PIMCO’s economic forums are integral to our firm’s time-tested investment process. Three times a year, we gather from all corners of the world to discuss our outlook for the cyclical horizon ‒ i.e., the next six to 12 months. These discussions inform and influence portfolio positioning and day-to-day management. But PIMCO has long known that an appreciation of long-term, or secular, realities is equally (if not more) important; for that reason, once a year, for more than 30 years, we have convened a multi-day session to look out over a longer, three-to-five-year period.

We hope you have had the opportun​ity to review the summary from our secular forum in May: “The New Neutral Revisited,” written by PIMCO’s Group CIO Dan Ivascyn, Global Fixed Income CIO Andrew Balls an​d Global Strategic Advisor Rich Clarida. In this analysis, the authors identify the six key themes that emerged from our discussion, as well as six risks (see box below).

These themes and risks have unique implications for Asia-Pacific investors

First, as Asian economies transition from savers to spenders and from exporters to consumers, they are contributing meaningfully to the narrowing of global imbalances – a potential driver of sustainable regional growth.

Second, Asian fiscal and monetary policymakers – from Japanese Prime Minister Abe to People’s Bank of China (PBOC) authorities in Beijing – are keenly focused on tailoring economic policies to specific objectives, including Japan’s goal to reflate to its 2% inflation target and China’s efforts to see the yuan included in the IMF’s special drawing rights (SDR) basket of currencies. On this theme of economic policy, we expect the opening of the Chinese capital account to be a seminal part of the secular economic story, with significant implications for investors around the world.

Some of the risks noted in our secular outlook will likely have an impact on the Asia-Pacific region: We need look no further than Chinese equity markets over the last few weeks to see that enormous volatility exists; indeed, the possibility of bursting bubbles, and even recessions, cannot be ruled out. Moreover, while many Asian economies are focused on increased regulatory oversight, convergence between regulatory frameworks has been limited, creating challenges in cross-border initiatives.

Given these long-term themes and risks, we see several implications for Asian investors
to consider:

1. Explore better betas and customized multi-asset solutions

2 . Combine secular sovereign and corporate “winners” with the strength of the U.S. dollar

3 . Be thoughtful about income

4. Consider alternatives and harvest illiquidity premiums

5. Keep a secular eye on India

6. Gain strategic (not just tactical) exposure to China

PIMCO's 2015 Secular Forum


  1. Converging to New Neutral potential growth rates in developed and emerging economies
  2. Evolving to a re-regulated, better capitalized global banking system​
  3. Moving from energy scarcity to energy abundance unlocked by the shale revolution
  4. Accelerating from deflation toward targeted 2% inflation in the major economies 
  5. A narrowing in global imbalances as the global savings glut abates
  6. Implementing better economic policy in key emerging as well as developed economies

  1. A global recession as few countries can maneuver to deploy countercyclical policy
  2. Flash crashes, air pockets and trading volatility, which have a greater likelihood amid diminished liquidity​
  3. Weaker aggregate demand as “winners” from declining commodity prices save their windfall gains​
  4. A breakout of inflation to the upside of central bank inflation targets 
  5. “Disaster risk” relating to geopolitical conflicts​
  6. Policy failures due to fractured politics or implentation challenges​

Better betas and customized multi-asset solutions
Absolute return, benchmark-agnostic and “smart beta” strategies have increased in popularity throughout Asia-Pacific (and globally) as investors gain awareness of the limitations of market capitalization-weighted equity indexes and debt-weighted bond indexes. Traditional indexes can be reactive rather than proactive, and investors in a multi-speed world demand a higher degree of agility. PIMCO has been a pioneer on this front, offering both unconstrained strategies across asset classes (including credit, mortgages and commodities) and indexes that account for fundamentals rather than simply market-cap or debt weights. In addition, PIMCO’s customized asset allocation solutions utilize both qualitative “best ideas” models and quantitative mathematical analysis in seeking to outperform traditional stock/bond combinations. These strategies can serve as prudent first steps for investors who are making initial offshore allocations, as well as for clients seeking higher return targets with explicit downside risk management.

Secular “winners” and the U.S. dollar
Dollar-hedged strategies offer investors the opportunity to take advantage of the secular theme of continued U.S. dollar strength. As the Federal Reserve begins to raise rates while other global central banks continue easing, we see the U.S. dollar continuing to appreciate. PIMCO offers strategies with established track records to Asia-Pacific investors seeking to access credit markets while mitigating potential currency loss versus the U.S. dollar. We also expect central bank accommodation to broadly support credit markets, and as PIMCO’s Global Credit CIO Mark Kiesel notes in the secular credit outlook , we anticipate this phenomenon particularly in China as the PBOC considers quantitative easing measures. Our credit team is focused on identifying companies that can benefit from our secular themes, including rising consumption in Asia, housing growth in the U.S. and export growth (given a weak yen) in Japan.

