So, Where Are the Bets?
A quick survey of representative global equity managers indicates that they have moved to an overweight position in U.K. equities, and are now underweight Europe ex U.K.
Authored by: Ian Kennedy
Japan–When Should You Become Bullish?
Despite faint stirrings of reform in Japan, the macro environment remains inhospitable for equity investors, appealing only to dyed-in-the-wool contrarians. Two developments seem inevitable: rising inflation and a weaker yen.
NAFTA–Bracing for a Downturn
NAFTA tied Canadian and Mexican markets to the U.S. Business cycles and integration have converged. Correlations of returns are increasing as Mexico and Canada shift from natural resources and energy to developed financial sectors and information technology. This convergence puts both economies at risk when faced with a stalling American economy. Trade spurred growth and…
Re-examining the Wealth Effect
Several recent studies challenge the validity and pervasiveness of the wealth effect. One report complains about flaws in the methodology behind the calculation of personal savings, while others suggest that the propensity to consume may have moved to a permanent and higher level, which would be less vulnerable to stock market weakness. These arguments hold…
Is the `Small Company Effect` Reasserting Itself?
After a decade of meager returns, U.K. small-cap equities have enjoyed a reversal of fortune in the past two years, rewarding investors that have tolerated the higher risks and lower liquidity associated with this sector. Although relatively attractive on a valuation basis, U.K. small-caps remain very much a cyclical play, vulnerable—as always—to any significant deterioration…
Global Sectors
Sector investing is a current trend that seems to make intuitive sense, but as repeated in last month’s conclusion correlation data needs to be met with skepticism.
Tech Spending
Over the last five years, investment in technology grew at an average annual rate of 25% in real terms, accounting for anywhere from 20% to 33% of total economic growth. Having over-invested during the expansion’s heady years, corporations are in the uncomfortable process of digesting excesses. If the virtuous cycle indeed turns vicious, the slowdown…
European Valuations
Our dividend discount model indicates that U.K. equities are now fairly valued, while continental European equities are slightly undervalued.
European High-Yield Market
Economic integration, the trend of deregulation and privatization, surging M&A activity, and the increasing acceptance of leverage in corporate financing have provided the catalyst for an expanding European high-yield market.
Global Correlations
Correlations between regions are high, but not extraordinarily so or unprecedented. What’s more, correlation methodology has a tremendous effect on the interpretation of actual correlation of returns. The starting point and frequency of the data (month, week, or day) can skew the statistics one way or the other and currency denomination has a significant impact….