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Axa Credit Manager Likes British Pound and China Junk Debt

Joanna Ossinger

(Bloomberg) -- In times of volatility, diversification within multi-asset fixed income has helped to reduce price swings and might be good for investors seeking a refuge, according to Nick Hayes, head of active U.K. fixed income at Axa Investment Managers.

What works particularly well when asset prices are bouncing around? Combine core government bonds with short- and long-dated credit, while owning emerging-market assets and equities, which results in a low-volatility portfolio, London-based Hayes said in an interview in Singapore on Monday.

“We like being long duration, and being long high-quality duration like France, Germany and the U.S.,” Hayes said. “We are long parts of emerging markets, U.S. high yield and sterling credit, and Brexit is throwing up some attractive opportunities.”

The U.K. currency and stocks are cheap right now as markets price in a fairly severe Brexit outcome, Hayes said. The base case for Axa IM, which had $862 billion under management as of June, is that a deal gets reached close to the deadline or possibly right after.

Read more: What to Expect From the Brexit Showdown in Parliament

Within emerging markets, Hayes likes Brazil and Colombia, along with “attractive double-digit yields” from Chinese high-yield and Indonesia credit and sovereigns, he said.

Globally, he sees yields remaining low and possibly even declining further, as “there are just not enough bonds and too many buyers.”

Another thing Hayes is watching: The global stockpile of negative-yielding debt that recently surpassed $17 trillion. He doesn’t see the trend reversing anytime soon, and thinks people may have changed their behavior because of it, taking on riskier investments than they might have done otherwise, hoping for better returns.

Read more about the stock of negative-yielding debt exceeding $17 trillion.

“People are hunting for yield where yield doesn’t exist,” he said.

(Updates with link to story on negative-yielding debt at bottom.)

--With assistance from Matt Turner.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, ;Andrew Monahan at amonahan@bloomberg.net, Ken McCallum

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