Valuations
The British pound may be prone to further weakness in the coming months as the odds of a Brexit rise.
Lower oil prices are aggravating financial and social stress in poorer OPEC states, particularly in Venezuela, where the government recently executed a gold-for-cash swap ahead of looming debt payments.
A global comparison suggests that China's capacity utilization does not appear particularly weak compared to other countries. The excess capacity problem is not unique to China, and therefore cannot be explained by China's investment-driven growth model. Chinese stocks have been unduly punished by the "overcapacity" stigma, which is unwarranted and will eventually correct.
There are no indicators that consistently lead share prices or can differentiate cyclical bull markets from short-term oversold rebounds. Investors who are right on the big-picture view will be rewarded, and <i>vice versa</i>. From a big-picture perspective, our bias remains that EM/China growth will not pick up sustainably, and that EM EPS will not recover materially in the next 12 months. Therefore, we recommend fading this rally.
The Fed's recent dovishness represents an acknowledgement of the feedback loop between Fed policy and financial conditions. Expect Fed hawkishness to ramp back up prior to the next rate hike, likely in June.
The Fed's recent dovishness represents an acknowledgement of the feedback loop between Fed policy and financial conditions. Expect Fed hawkishness to ramp back up prior to the next rate hike, likely in June.
The Fed's decision to scale back intended interest rate hikes reflects economic reality.
A dovish Fed bought the bounce a bit more time, but there is little incentive to add portfolio risk. Buy consumer finance, especially vs. banks, and expect communications equipment outperformance.
While the FOMC was more dovish than expected, rising inflation may cause the Fed to escalate hawkish rhetoric. The bounce in oil should help high-beta stocks. Underweight U.S. equities versus Europe, Japan and H-shares. We estimate U.S. equities will deliver returns of 4%, ann. over the next 10 years, <i>vis-à-vis</i> 9% for the euro area and Japan, and 14% for H-shares. Central banks have more options to combat any possible debt-deflation spiral in Europe/Japan/China than is often recognized.
We differ markedly with the U.S. EIA's assessment of the near-term evolution of oil supply and demand.