The most recent sell-off in peripheral debt has only made this opportunity even more attractive, especially as emerging markets are a longer-term opportunity for investors looking carefully at specific countries, currencies and credits in relation to the business cycle.
Risks remain for fixed income, in spite of the most recent flight to safety. Information could quickly become too strong and growth and inflation could shoot up. It is then that the Federal Reserve and the Bank of England would have to act accordingly.
However, when comparing this period with previous normalisation phases – US Federal Reserve chairmen Paul Volcker in the early 1980s and Alan Greenspan in the late 1980s to early 1990s – one of the key differences is that wage growth continues to be weaker than in those periods.
Although business surveys are showing some companies are now lifting wages in the US, there has not been any dramatic change that would mean reassessing the view of a gradual transition.
Amanda Stitt is investment director at Legg Mason