Being thoughtful about income
Asia-Pacific investors have long been focused on income-generating strategies, and we expect this trend to continue over the secular horizon. We follow a disciplined approach to income investing, aiming to outperform our return targets and achieve sustainable yields. PIMCO’s income team has been recognized for its performance, including in 2013 when portfolio managers Dan Ivascyn and Alfred Murata were honored as Morningstar Fixed-Income Fund Managers of the Year (U.S.). PIMCO also offers strategies that provide access to bank capital instruments, which have the potential to perform like traditional high yield bonds or bank equities. The secular theme of intensifying regulation is supportive of this type of strategy, as recent regulations are meaningfully strengthening the banking sector.

Alternatives and less liquid investments
Asia-Pacific investors are keenly focused on alternatives, recognizing that these allocations may reduce portfolio volatility, achieve differentiated returns and capitalize on unique market opportunities. In Asia ex-Japan alone, institutional investor allocations to hedge funds and private equity have grown from 2.7% in 2010 to 9.9% today; high-net-worth investors in Asia ex-Japan and Japan allocate 14.0% and 13.1% to alternatives, respectively. 1 Similarly, in Australia, institutions have increased their allocations from 7.2% in 2010 to 10.2% today.2 Over the secular horizon, we expect this investor demand for alternatives to continue expanding. From bank deleveraging-based investments to relative-value sovereign and credit arbitrage, PIMCO’s alternatives strategies encompass hedge funds (global macro, relative value, commodity) and private equity (opportunistic real estate and credit). Critical to our alternatives approach is our belief that the illiquidity premium – the reward investors receive for investing in less liquid assets over an extended period – will remain attractive over the secular horizon. We plan to continue growing this important business.

A secular eye on India
To date, India’s growth story has been challenged by unfavorable business conditions, insufficient infrastructure and obstructive fiscal policies (e.g., the tax code). With the election of pro-business Prime Minister Narendra Modi last year and the 2013 appointment of Raghuram Rajan as governor of the Reserve Bank of India, PIMCO is closely watching for indications of higher sustainable future growth, including infrastructure development, more stable macroprudential policies, deeper financial markets and simplification of the tax codes. 

Raja Mukherji, head of Asia credit, and Luke Spajic, head of Asia ex-Japan portfolio management, recently returned from a trip to India encouraged by the new policymakers and awaiting additional reforms, which could set the stage for deeper exploration of the investment universe in the country over a secular horizon.

Strategic exposure to China
Whereas India may present an opportunity in the future, the Chinese capital account liberalization story is imminent. On a near-daily basis, we see Chinese policymakers and regulators opening new doors for offshore investors to access Chinese fixed income and equity markets and global index providers evaluating Chinese stocks and bonds for inclusion in their benchmarks. As evidenced by recent volatility in China’s stock market, security selection remains crucial, and liquidity can still be challenging. That said, the PBOC and the central government in Beijing remain committed to attempting a smooth landing for the economy. So, we think China will continue to grow in importance for the global markets. Indeed, China is already the world’s largest economy in purchasing-power-parity terms and the third-largest fixed income market. We therefore believe that investors should begin to consider the place of stand-alone strategic allocations to China, while remaining mindful of volatility and liquidity dynamics. For PIMCO, building a thoughtful presence in China is a critical secular objective to bring both China-based solutions to global investors and global solutions to local investors. (For more, see Viewpoint, “Understanding Investment Opportunities in China,” May 2015.)

Evolving with investors and the global markets
PIMCO has established a strong track record of delivering value to investors both in and beyond traditional fixed income; importantly, our secular outlook supports continued growth in non-traditional fixed income, as well as in multi-asset, “smart beta” and alternatives solutions. We have built world-class portfolio management and client servicing teams focused on these strategies and welcome the opportunity to exchange views on asset allocation, economic developments and portfolio solutions to navigate this New Neutral world.

1Source: Greenwich Associates; Preqin;
Capgemini and RBC Wealth Management
Global HNW Insights Survey

