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Thursday 15 August 2024
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August 2024 | The reinsurance industry has existed for over 150 years, and it remains an asset class structurally uncorrelated to traditional investments. To derive the value of cat bonds, Amundi believes the asset class should be part of a strategic, long-term asset allocation. The favorable risk and return characteristics have been demonstrated in the current market environment as well as over the longer term, and there are many favorable market trends that continue to make us constructive on this asset class over the foreseeable future.
01 | We believe the catastrophe bond sector may offer attractive diversification benefits when constructing resilient portfolios because the sources of risk, return, and liquidity for the sector are structurally uncorrelated with other asset classes.
02 | There is no strong correlation between hurricane forecasts and reinsurance losses.
03 | As with many other asset classes, long-term holdings in the market tend to produce better long-term results than attempting to 'time' markets. This adage holds true for catastrophe bonds as well.
Important Information
Unless otherwise stated, all information contained in this document is from Amundi Asset Management as ofAugust 14, 2024. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi Asset Management and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product or service. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not indicative of future results. Amundi US is the US business of Amundi Asset Management.
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Global stocks fell sharply at the start of the week, with Japan’s benchmark Topix index on Aug. 5 suffering its biggest one-day drop in more than three decades. European shares and U.S. stock futures also declined. Meanwhile Emerging Markets stock indices, mostly in Asia (Taiwan and South Korea), fell into the red and currencies that had benefited from high carry trades funded by the yen, such as those in Latin America, lost ground.
Market reaction to Biden's announcement has been muted at the time of writing, with a fall in the US dollar in early trading on Monday (July 22nd), a marginal movement in 10-year US Treasuries, and an upward trend in equity futures. In terms of the implications on markets, the election outcome is still highly uncertain. It is too early to define a potential "Harris trade," but even to have a specific trading strategy for a potential Trump 2.0 administration, as there is ideological uncertainty regarding its goals and policies. There are also significant ideological clashes that the Trump administration would need to address, such as the approach towards China, inflation, tariffs, fiscal expansion and the desire for a weaker dollar.
Second-quarter returns were positive but uncompelling as not offering a premium to cash. Several of the economic indicators we monitor are indicating softer growth may lie ahead. Although we identify multiple positive factors for high yield, valuations are challenging. With spreads tight and the economy likely to slow, we are positioning portfolios defensively in anticipation of spread widening.
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