Govt bonds failing the risk/reward test
Government bonds in developed countries are no longer the 'risk-free' assets they once were, according to senior Franklin Templeton bond manager Michael Hasenstab.
Investing in a traditional bond portfolio - something that may have served people well five or 10 years ago - is unlikely to be the best strategy in the new economic environment, he said.
"The challenge is to find where one can position assets in seeking to preserve and grow wealth over time," said Hasenstab.
Investors who want to be rewarded for the risks they are taking should consider dipping into emerging markets, which are the recipients of large investment flows thanks to quantitative easing abroad, said Hasenstab.
He added emerging markets remain much healthier than developed nations on a relative basis, despite the fact that the absolute economic growth of emerging markets has slowed.
Hasenstab also played down fears of a 'hard landing' in China, given "the strength of the Chinese economy and the massive resources that the Chinese government has - should there be some vulnerability in the banking system".
"There are some very important long-term structural reforms underway and it is more important for China to improve the quality and composition of growth at a lower rate than we have seen over the past several decades," Hasenstab said.
In addition, the situation in Europe is not as bad as investors might think - with the chances of the eurozone splitting apart low, and Spain and Italy unlikely to undergo a "credit event", he said.
"A difficult investment environment and Armageddon are two different things. Periods of market volatility or headline noise are presenting some real opportunities, and having a long-term vision is more important than ever," Hasenstab said.
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