Posts Tagged "Long-run return expectation"

China has been a major contributor to the global growth story in recent years, and has had a big impact on developments in foreign and emerging markets. As we’ve noted in previous commentary, we have been seeing some weakening in growth outside the United States while growth here remains strong. A 30% drop in the Chinese stock market, a sharp reversal in the Chinese currency, and slowing output growth all point to accumulating foreign sector weakness. Within China, the Chinese government has increased stimulus as evidenced by a recent surge in local government bond issuance (chart, below), and the Peoples…

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The first half of the year saw a turnaround in several indicators we watch. While bonds managed to outperform stocks in the first half, signs of improvement in the domestic economy are emerging. Our read of recent trends in the data gives us a basis for optimism on near-term growth. Overseas prospects are still fading, and growth rates are still coming down. Britain’s “exit” referendum poses challenges to Europe at a time when growth is already weak, for example. Our WCA Fundamental Conditions Barometer remains below 50, but is showing signs of improvement. The “core” of portfolios were recently rebalanced…

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We see higher long-run returns from emerging markets after a five year period of sideways performance and as returns in recent years push the Morgan Stanley Capital International (MSCI) EM Index well below the long-run trend (chart below).  We are currently expecting long-run EM equity returns to be about 1% higher than our current long-run domestic equity return, now that the emerging markets have suffered through five years of sideways market action and underperformance versus developed equity markets.  The multi-year slog for emerging market investors means that major EM indices remain near the levels seen during the 2008-2009 recession, despite…

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Full Report 2015 is off to a slow start for investors, as stocks closed the second quarter essentially flat year-to-date and bond returns were generally negative. There are some positive takeaways from the second quarter that should not be overlooked, however. Key Points: The economy is again growing slowly (likely near 2% in the second quarter) after grinding to a halt in the first quarter. The thought of the first quarter stall leading to a recession is fading, and while our WCA Fundamental Conditions Barometer is far from strong, it has stopped slipping and has even seen a small bounce…

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European Equities

Europe represents the largest part of the developed world’s equity markets outside the United States.  An analysis of opportunities in Europe requires a perspective on economic performance that is in some ways like our own, and in other ways very different.  On the one hand, Europe offers lower multiples and higher yield than U.S. equities, but growth has been stagnant for a long time. Much of the issue surrounding European prospects involves deep-rooted structural issues intertwined with a set of often-conflicted macroeconomic policies.  The combination of all of this has served to consistently depress growth below the growth rate of…

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Six years beyond the recession, we thought it would be helpful to pause and take stock of how far we have come.  Gross domestic product is about two trillion greater than where it stood during the recession.  Corporate earnings and dividends have ballooned.  Employment rolls are filling, and the unemployment rate is down considerably.  Lower fuel costs and accelerating personal income trends are helping to drive domestic sales increases.  This is a very good outcome compared with where we were just a few short years ago… For the complete report, please click here.

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