Watch full video here: https://www.youtube.com/watch?v=RLp1v8DE-2Q

TL;DR

The world economy is in a state of flux, with different regions recovering at different speeds. This creates unique investment opportunities, especially in private credit and emerging markets. Japan's conservative financial practices offer lessons in risk management but limit yield potential.

Speaker Info

Bloomberg Host 1: Host, Bloomberg Television
Howard Marks: Co-Chairman, Oaktree Capital Management
Bloomberg Host 2: Host, Bloomberg Television

Main Ideas

Global economic cycles are increasingly asynchronous, creating diverse investment opportunities across regions.
Private credit is emerging as a significant player in the financial landscape, reshaping traditional lending relationships.
Japan's conservative financial culture influences its investment strategies, focusing on long-term stability over high yields.

Jump Ahead

Global Economic Cycles and Investment Opportunities
Private Credit and Non-Bank Lending
Investment Strategies in Japan

Detailed Analysis

Global Economic Cycles and Investment Opportunities

Overview: Economic cycles are playing out differently across regions, especially between the US and Asia. This divergence creates unique investment opportunities. Post-pandemic, global economies are more asynchronous than ever, which has significant implications for investors looking to navigate this new landscape.

The US economy does not need further stimulus.

The economy is thriving, with robust growth and impressive employment numbers.
Some people believe that providing more stimulus could make the economy even more resilient.

China's market is risky and 'uninvestable'.

Regulatory challenges and economic uncertainties play a big role in shaping this perception.
Some people think that despite the current risks, China's potential for long-term growth could be even greater.

Implications

To manage risks from uneven global recoveries, investors should consider diversifying their portfolios.
Thinking of China as 'uninvestable' might actually cause missed opportunities in some promising markets.

Key Points

The US economy is performing well despite high interest rates.: Despite high interest rates, the US economy continues to demonstrate impressive resilience with strong growth and a robust labor market. This economic strength makes the US an appealing destination for investors, showcasing the stability of its economic fundamentals.
Asia, particularly China, is still emerging from the pandemic.: Asia's economic landscape is shifting as it enters a new phase in its economic cycle. China's recovery process is facing challenges, creating an asynchronous recovery across the region. This situation presents both unique challenges and opportunities for investors looking to navigate the Asian markets.
"When you talk about, I know your favorite topic is talking about risk and how to look at risk taking here, when you can argue that the US cycle is getting, I guess, towards the late side part of things, Asia in some ways is still in the thick of it and re emerging from this pandemic in some ways as well. How are you looking at these diverging cycles around the world here right now? And is it a time still to be a contrarian?" - Bloomberg Host 1
Investment opportunities are more attractive outside the US due to high pricing.: With asset prices in the US reaching new heights, many investors are looking beyond domestic markets for better value and growth potential. Non-US markets are becoming increasingly appealing, despite the risks that come with them.
China is considered uninvestable by many, affecting its market value.: Investors are increasingly wary of China's market due to perceptions of risk and regulatory challenges. This shift in perception has made China a less attractive investment option, prompting investors to approach with caution.
The legal and economic systems in the US are attractive to investors.: The stable legal and economic environment in the US makes it an attractive destination for investment. This stability fosters confidence and security, encouraging both domestic and foreign investors to commit their resources.

Private Credit and Non-Bank Lending

Overview: Private credit is carving out a significant niche in today's financial landscape. Its growing influence is reshaping relationships with traditional banks, creating both challenges and opportunities. As private credit continues to expand, it opens up new avenues for investment across various regions.

Private credit offers an alternative to traditional banking.

Private credit offers investors great flexibility and opens up new opportunities, especially in the US and Europe.
Some people worry that new lending platforms might compete with traditional banks. There's also a concern that there could be too much loan capital available, leading to potential oversupply issues.

Non-bank lenders are essential in the financial ecosystem.

They offer alternative financing solutions, particularly in the aftermath of the financial crisis.
Regulatory hurdles and a crowded market might hinder their effectiveness.

Implications

Private credit is on the rise, and its growth could change the financial landscape in significant ways. This shift brings both new opportunities and challenges for investors and lenders.

