Prudential Newsroom: Research

U.S. Quarterly Report

Mon, 30 Apr 2012 00:00:00 EST

Prudential Real Estate Investors

The recovery in the US finally appears to be self-sustaining, although economic growth should be moderate this year. Job growth has spread from the tech-related markets and has become broad-based across many industry segments.

European Quarterly Report

Mon, 30 Apr 2012 00:00:00 EST

Prudential Real Estate Investors

Fears about the future of the eurozone are dominating the markets. Policy actions have been met with broad approval but there are concerns that they do not tackle the underlying problem of weak productivity growth across the eurozone periphery, where bond yields remain elevated.

Asia-Pacific Quarterly Outlook

Mon, 30 Apr 2012 00:00:00 EST

Prudential Real Estate Investors

Asia-Pacific’s economic growth decelerated in the first quarter in line with the anemic global environment. Nonetheless, the global economic center of gravity will continue to shift to the region, supported by its vast foreign reserves, stable currencies, urbanization, favorable demographic trends and economic resiliency.

Stocks Likely to Grind Higher with Liquidity and Interest Rate Tailwinds

Thu, 19 Apr 2012 00:00:00 EST

Prudential International Investments Advisers

Expect global stock markets to grind higher with: Eurozone stabilization; Improving U.S. and Japan growth outlook; Liquidity and low interest rates; Healthy earnings growth, and still supportive valuations. However, after the strong gains in Q1, equity markets are likely to consolidate and further gains are likely to be more modest, and volatility likely to be high due to several downside risks. These risks include: Spain under attack; Election uncertainty in Greece and France; Oil price and geopolitical risks; Potential Growth Disappointments after better than expected data in Q1; Uncertainty about further rate cuts and Quarterly Earnings measures.

Global Economic Outlook

Thu, 19 Apr 2012 00:00:00 EST

Prudential International Investments Advisers

The global macro backdrop remains favorable for equity markets with improving GDP growth outlook, inflation under control, and liquidity and interest rate tailwinds. Japan is on track to a solid Q1 GDP rebound while U.S. Q1 GDP expectations have been revised higher to around 2.8% and likely to surprise on the upside. GDP growth in core Eurozone and U.K. is stabilizing, while the periphery remains in deep recession. GDP growth in emerging economies remains relatively healthy. Fears of a China hard landing appear to be allayed, at least for now, with Q1 GDP coming in at a solid 8.1%. The start of the central bank easing measures and rate cuts is likely to help Emerging economies to strengthen. (more)

European Central Bank Keeps Policy Unchanged in April

Fri, 06 Apr 2012 00:00:00 EST

Prudential International Investments Advisers

The European Central Bank (ECB) held rates at 1% at the April 4th meeting, unchanged for the fifth consecutive month, as widely expected. The ECB expressed satisfaction that the standard and non-standard monetary policy measures have "contributed to stabilization in the financial environment and an improvement in the transmission of monetary policy." Nevertheless, the ECB stressed that that non-standard monetary policy measures, such as LTROs, are temporary in nature and the ECB has the necessary tools to address upside inflation risks stemming from its easy monetary policy.

Curb Your Bond Enthusiasm? Not So Fast…

Thu, 05 Apr 2012 00:00:00 EST

Prudential Fixed Income

The first quarter of 2012 was largely a one way street, steadilyreversing the damage done in 2011. Risk aversion abated, U.S. Treasury yields rose modestly, and spreads across the credit spectrum, including many European sovereigns, tightened substantially driving strong relative performance for spread product virtually across the board.

Global Investment Strategy

Tue, 03 Apr 2012 00:00:00 EST

Prudential International Investments

Expect global stock markets to post further gains, supported by several factors, such as an easing of Eurozone fears with a diminished near-term risk of a disorderly Greek default and Euro exit, while the European Central Bank’s successful liquidity operations (LTROs) have reduced Eurozone financial strains minimizing the tail risk of a Eurozone Lehman event; interest rate and liquidity tailwinds; improving global growth outlook outside of Europe; healthy earnings outlook; and still supportive valuations though markets are not as cheap now as in December 2011 with strong 2012 YTD gains. However, the pace of gains thus far in 2012 is likely to be unsustainable and volatility is likely to remain high as several downside risks remain.

Emerging Markets: Focus on Local Market Opportunities

Thu, 29 Mar 2012 00:00:00 EST

Prudential Fixed Income

Why is local emerging markets debt becoming so popular? As we argue in this paper, there are several compelling reasons why investors should take note—growing size and liquidity, compelling valuations, global macroeconomic themes and flows, country-specific structural changes, technical supporting factors, and diversification considerations. In short, EM local debt is a new asset class that offers investors an attractive combination of currency diversification, investment grade credit quality, and yield.

U.S. Bank Debt: Uncovering Hidden Value

Tue, 14 Feb 2012 00:00:00 EST

Prudential Fixed Income

After under performing the broad U.S. corporate bond market in the second half of 2011, U.S. bank debt staged an impressive rally in January 2012, turning in its best monthly return since July 2009. We believe there continues to be hidden value in the debt of select U.S. money center banks. This paper explores the resilience of large U.S. banks since the 2008 financial crisis and demonstrates how their capital, liquidity, and asset quality are far stronger now than before the crisis. Importantly, in this paper we delve into why stronger fundamentals, lower leverage, and generous current yield levels lead us to favor the sector over the longer term.

