Three Key Issues for 2002 & Beyond
Three key issues will determine the prospects for the global economy: the likelihood of an impending recovery proving feeble or robust, and the outlook for sustainable longer-term growth.
Authored by: Celia Dallas
Mother Goose Revisited
If Goldilocks were the presiding genius of the fabled new economy of the roaring nineties, Humpty Dumpty may be more appropriate to the current situation. All the Fed’s horses and all the President’s men are working to put the U.S. economy back together again, but their conventional tools may prove inadequate.
Market Outlook
Three factors are critical in improving the prospects for the United Kingdom and Europe: a recovery in the U.S. economy, continued strength in U.K. consumer spending, and structural improvements in continental Europe. Although bond and equity markets have priced in expectations for a global economic recovery between the middle to end of 2002 because evidence…
The Name Is Bond, but Which Bond?
European investors are increasingly moving into bonds. Provided the economic downturn does not generate a higher than expected level of defaults, the high-yield market should provide opportunities for those able to tolerate a higher degree of risk. For the more staid, the embryonic euro inflation-linked bond market and U.K. corporate inflation-linked bond market provide opportunities…
Deflation Watch-Rising Risks?
High-quality, intermediate- to long-duration bonds can hedge against deflation. In the current environment of extremely low short-term interest rates and widespread expectations of higher rates in the future, investors should resist the urge to move into short-term bonds.
Earning Projections
Due to the consistent upward bias of analyst projections, investors should exercise caution in valuing equities on the basis of forward earnings expectations.
Writing Down Current U.S. Equity Valuations
The disparity among market commentators and analysts in their assessment of market valuations is unusually high today. Although our analysis suggested that the sharp price decline following September 11 brought the U.S. equity market close to fair value, the subsequent rise in the market and our closer analysis of the aggressive earnings assumptions required to…
Global Synchronous Slowdown
What is particularly worrisome about the global slowdown is that it was largely set in motion by the investment bust in the United States. The key issue for the global economy in the future is whether the next recovery, when it finally arrives, will correct the imbalances that the boom created in each economy, or…
Small, but Significant
Small-cap stocks in the United Kingdom and Europe are attractive because they provide added diversification within domestic, not global, markets. In addition, their valuations are more attractive than those of their large-cap brethren.
A Note on Diversification
Market shocks, such as that seen following September 11, serve as a reminder of the benefits of diversification into asset classes with different economic bases of returns. While correlations among global equities are currently high, they still offer some degree of diversification benefits. Other asset classes, such as nominal bonds (particularly high-quality bonds), inflation-linked bonds,…