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The valuations of Chinese equities have risen considerably over the past few months. But we don’t think that they are yet in a big bubble that is bound to burst soon. Admittedly, the forward price/earnings (P/E) ratio for the CSI 300, one of the benchmark …
19th January 2021
Although several factors could conceivably support the dollar in the near term, we still think it will weaken overall this year as Fed policy remains accommodative and appetite for risk continues to grow. The first factor that could potentially drive the …
Although Treasury inflation compensation – i.e. gaps between the nominal yields of conventional Treasuries and the real yields of TIPS with comparable maturities – has risen sharply since the spring, we don’t think this will prompt less accommodative …
15th January 2021
Despite signs of exuberance in a few markets, we don’t think that we are in the late stages of a bubble in “risky” assets generally. Provided vaccines enable the gradual relaxation of coronavirus restrictions around the world, we continue to forecast that …
14th January 2021
Although Chinese equities have bounced back a bit so far in 2021, they have still underperformed those elsewhere since the news on vaccine efficacy in late 2020. We expect further underperformance this year. There was a stark contrast in the relative …
13th January 2021
Despite the jump in US Treasury yields this week following the Georgia Senate run-off election results, we continue to think that the Fed will keep them from rising much further this year. The 10-year Treasury yield has risen above 1% for the first time …
8th January 2021
We expect both the Swedish krona and the Norwegian krone to appreciate against the euro and the dollar in 2021. However, in contrast to 2020, we expect the NOK to outperform the SEK slightly this year. The fortunes of the Swedish krona and Norwegian krone …
7th January 2021
Risky assets have continued to rally even as the near-term economic picture has turned a bit gloomier, but we do not think this reflects excessive optimism. Indeed, we think risky assets could rally further still. To recap, notwithstanding some wobbles on …
6th January 2021
Emerging market (EM) Asian equities have performed well compared with those in other EMs when coronavirus concerns have worsened this year, but we suspect any further deterioration in the virus situation would not provide the same support. To recap, EM …
22nd December 2020
We think that most risky assets will make further gains next year as policymakers continue to anchor safe bond yields around their current levels and the US dollar weakens further. After a pandemic-driven rollercoaster of a year in financial markets, …
Positive vaccine news has not changed our view that monetary policy in many emerging markets (EMs) will generally remain loose for some time yet. That is a key reason why we still expect EM local currency government bonds yields to stay low by historical …
18th December 2020
While the real yield differential between the US and the euro-zone has moved against the euro recently we doubt that this trend will continue. And, in any case, we think that factors other than changes in real yield differentials will continue to push the …
16th December 2020
We think there is scope for global equities to make more headway over the next couple of years, against the backdrop of a recovering global economy and supportive monetary and fiscal policy. November saw the biggest monthly increases in MSCI’s World Index …
Frontier economies will receive only a relatively small direct economic boost from the roll-out of vaccines next year. But the indirect benefits via higher commodity prices, capital inflows and tourism spending will be more substantial. These indirect …
15th December 2020
Although we have revised up our forecasts for economic growth in many emerging markets (EMs), we generally still expect monetary policy to remain loose, or be loosened further, to the benefit of local currency government bonds. Indeed, we think 10-year …
14th December 2020
While US corporate credit spreads are now close to their pre-pandemic levels, we think that they will fall further in general as the global economy recovers with the help of vaccines. Back in the summer, when the option-adjusted spreads (OAS) of ICE BofA …
10th December 2020
We think that the inverse relationship between the dollar and risk appetite will remain strong over the next couple of years, against a backdrop of low and stable interest rates. We expect that the dollar will weaken further and risky assets continue to …
We expect the recent rise in US inflation compensation to continue as the economy recovers, but doubt that it will be matched by a similar increase in nominal bond yields. As such, we think real yields may fall further. To recap, the 10-year US Treasury …
We think that the spreads of “peripheral” government bonds in the euro-zone are likely to fall next year to levels not seen since before the region’s sovereign debt crisis and that they will stay low over the next decade. This reflects our view of the …
4th December 2020
With positive news on COVID-19 vaccines increasing the chances of a strong global economic recovery next year, risky assets have rallied over the past month. While we think the stage is set for them to continue to do so, in this Update we identify five …
3rd December 2020
We think that the limited reaction of developed market government bonds to positive vaccine news is a sign of things to come. While the introduction of effective vaccines should help drive a stronger economic recovery early next year, it does not …
2nd December 2020
Equities and bonds in emerging markets (EMs) rallied sharply on the vaccine news earlier this month, particularly outside of Asia. We think they will continue to fare well as the global economy recovers. The reaction of EM assets to the vaccine news …
27th November 2020
We continue to think that stock markets will make further headway against a backdrop of a recovering global economy and continued accommodative monetary policy, as investors increasingly focus on the rollout of effective vaccines rather than on rising …
25th November 2020
Zambia became the first African government to default during the current crisis and debt risks are high in several other Frontier Markets, including Ghana and Kenya. The G20’s recently-announced ‘Common Framework’ to provide debt relief is a step in the …
23rd November 2020
Although India’s economy has struggled more than most in the COVID-19 pandemic, its equity market has performed relatively well lately. We expect the contrast between the economy and the equity market in India to continue over the next couple of years. …
