Economic and Market Commentary

December 2023 Update from the Australia Trade Floor

Portfolio Manager Rob Mead discusses the investment outlook for 2024 and highlights the opportunities for savvy investors.

More from this section

Read Transcript

Text on screen: John Valtwies, Account Manager

Valtwies: Rob, 2023 was characterised by some unexpected resilience in the face of dramatically higher policy rates. What's our read on this environment and how does it shape our outlook for 2024?

Text on screen: Rob Mead, Co-head of APAC Portfolio Management

Mead: Yes, you’re right John. We haven't seen economies do this well under that sort of rate hike cycle. I hate to use the words ‘this time is different’, but I guess in some respects it is.

So monetary policy lags are clearly taking a little longer post-pandemic. And we'd put that down to things like the availability of fixed rate borrowing, labour hoarding because of the

uncertainty around the pandemic, issues around immigration and labour supply, excess savings, all of these things are impacting the lags of monetary policy.

So we do think this time is slightly different. But we also say, if you look at the starting point today of how much policy tightening has taken place, accompanied by the levels of core inflation, economies have never navigated a soft landing.

So when it comes to our outlook, and for all investors that are participating today, it really means that you should be at least thinking about minor recessions in terms of your outlook as a stress test or even using a mild recession as your base case.

Valtwies: Rob, the resilience piece is certainly attributed to the lags and it's probably fair to say that we expect the impact of those higher interest rates to continue to play out over the next few months. Given this uncertainty, how should investors be thinking about the forward- looking environment? What are the actions they should be taking?

Mead: Sure, I think 2024 is going to be the year of recalibration of relative asset prices, because we did see a pretty robust backdrop for risk assets in ‘23. But given that there's so many anomalies, it's very unusual to see so many anomalies.

So the first thing to think about is that central banks have done almost all the heavy lifting that's required. Maybe they are done. And for core bonds as an asset class, the most important driver of return is the starting yield.

So when you think about yields of 6% or thereabouts, it's a pretty good indicator of what to expect going down the track. But the most important thing for ’24 is that the bond market

is finally playing its role to keep every other asset class honest.

So it sets a hurdle for taking risk. You need to start earning a lot more than a 6%

type investment to generate, or to justify, I should say, taking risk. And I think while rates were so low, a lot of the other asset classes had started to get complacent and lazy.

There was never meant to be a herd of unicorns. You know what I mean?

These things are anomalies. And so when we look across asset classes now, the relative expected returns from risk assets versus bonds has narrowed to the point that investors, if they're still underweight defensive asset classes, underweight core bonds, they should be moving now.

Now's the time to get back to square and maybe start to look to be overweight

the core bond asset class.

Valtwies: Rob, there's a few points that I think we need to expand on. You spoke about bonds recalibrating other asset classes. You spoke about bonds keeping asset classes honest.

What does this mean? What are the action items for investors?

Mead: Well, I think there's a few things for all investors to think about. The first one is, have all asset classes repriced to this new environment? And the very clear answer is no.

So at one moment in time, you've got things like listed property trusts gated, yet you've got other illiquid assets still priced at par. It's the time to act now. If you can sell some things at par, you probably should.

The second part of that equation is that in a ‘higher for longer’, or we're really changing

that or paraphrasing that to be ‘high for longer’, we're already high, doesn't have to go higher, but in a ‘high for longer’ environment, highly levered borrowers need to prepare for the worst.

If you're thinking about a short term interest rate storm, that's the wrong mindset.

You need to be thinking about rates staying on the tighter side of neutral for an extended period. So prepare for that.

And then the final thing is for asset classes that have repriced and there are many.

When we look across the global private credit market, structured finance, things like corporate restructurings now offering potential returns in the low to mid-teens, they're compelling.

So there's really great opportunities out there, but only for the savvy investor.

You need to be you need to be very active and thinking about your overall portfolio.

Valtwies: Rob, we've been working together for a number of years.  It's probably the first time I've heard you so upbeat on the outlook given the reset in policy rates we've seen.

For investors we look at core bonds and it's straightforward in that yields are significantly

higher, 6 to 7 percent when looking at high quality bonds in very liquid daily priced structures.

Under any scenario, there is attractive yields on offer. For more savvy investors who are open to some of the more unique opportunities that we see across private credit markets and restructuring, we think there's great potential for outsized returns. And in the year ahead, we're here to help. We thank you for your ongoing support and looking forward to working with you in the next few months.

Filters: Reset All


Close Filters Dropdown
  • Tags


  • Category


    Bond by Bond
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
  • Order By


    Most Recent
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • R
  • S
  • T
  • V
  • W
  • Y
  • Z
Berdibek Ahmedov
Product Strategist
Andrew Balls
CIO Global Fixed Income
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Adam Bowe
Portfolio Manager, Australia
Allison Boxer
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Asset Allocation
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
Yishan Cao
Credit Research Analyst
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Harin de Silva
Portfolio Manager, Special Situations
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Anna Dragesic
Head of Global Credit Product Strategies
Jason Duko
Portfolio Manager
Devin Ekberg
Senior Consultant, Advisor Education
David Erdonmez
Account Manager
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
David Forgash
Portfolio Manager
Preeyam Gandhi
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Sachin Gupta
Portfolio Manager
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Jason Mandinach
Head of Alternative Credit and Private Strategies
Kyle McCarthy
Alternative Credit Strategist
Robert Mead
Head of Australia, Co-head of Asia-Pacific Portfolio Management
Lalantika Medema
Alternative Credit Strategist
Mohit Mittal
CIO Core Strategies
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Gavin Power
Chief of Sustainable Development and International Affairs
Lupin Rahman
Portfolio Manager
Paul W. Reisz
Fixed Income Strategist
Graham A. Rennison
Quantitative Portfolio Manager
Steve A. Rodosky
Portfolio Manager
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
John Studzinski
Vice Chairman
Aaditya Thakur
Portfolio Manager, Australia and Global
François Trausch
CEO and CIO of PIMCO Prime Real Estate
John Valtwies
Account Manager, Global Wealth Management
Megan Walters
PIMCO Prime Real Estate
Taosha Wang
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Jerry Woytash
Portfolio Manager, Short-Term Desk
Nelson Yuan
Kirill Zavodov
Portfolio Manager, Real Estate
Mike Cudzil
Portfolio Manager
Ben Bernanke
Chair, Global Advisory Board
Seray Incoglu
Portfolio Manager, Commercial Real Estate
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Private Markets: Early Innings for Asset Based Lending
Yield Advantage: Key Takeaways from PIMCO's Secular Outlook (video)
The Yield Advantage in Global Markets
How Can Your Cash Work Harder?
Investment Strategies

How Can Your Cash Work Harder?(video)

How Can Your Cash Work Harder?

Investors hold cash for a variety of reasons, but having the bulk of cash in traditional instruments may not be the best option across all the reasons for holding cash. A liquidity tiering strategy can help investors gauge how much cash they actually need in their portfolios based on their goals and objectives -- and how much they should consider allocating to higher-returning short duration strategies.

Specialty Finance: An Expanding World of Opportunity
Gain an Active Edge in the Bond Market (video)

Load more results Load {{cCtrl.fetchResults}} more results