Since the global financial crisis (GFC), a number of trends have been worrying investors : aging demographics in both developed and emerging countries, increase of income inequality, decline in productivity growth, lack of investment from the corporate sector, and the slowdown of global trade.
The country has seen its growth slow in the recent years, reflecting the lack of trade and economic growth around the world. Lire la suite
Another good chart from Morgan Stanley most recent « Cross Asset Playbook », there are tons of useful and valuable material in there, this is just a selection (see previous post as well).
From GS’s latest GOAL publication:
« Much of the reason that equities appear cheap versus bonds therefore is simply a reflection of how much bond yields have fallen. Most measures of the ERP will use some kind of long-run historical average measure of profit growth and extrapolate into the future. »
Current levels of ERP assumes that earnings growth of the past 20 years will go one forever. But that’s a hard case to make. In fact, as GS’s strategists put it:
« Here lies the great dilemma for investors: on the one hand, current bond yields imply that valuations can continue to rise for financial assets (as they have already done over recent years), but, on the other hand, to justify current risk free rates into the future, we should assume lower long-term growth (consistent with ‘secular stagnation’).This should cap the level of valuations close to current levels.This is why we argue that while the Long Good Buy for equities still holds – they should do well relative to bonds over the medium term – the market trajectory is likely to be flatter than experienced through 2009 to 2016. »
« The uncertainties that made us cut our risk OWs to small have not gone away and merit hedging. The biggest one comes from an early end to the cycle caused by the lack of productivity growth. Inflation will be the warning sign and should be hedged. »
Another good read from Jan Loeys and team at JPMorgan… Lire la suite
For those investors who did not have time to read all Morgan Stanley’s reports about ECB QE and its impact on asset classes, here’s the summary of the summary.