European equity valuations are not expensive, but political risks justify a discount and the lack of easy fixes to Europe’s sovereign debt crisis may make volatility a recurring feature of the market.
Equity investors are right to be focused on corporate earnings, given that a lackluster recovery and slowing global growth may weigh on sales. However, profit margins may be of lesser concern, due to index mechanics and the limited correlation between margins and returns. S&P 500 companies have enjoyed a stunning rebound in profits since the…
While recent efforts by European authorities to expand rescue packages for peripheral countries are a step in the right direction, market volatility is likely to remain elevated until more comprehensive solutions are put on the table.
Allocations to emerging markets bond funds make sense from a strategic perspective, but the opportunity set offered by this evolving market is not static.
European equity valuations are reasonable from a historical perspective—pessimism about sovereign finances and a slow recovery may be fully priced in.
While European equity valuations are reasonable from a historical perspective, market pricing doesn’t provide much cover for risks stemming from sovereign finances and the halting economic recovery.
While there are some good reasons that demand for fixed income assets has increased, the subsequent price appreciation has made compelling investments harder to find. However, while we view sovereign bonds from many developed countries as very overvalued, our outlook on credit is more nuanced.
The importance of geographic revenue mix has increased in recent years as growth prospects for emerging and developed markets have diverged. For European and U.S. companies positioned to capitalize on this growth, it may provide a silver lining despite slowing domestic demand.
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.
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.