On all metrics, equity valuations are at multiyear lows. But until there’s more clarity on the pandemic’s impact on earnings, stock pricing is more noise than signal. With global equity benchmarks in bear-market territory, valuations haven’t been this low in years. But given the still-opaque outlook for world economies and earnings, the caveat of “let the buyer beware” remains an apt warning.
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Service sectors are stronger than manufacturing globally, and strongest in Asia, post-Covid. The Fed’s pause suggests most duration risk may be behind US Treasuries, though easing awaits lower core inflation. Gilts and JGBs underperformed on higher inflation and a weak yen. Credit outperformed, helped by yield levels.
Chinese sovereign spreads fell sharply, notably vs the UK, reflecting inflation rates. China IG credit is in a sweet spot, but HY depressed by property woes, YTD, despite recoveries in June. Foreign outflows from onshore government bonds has slowed, but yuan weakness may have reduced the appeal of RMB bonds.
Canadian government bonds fell, with most G7 bonds, in the last three months as disinflation slowed and after the Bank of Canada’s surprise 0.25% rate rise, though inflation has now resumed its decline. Canadian credits still made modest gains in Q2. Canadian dollar strength reduced overseas returns in CAD terms.
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