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Prudential’s Asset-Management Unit Isn't Worried About Trade Fight

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Prudential Financial Inc.’s investment management arm, PGIM, is bullish on global stocks and likes emerging-market debt, even as the escalating conflict between the U.S. and China over trade rocks markets.

There’s a “fairly low” probability that the trade tensions will derail global growth, David Hunt, chief executive officer of PGIM, said in an interview on Wednesday in Tokyo.

“There is an awful lot of discussion, and issues get on the table,” he said. “As it moves into implementation, in general, there has been a kind of middle ground that has been found.”

(Related: PGIM, NYSTRS Provide $1.1B Loan For Blackstone Acquisition)

Hunt’s top asset managers, who were with him in Japan, agree. Here is what they had to say:

“Equity valuations on average are not excessive by historical standards,” said Jeffrey Becker, chief executive officer of Jennison Associates, one of PGIM’s investment firms, citing the S&P 500 Index. “It would be a mistake to sit on the sidelines of the equity markets over the next several years.”

“We consider the volatility in February and then March, April to be selloffs, not a correction or the sign of an early bear market,” Becker said. “Both countries have a lot to lose by escalating the trade war. I think the substance of trade restrictions and their real impact will be far less than the headlines. We do not expect a U.S. recession in the next two to three years or longer.”

Mike Lillard, chief investment officer at PGIM Fixed Income, which manages about $709 billion, likes bond and currencies from emerging markets. “We favor emerging-market currencies such as Mexico and Brazil versus the U.S. dollar,” he said. “Stronger growth rates, higher real rates of return and better demographics will cause these countries’ currencies to outperform over the long run.”

“Some of the best opportunities” are currently in emerging markets, he said, giving the example of hard-currency notes with a 10-year tenor from Mexico.

PGIM Fixed Income is overweight select emerging-market currencies, as well as some emerging-market government, corporate and local-currency bonds. It’s underweight developed-market sovereigns, U.S. agencies, U.S. MBS and U.S. interest-rate swaps.

— Read 9 Questions for a Top Prudential Debt Manager on ThinkAdvisor.

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