BondGuide: And where should people be invested?
Jones: Not in European bonds, perhaps not at all in sovereign bonds. With the US showing growth at the moment, they would be our preferred geographic area for corporate bonds. Generally we prefer bonds issued in US dollar with his strength against the Euro.
BondGuide: Do Emerging markets not play any role?
Jones: This is a coin with two sides. Yes, there are some countries like India which look promising as they show overproportional growth, whilst their currency is devaluating massively.
BondGuide: Let’s get back to the EU. From the UK island angle: which is your advice for core Europe?
Jones: The situation is, of course, a matter of concern, as it has become hardly possible to set any direction for the future. The EU’s governing structure needs to be reformed: EU Parliament, Commission, countries – there is at least one cook too much on board to get anything done.
BondGuide: In 2017, there will be parliamentary elections in Germany, too. What is your view on it?
Jones: Germany is of course the driving force within the EU context. Markets have priced in 60-70% of a reelection of Angela Merkel. Continuity and predictability would be the best.
BondGuide: Do you really mean 60-70%? At the moment, nobody in Germany would bet one cent on a competitor. Virtually nobody here knows Martin Schulz, the potential candidate of the social democrats who made his political career within the EU institutions. Maybe you should adjust your forecasts again?
Jones: Really? Anyway, anything else than a victory of Angela Merkel would upset the markets. So if your assumption is right, marvelous!
BondGuide: Stephen, many thanks for the insights – and see you again in Frankfurt.
Interview: Falko Bozicevic
Kames Capital is a specialized investment management company based in Edinburgh and London. The company has € 80 billion AUM for UK and international clients, mostly pension funds, financial institutions, asset managers, family offices and financial advisors. Http://www.kamescapital.com/en_fixed.aspx