Japanese equities are again oversold, unloved, and undervalued to the point where in the past the market has managed to post subsequent relative outperformance. However, it may be some months before Japanese equities decisively outperform, given the headwinds of a strong yen and uncertainty surrounding economic policy and the strength of the global economic recovery.
On a fundamentals basis the medium- and long-term negatives for the pound seem much more numerous than the positives, but sterling could surprise on the upside should real reform and a sustainable economic recovery occur.
Investors that favored high-yield bonds over equities have fared well over the past year, but further upside may be limited.
Even as the global economy has been showing some nascent signs of recovery, we expect dividend payouts will continue to be pressured as companies globally adapt to a tougher earnings environment.
The powerful move in equities from their March lows has outpaced fundamentals. History indicates that at this point in the cycle the easy gains have been made and returns going forward will likely be muted.
Managing behavioral risk is arguably prerequisite to effective implementation of other risk mitigation strategies. This paper identifies ways investors can counter the urge to stampede for the exits during times of crisis.
Index-based trading will influence correlations, volatility, and manager opportunities.
The U.S. government’s policies to combat the financial and economic crisis appear to have been much more effective in bolstering the financial system and revitalizing capital markets than in stimulating the economy, but capital markets remain fragile and the policies have introduced a number of serious investment-related risks.
This paper explores alternatives for managing currency exposure inherent in diversified portfolios.
This is the eighth in what has evolved into a series of occasional papers, Asset Allocation in the Current Environment, on the evolution of the secular bear market in equities and our thoughts on how investors can best cope with the prevailing uncertainties.