Key Points

Private credit is seen as complementary to traditional banking.: Private credit is emerging as a valuable alternative financing option that complements traditional bank services. Its flexibility in lending enhances the overall financial ecosystem, offering borrowers more choices and fostering greater financial inclusivity.
"But what's the role then that you see private credit playing in the financing market and also the relationship with traditional lenders as well. Complementary or competitors in this landscape, do you think?" - Bloomberg Host 2
There is significant interest in credit investing due to rising yields.: As high yield bond yields soar from 4% to nearly 8%, investors are increasingly attracted to the potential returns of credit investments. This rise in yields is making credit investing more appealing, leading to a surge of interest and investment in private credit markets.
"Just two and a half years ago, cash yielded zero and even high yield bonds yielded only four. Today they yield close to eight. And from there it's onward and upward in terms of yields. So credit investing can be very rewarding today. There's a lot of interest in credit investing as a result." - Howard Marks
Non-bank lenders play a crucial role in the financial ecosystem.: Non-bank lenders play a vital role in the credit market by providing essential lending services, particularly in areas where traditional banks are less active. Their involvement ensures that credit remains accessible to a broader range of borrowers, which in turn supports overall economic growth.
Private credit opportunities are strong in the US and Europe.: Investors looking to maximize returns should focus on regions with well-developed financial markets and strong regulatory environments. These areas offer significant opportunities for private credit growth, making them ideal for strategic resource allocation.
"The private credit opportunities are very strong in the US and also strong in Europe." - Howard Marks
Asia has not yet seen a significant impact from private credit growth.: Asia's private credit market is in its early stages of development, showing significantly less penetration compared to the US and Europe. This presents exciting growth opportunities for private credit in the region.

Investment Strategies in Japan

Overview: Investment strategies in Japan revolve around the country's conservative financial culture. With low yields, the focus is on prudent financial management as a means to ensure long-term survival in the market.

Conservative financial practices ensure long-term survival.

Over 100 Japanese companies have been thriving for hundreds of years, showcasing impressive longevity.
In today's globalized economy, some people believe that adopting more aggressive strategies is essential for staying competitive.

Japan's low-yield environment limits investment appeal.

Many global investors tend to seek better returns by looking beyond Japan.
Japan's experience with stability and risk management offers valuable lessons that are still relevant today.

Implications

Japan's financial strategies could shape global investment practices, particularly in areas like risk management and sustainability.

Key Points

Japanese companies tend to have low debt and high cash reserves.: A conservative financial strategy focuses on stability and long-term survival rather than aggressive growth. This approach offers valuable insights into risk management and financial stability, making it particularly relevant for investors.
"No, I think that the japanese culture is essentially conservative in nature, and other than a little burst in the eighties, really never embraced aggressive financing and the high use of leverage. And as the memo said, as you say, non use of leverage is one of the things that can allow you to survive for very long periods of time. There's a lesson in that. But I think that some leverage is good, but each person or each organization has to identify the level of leverage that's consistent with its circumstances and will lead to long term survival." - Howard Marks
Conservative financial practices contribute to long-term survival.: Japanese companies have demonstrated remarkable longevity, with many operating for centuries. This endurance showcases the effectiveness of conservative financial strategies, suggesting that such an approach can significantly enhance business continuity.
Japan offers limited yield opportunities for global investors.: Japan's low-yield environment makes it an unconventional choice for high-return investments. Investors face a trade-off between the stability Japan offers and their pursuit of higher returns.
Cultural factors influence financial strategies in Japan.: Japan's financial conservatism stems from its cultural values and historical experiences. For investors aiming to engage with Japanese markets, understanding this cultural backdrop is essential.
There is interest in investing outside Japan for better returns.: Investors are increasingly looking beyond Japan's borders for better returns, driven by the country's low-yield environment. This trend highlights a global quest for higher investment returns and greater portfolio diversification.
"Most of our involvement in Japan is investing outside Japan. For japanese investors, the yields are fairly low in Japan and generally speaking, not additive to our global portfolios." - Howard Marks