Valuations

Top-down measures of nonfinancial corporate sector balance sheet health have been flattered in recent quarters by inaccurate data on interest expense. After correcting for the inaccurate data, we see that our best measures of corporate balance sheet health show a persistent steady deterioration.

The implications of this morning’s CPI report for Fed policy, Treasuries and TIPS.

While Chinese stocks have low valuations and are oversold, their attractiveness is dampened by uncertainties in the magnitude of stimulus and the dismal outlook for corporate profits in the next six to nine months.

We comment on Jay Powell’s Jackson Hole speech and recommend shifting to a barbelled allocation along the Treasury curve.

A global portfolio is likely to return only 5.3% a year over the next decade, compared to 6.7% in the past. Investors either need to lower their return expectations, or take more risk. Our total return methodology remains consistent with previous editions, with changes limited to the Alternatives section.

In part 2 of this series, we discuss mainstream EM equity valuations and present the results of our cross-country analysis. The goal is to identify overweights and underweights within an EM equity portfolio.