Irish pensions still ‘vulnerable’ despite rebound

By Eamon Quinn

Stock markets aren’t out of the woods yet and Irish pension funds are still “vulnerable” to exposures to large indebted US corporations, a leading Irish-based market watcher has warned.

Peter Brown, founder of Baggot Asset Management, said large American corporations who have tapped the bond-buying programmes of central banks around the world, including the huge quantitative easing (QE) programme of the ECB, were vulnerable to risks of a turn in credit markets.

He said that large companies has used some of their QE borrowings at rock-bottom interest rates to fund huge share buyback programmes. 

Those could now unravel under any signs of stress in credit markets which would signal that yields are rising.

Mr Brown said that Irish pension funds “remain vulnerable” despite the rebound of US stock markets in the past two weeks.

American stock indices ended the week higher despite their strong gains having been pared by the political uncertainty sparked after Special Counsel Robert Mueller unveiled the details of a campaign by Russians to influence the US presidential election.

“There’s an immediate stress that increases if there’s any political uncertainty, particularly when it comes to the Russia investigation,” said Chad Morganlander, portfolio manager at Washington Crossing Advisors.

“The markets really kind of hate uncertainty, and that just gave us a teaspoon of uncertainty. It’s a bit of an overreaction, but it’s a gentle reminder that the investigation is far from being wrapped up,” he said.

Traders are focused on the outlook for the credit markets and interest rates as economic growth accelerates and fans inflation.

Investors pulled $14.1bn (€11.3bn) from debt funds in the week through to Wednesday, the fifth-largest stretch of redemptions, according to a Bank of America Merrill Lynch report.

“Investors don’t sell their cash bonds in a big way until they are forced to, which happens when the outflows start picking up more sustainably,” Morgan Stanley strategists led by Adam Richmond wrote in a recent note to clients.

They warned that companies would struggle to refinance rising debt loads, just as rates rise and a tide of ‘tourist’ investors who’d dabbled in riskier debt abandon ship.

“As far as corrections go, while we’re not out of the woods yet, it’s starting to feel like the best possible one you can hope for: Short and sweet,” said Craig Birk, an executive vice president of portfolio management at Personal Capital.

“All the basic economic fundamentals and earnings results still seem very solid,” he said.

Meanwhile, the US Commerce Department revealed its recommendations that the US impose tariffs or quotas on imports of aluminium and steel, in the strongest indication yet the administration intends to see through its protectionist agenda. 

Commerce “found that the quantities and circumstances of steel and aluminium imports threaten to impair the national security,” Secretary Wilbur Ross said.

The news spurred gains in metal prices as well shares in Alcoa, Century Aluminum, and US Steel. 

An increase in tariffs could affect US consumer prices of everything from beer cans to cars.

Additional reporting Bloomberg

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