Asia Pacific Quarterly Outlook

Mon, 06 Feb 2012 00:00:00 EST

Prudential Real Estate Investors

Fueled by government investments and strong domestic consumption, Asia-Pacific economies continue to grow robustly. Growth will be challenging in 2012 amid the weak global economic environment, but the region’s resiliency should enable it to weather any slowdown. Although China’s economy is expected to decelerate in 2012, we believe the government is committed to meaningful growth, especially with a change of leadership scheduled this year. The challenge will be to boost domestic consumption among the country’s 1.3 billion population. That would compensate for the anticipated slow growth in exports, as demand from the US and Europe will likely be subdued. Asia’s employment market expanded in 2011, resulting in lower unemployment rates. Hiring in 2012 may be muted due to economic volatility, but the long-term employment uptrend should remain intact and produce higher household income. The region’s inflation rate was stubbornly high in the second half of 2011. Inflation is likely to level off in 2012, as consumer demand will become more price sensitive given the softening economy. Central banks are likely to ease their monetary policies at a measured pace in 2012. While the cost of debt will gradually fall, lenders are likely to underwrite more conservative terms given the soft economic prospects.

The More Things Change, The More They Remain The Same

Thu, 05 Jan 2012 00:00:00 EST

Despite the dampening effect of the European crisis, Prudential Fixed Income expects the U.S. recovery to continue. While fiscal consolidation may temper growth slightly in 2012, it is not expected to start in earnest until 2013. As a result, credit fundamentals should remain robust., and despite the 2011 bull market in U.S. Treasuries, Prudential Fixed Income says there is still value to be found in fixed income. While markets may remain volatile, spread sectors, such as corporate bonds, structured product, and emerging markets, are likely to outperform in 2012.

Turbulent Teens IV

Wed, 04 Jan 2012 00:00:00 EST

Quantitative Management Associates 

In this year-end edition of “Turbulent Teens,” we update two issues we addressed in earlier versions: equity and bond valuation, and the ongoing crisis in Europe. We also examine two issues many investors are increasingly concerned about: the long-term outlook for the U.S. and the rest of the developed world, and the potential for a real estate-induced bubble busting in the largest emerging market, China. This report consists of four themes: Valuation, U.S.-West Decline, Europe and Emerging Markets.

Turbulent Teens III

Thu, 03 Nov 2011 00:00:00 EST

Quantitative Management Associates

In September 2011, the yield on the 10-year Treasury hit a record low of 1.68%—breaking a previous low reached in 1941, shortly before Pearl Harbor, when much of the world was already at war. In light of this historic drop in bond yields and the tremendous economic, financial and political uncertainty facing us, we thought our clients might be interested in an interim report dealing specifically with the possible outlook—and opportunities—implied by these low yields.

Cap Rates and Interest Rates: A Conundrum, Or Not

Sun, 18 Sep 2011 00:00:00 EST

Prudential Real Estate Investors

Commercial real estate, both public and private, presents a compelling opportunity for investors today. Not only does the sector provide many long-term investment benefits, including healthy income returns and a hedge against inflation, but in coming years fundamental factors such as the supply/demand cycle are set to turn positive while demographic forces look to be favorable. The growth associated with rising economic activity - including job creation and increased consumer spending - should translate into higher demand for commercial properties.

On the Market: What Went Up, Came Down

Fri, 16 Sep 2011 00:00:00 EST

Prudential Fixed Income

The last few years of low interest rates have been like an exclamation point at the end of a three-decade bull market. So what should we expect to happen next? Many market analysts and pundits anticipate that rates will eventually move back to a higher range, especially given continued fiscal laxity. However, based on historical factors and events, Prudential Fixed Income concludes that the wait for much higher interest rates might prove futile.

Greece - Soft Restructuring or Hard Landing

Fri, 16 Sep 2011 00:00:00 EST

Prudential Fixed Income

In early July the International Monetary Fund (IMF) 'held its nose' and approved the fifth tranche of its bailout for Greece. Now, just two months later, the Greek program has veered off track again. The economy is plummeting, Greece is suffering from adjustment fatigue, and the financing gap continues to widen. Negotiations for the next tranche of European Union (EU) and IMF financing came to an abrupt halt in early September amidst broad-based program slippages. A "hard" restructuring may be unavoidable this fall, unless Greece can speed up program implementation and bondholder participation in the upcoming debt exchange surpasses a critical threshold.

Economic and market outlook

Fri, 16 Sep 2011 00:00:00 EST

Quantitative Management Associates

The impact of higher energy prices, the Japanese tragedy, rising European sovereign debt tensions, and extreme weather in the United States took a toll on economic growth in the first half of the year. Growth in the U.S. decelerated to a 1.8% annualized pace in 1Q11 versus 3.1% in 4Q10.

Investment Consequences of the Debt Crisis: Keeping Risks in Sight, But Our Powder Dry

Fri, 16 Sep 2011 00:00:00 EST

Quantitative Management Associates

In May and early June, QMA’s asset allocation team retreated from a substantial overweight in equities to a neutral position, on concerns about corporate profit margins and negative economic data. The U.S. debt ceiling crisis has been a fluid, fast-moving situation, and this paper attempts to answer how the most recent volatility has influenced QMA's asset allocation views. Its asset allocation team still believes that in the near term, they are more likely to be buyers of equities and other risk assets than sellers. However, those views could change as events unfold; if they do, they will shift portfolio positioning as they think appropriate.