crisis, where bondholders could not sell their corporate bonds in the market, due to frozen liquidity. In some bonds this lasted for months. After markets opened, prices remained much lower for a long time.

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