Despite bubble talk, we expect risky assets to rise more

We continue to forecast that risky assets generally will fare well over the next couple of years as the global economy recovers and monetary policy remains accommodative. Despite their rapid rise since the start of November, we don’t think that equity markets have necessarily become overvalued. In our view, lower interest rates mean that the sustainable levels of price/earnings ratios have risen and, despite signs of froth in some market segments, we do not think that we are currently in the late stages of a broad-based bubble in risky assets. Finally, we continue to expect that government bond yields will remain at very low levels, and the US dollar will lose ground gradually against most other major currencies.