Frothy stocks and well bid bonds can undercut portfolio performance if rates move higher, though long/short equity strategies can support long-run returns.
On August 14, President Donald Trump instructed the US Trade Representative to commence investigating Chinese infringement of intellectual property rights. Whatever the merit of such allegations, Chinese retaliation against US trade sanctions would almost certainly cause far more economic damage.
Since the infamous “dot com” meltdown nearly two decades ago, people have tended to question any sort of extended run-up in technology-sector stocks.
Overall, we believe small-cap stocks in emerging markets offer attractive prospects for active managers. A multitude of mispriced securities, market inefficiencies and a paucity of research provide considerable investment opportunities, in our view.
International economic forecasters find it difficult to resist superimposing the experience of crisis-prone developed economies onto China. But, once again, the Chinese economy has defied the pessimists: after decelerating for six consecutive years, real GDP growth appears to be inching up in 2017.
TIPS fell 0.3% vs. a 1.5% gain in Treasurys. The average TIPS yield rose 41 bp to 0.40%, while Treasurys slipped 4 bp to 2.03%. The average TIPS spread narrowed to 163 bp from 208 bp. Poor relative performance was due to rising short-term rates, decreasing inflation expectations and declining long-term Treasury yields.
Though Japan’s experience since the early 1990s provides many lessons, policymakers in the rest of the world have failed miserably in heeding them. Time and again, major central banks – especially the Federal Reserve, the European Central Bank, and the Bank of England – have been quick to follow the Bank of Japan's disastrous lead.
Despite some uncertainties, economic improvements in developed and emerging markets have supported a positive mood across both equity and fixed income this year.
Once an adapter to globalization, China is increasingly a driver of it. The Next China is becoming a Global China, upping the ante on its connection to an increasingly integrated world – and creating a new set of risks and opportunities.
Slowly but surely, a bruised and battered global economy now appears to be shaking off its deep post-2008 malaise. But this hardly means that the world is returning to normal; on the contrary, the global growth dynamic has undergone an extraordinary transformation during the last nine years.