While there are few options to effectively hedge against a US$ crash, investors should nevertheless think carefully about the ways such an event might play out, and what this implies for the efficacy of current investment strategies.
Authorities have taken decisive steps recently to quell concerns about sovereign debts. However, the underlying problems will take a long time to work through and thus volatility is likely to be a recurring theme in European markets for some time.
Many institutions are reviewing their fixed income exposure in light of concerns over the prospects for rising interest rates. While shortening duration to protect portfolios against higher rates ahead seems intuitively appealing, experience indicates it is ill-founded.
Stretched valuations and macroeconomic uncertainty leave emerging markets equities vulnerable.
Investors in emerging markets cash funds have historically enjoyed a smooth ride given high local interest rates; those investing in today’s low-rate environment will depend more on currency appreciation.
Investor demand for linkers has pushed down real yields, but versatile securities still have a role to play.
For all the hand-wringing over the private equity overhang, most problems seem confined to the large buyout space; things look a sight better for mid-market funds, some of which may be poised to capitalize on opportunities created by the credit crisis.
Deteriorating municipal finances have implications for investors though default risk is remote. However, there are technical drivers that may support the tax-exempt market for some time.
Current events in Greece are unlikely to lead to a breakup of the European Monetary Union, but underline concerns over sovereign indebtedness and associated risks to global currency, credit, and equity markets.
Cyclical factors appear to be dollar supportive against other major developed markets currencies, while secular fundamentals argue for continued U.S. dollar weakness against emerging markets currencies.