2Source: Australian Trade Commission
The Author

Eric J. Mogelof

Head of U.S. Global Wealth Management

View Profile

Latest Insights


PIMCO provides services only to qualified institutions and investors. This is not an offer to any person in any jurisdiction where unlawful or unauthorized. | Pacific Investment Management Company LLC, 650 Newport Center Drive, Newport Beach, CA 92660 is regulated by the United States Securities and Exchange Commission. | PIMCO Europe Ltd (Company No. 2604517) and PIMCO Europe Ltd - Italy (Company No. 07533910969) are authorised and regulated by the Financial Conduct Authority (12 Endeavour Square, London E20 1JN) in the UK. The Italy branch is additionally regulated by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act. PIMCO Europe Ltd services are available only to professional clients as defined in the Financial Conduct Authority’s Handbook and are not available to individual investors, who should not rely on this communication. | PIMCO Deutschland GmbH (Company No. 192083, Seidlstr. 24-24a, 80335 Munich, Germany), PIMCO Deutschland GmbH Italian Branch (Company No. 10005170963), PIMCO Deutschland GmbH Spanish Branch (N.I.F. W2765338E) and PIMCO Deutschland GmbH Swedish Branch (SCRO Reg. No. 516410-9190) are authorised and regulated by the German Federal Financial Supervisory Authority (BaFin) (Marie- Curie-Str. 24-28, 60439 Frankfurt am Main) in Germany in accordance with Section 32 of the German Banking Act (KWG). The Italian Branch, Spanish Branch and Swedish Branch are additionally supervised by the Commissione Nazionale per le Società e la Borsa (CONSOB) in accordance with Article 27 of the Italian Consolidated Financial Act, the Comisión Nacional del Mercado de Valores (CNMV) in accordance with obligations stipulated in articles 168 and  203  to 224, as well as obligations contained in Tile V, Section I of the Law on the Securities Market (LSM) and in articles 111, 114 and 117 of Royal Decree 217/2008 and the Swedish Financial Supervisory Authority (Finansinspektionen) in accordance with Chapter 25 Sections 12-14 of the Swedish Securities Markets Act, respectively. The services provided by PIMCO Deutschland GmbH are available only to professional clients as defined in Section 67 para. 2 German Securities Trading Act (WpHG). They are not available to individual investors, who should not rely on this communication. | PIMCO (Schweiz) GmbH (registered in Switzerland, Company No. CH-, Brandschenkestrasse 41, 8002 Zurich, Switzerland, Tel: + 41 44 512 49 10. The services provided by PIMCO (Schweiz) GmbH are not available to individual investors, who should not rely on this communication but contact their financial adviser. | PIMCO Asia Pte Ltd (8 Marina View, #30-01, Asia Square Tower 1, Singapore 018960, Registration No. 199804652K) is regulated by the Monetary Authority of Singapore as a holder of a capital markets services licence and an exempt financial adviser. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Asia Limited (Suite 2201, 22nd Floor, Two International Finance Centre, No. 8 Finance Street, Central, Hong Kong) is licensed by the Securities and Futures Commission for Types 1, 4 and 9 regulated activities under the Securities and Futures Ordinance. The asset management services and investment products are not available to persons where provision of such services and products is unauthorised. | PIMCO Australia Pty Ltd ABN 54 084 280 508, AFSL 246862 (PIMCO Australia). This publication has been prepared without taking into account the objectives, financial situation or needs of investors. Before making an investment decision, investors should obtain professional advice and consider whether the information contained herein is appropriate having regard to their objectives, financial situation and needs. | PIMCO Japan Ltd (Toranomon Towers Office 18F, 4-1-28, Toranomon, Minato-ku, Tokyo, Japan 105-0001) Financial Instruments Business Registration Number is Director of Kanto Local Finance Bureau (Financial Instruments Firm) No. 382. PIMCO Japan Ltd is a member of Japan Investment Advisers Association and The Investment Trusts Association, Japan. Investment management products and services offered by PIMCO Japan Ltd are offered only to persons within its respective jurisdiction, and are not available to persons where provision of such products or services is unauthorized. Valuations of assets will fluctuate based upon prices of securities and values of derivative transactions in the portfolio, market conditions, interest rates and credit risk, among others. Investments in foreign currency denominated assets will be affected by foreign exchange rates. There is no guarantee that the principal amount of the investment will be preserved, or that a certain return will be realized; the investment could suffer a loss. All profits and losses incur to the investor. The amounts, maximum amounts and calculation methodologies of each type of fee and expense and their total amounts will vary depending on the investment strategy, the status of investment performance, period of management and outstanding balance of assets and thus such fees and expenses cannot be set forth herein. | PIMCO Taiwan Limited is managed and operated independently. The reference number of business license of the company approved by the competent authority is (107) FSC SICE Reg. No.001. 40F., No.68, Sec. 5, Zhongxiao E. Rd., Xinyi Dist., Taipei City 110, Taiwan (R.O.C.), Tel: +886 (02) 8729-5500. | PIMCO Canada Corp. (199 Bay Street, Suite 2050, Commerce Court Station, P.O. Box 363, Toronto, ON, M5L 1G2) services and products may only be available in certain provinces or territories of Canada and only through dealers authorized for that purpose. | PIMCO Latin America Av. Brigadeiro Faria Lima 3477, Torre A, 5° andar São Paulo, Brazil 04538-133. | No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America L.P. in the United States and throughout the world.

All investments
contain risk and may lose value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Bank loans are often less liquid than other types of debt instruments and general market and financial conditions may affect the prepayment of bank loans, as such the prepayments cannot be predicted with accuracy. There is no assurance that the liquidation of any collateral from a secured bank loan would satisfy the borrower’s obligation, or that such collateral could be liquidated. Investing in foreign-denominated and/or -domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Strategy availability may be limited to certain investment vehicles; not all investment vehicles may be available to all investors. Please contact your PIMCO representative for more information. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Investors should consult their investment professional prior to making an investment decision.

The Morningstar Fixed Income Fund Manager of the Year (2013) award is based on the strength of the manager, performance, strategy, and firm's stewardship.

This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark or registered trademark of Allianz Asset Management of America L.P. in the United States and throughout the world. THE NEW NEUTRAL and YOUR GLOBAL INVESTMENT AUTHORITY are trademarks or registered trademarks of Pacific Investment Management Company LLC in the United States and throughout the world. ©2015, PIMCO.