20th November 2020
We have revised up our forecast for the euro against the US dollar, as we expect that conditions driving the euro’s appreciation will persist over the next few years despite near-term headwinds. The euro has appreciated more than 10% against the greenback …
After underperforming the MSCI USA Index for most of 2020, the MSCI Japan Index has started to outperform it in recent days. Provided COVID-19 is brought under control in most major economies, we think that this trend will continue over next couple of …
19th November 2020
We continue to think that risky assets will gain more ground and that the US dollar will weaken against a backdrop of a recovering global economy and continued accommodative monetary policy. In our view, the outcome of the recent US elections and the news …
13th November 2020
While there could still be more twists and turns to come after this week’s elections in the US, in general we expect equities there to outperform Treasuries between voting day and the end of 2022. The S&P 500 has risen significantly since voting day, even …
6th November 2020
While the final results are yet to be determined, whoever wins the US presidency probably faces continued gridlock in Congress. That may explain why the moves in markets overall so far have been limited. Admittedly, Treasury yields have fallen as the …
4th November 2020
While equity markets have fallen sharply over the past two weeks amid worries about the resurgence of new coronavirus cases in Europe and the US, there is little sign of the widespread market dislocations that accompanied the global spread of the pandemic …
2nd November 2020
We think that the Swedish krona will appreciate a little further against the euro and the dollar in 2021, but doubt that it will remain one of the best-performing G10 currencies, as it has been this year. The Swedish krona has been the …
Although uncertainty about the US election result might temporarily support the dollar, we expect it will continue to decline over the next few years given our forecast for loose fiscal and monetary policy. The ~5% rise in the dollar following the 2016 …
30th October 2020
As the election campaign draws to a close, this Focus looks at how it has affected equity, bond, and currency markets so far and assesses how different outcomes could shift them after Election Day. This election campaign has already had greater impact on …
29th October 2020
It is looking increasingly likely that the Brazilian government will violate its constitutional spending cap, or at least the spirit of it. While this could lead to some ructions in the real and Brazil’s bond market, we think its equity market should …
28th October 2020
Hopes for more debt relief for distressed EMs have been dampened in recent weeks. This Frontier Markets Monthly looks at why we are now at an impasse, the role of China, which EMs need help most, and how things might play out from here. What’s the current …
27th October 2020
We are sticking to our forecast that the 10-year German government bond (Bund) yield will end this year at around -0.50%, even though it has recently fallen through this level following a renewed surge in COVID-19 cases in Europe. To recap, the yield of …
22nd October 2020
We are upgrading our already above-consensus forecast for the Canadian dollar, as we expect higher oil prices, stronger-than-expected GDP growth, and favourable interest rate differentials to drive a continued appreciation over the next two years. Those …
19th October 2020
While sovereign dollar bond spreads in many emerging markets (EMs) are quite high by past standards, we think this is largely justified by the deterioration in fiscal positions caused by the coronavirus crisis . The stripped spreads of JP Morgans’s EMBI …
16th October 2020
While the S&P 500 is now above its pre-pandemic level, and US investment-grade corporate bond yields are even lower, we do not think that the valuations of “risky” assets in the US or elsewhere are unsustainably high. In fact, we expect equities and …
13th October 2020
Some measures of valuation and risk-taking in Chinese equities have approached levels last seen prior to their crash in 2015. We think another crash is unlikely, but doubt equities will make much more headway in local currency terms. To recap, over a …
The yield of the EMBI Europe has risen since June and we doubt that it will fall back much over the coming year if geopolitical tensions involving Turkey and Russia persist . The yield of JP Morgan’s EMBI Europe Index (EMBI Europe) of emerging European …
8th October 2020
We have revised up our already-bullish forecasts for the Australian dollar and the New Zealand dollar against the US dollar over the next few years, to reflect changes to our outlook for the Chinese renminbi. Crucially, though, this view hinges on …
Although the SNB meets the US Treasury’s criteria for a “currency manipulator”, we doubt this would deter it from intervening further in the foreign exchange market if required to keep the franc stable. New data detailing the SNB’s FX transactions confirm …
7th October 2020
Recent moves by Angola and Zambia to restructure their public debts (or seek to) are unlikely to act as a trigger for a wave of similar steps by other debt-distressed frontiers. Indeed, their experience highlights the difficulties of reaching agreements …
30th September 2020
In this Update , we consider the near-term outlooks for the yen, Japanese equities and government bonds under new Prime Minister Yoshihide Suga , and compare them with their performance in the early years of the tenure of his predecessor, Shinzo Abe. Abe …
29th September 2020
Although the Norwegian krone has been the worst performing G10 currency so far in 2020 (see Chart 1), we expect it to make up some lost ground in 2021 even if it falls a bit more in the near term. The US dollar rose sharply against most other G10 …
Despite falling back a little this week, we still expect most currencies in the Asia-Pacific region to make headway against the dollar over the next couple of years, led by a stronger renminbi. As we set out here , we have changed our view on the Chinese …
25th September 2020
Despite the sell-off in most emerging market currencies over the past week, we continue to think that most will strengthen against the US dollar as the global economy recovers. In particular, we have recently revised up our forecasts for the Chinese …
24th September 2020
While we continue to forecast that equity markets will make further ground in the next few years, the rapid increase in COVID-19 cases in Europe poses a downside risk to our projections. We have been arguing for a while that with the major economies …
21st September 2020