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Investors must ready for recession, deleveraging in 2020 and beyond

2018.11.06 16:23:19 | 2018.11.06 16:33:01
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Participants of the 8th Global Financial Leaders Forum, hosted by Maekyung Media Group, pose for a photo after the event at Lotte New York Palace hotel in Manhattan, on Monday. From front row, second from left are Choi Hee-nam, chairman of Korea Investment Corporation, Scott Kapnick, chief executive of HPS Investment Partners, Thomas J. Byrne, president of The Korea Society, Jang Seung-joon, chief executive of Maeil Broadcasting Network, and Eun Sung-soo, chairman of The Export-Import Bank of Korea.

Participants of the 8th Global Financial Leaders Forum, hosted by Maekyung Media Group, pose for a photo after the event at Lotte New York Palace hotel in Manhattan, on Monday. From front row, second from left are Choi Hee-nam, chairman of Korea Investment Corporation, Scott Kapnick, chief executive of HPS Investment Partners, Thomas J. Byrne, president of The Korea Society, Jang Seung-joon, chief executive of Maeil Broadcasting Network, and Eun Sung-soo, chairman of The Export-Import Bank of Korea.

Equity and bond experts of Wall Street warned of looming downturn with the possibility of a recession beginning in the United States from late 2020 to 2021, advising investors to turn to leveraged financing and alternatives.

“The future will be very different from the recent past,” said Daniel Simkowitz, managing director and head of investment management at Morgan Stanley, speaking at the 8th Global Financal Leaders Forum in New York on Monday, hosted by South Korea’s Maekyung Media Group, Korea Society, and Korea Finance Society.

“The economy is in its late cycle, which means that easy rate of returns that could have been either in the equity markets, fixed income markets… we feel that opportunity is passing.”

He did not think the normalization of U.S. interest rates could cause tantrums in emerging markets including South Korea as in the late 1990s.

“The differential is rising, and there can be reversal (with U.S. rates being higher) in late 2020, but the asset markets have already reflected the concerns” he said disagreeing with the prospects of a large exodus of capital. Moreover, “Korea has the comfortable ability to handle that kind of capital outflow,” he added.

Scott Kapnick, chief executive of HPS Investment Partners, agreed. “Markets adjust,” he said adding his firm also finds Korea still attractive, although the economy and market hinge on the slowdown in the U.S. and Chinese economy.

“I don’t see a substantial crisis in the horizon,” but the unwinding of easy and cheap liquidity over the past decade will be an important element in the marketplace,” he said.

Deleveraging in China will also pose a risk, given the economy’s impact on Korea. China will likely continue to expand, but waning in the private-sector optimism, which the primary driver in the economy, could overwhelm its macro issues, he warned.

“Many companies could come under liquidity issues,” he said, adding leveraged loans and buyouts could be attractive tools at times of volatility.

Kapnick mentioned bank loan market as a potential investment source. He noted that bank loans are different from bonds in that they are less risky in terms of price fluctuation but can lead to expectations for high yields.

By Kim Dong-eun and Lee Eun-joo

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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