On cue with the timing predicted by Carmen M. Reinhart and Kenneth S. Rogoff in This Time Is Different, austerity and deleveraging are gradually ending. As central banks lengthen their periods of accommodation, they are also stepping increasingly into supporting roles as incremental policy support starts to arrive from the fiscal side.
While the sizes of the upcoming fiscal thrusts and re-leveraging are not impressive, markets take note of changes in direction. Another important inflection point is an apparent bottoming of inflation in many developed markets (DM) alongside peaking in many emerging markets (EM). This has market implications favorable to EM, in our view. The slope of our Capital Market Line (CML) remains positive, although disappointingly so, signaling a low-return world ahead that will require more alpha from selecting beta to meet return hurdles. Yet the CML’s historically wide dispersion still shows significant opportunities for those who emphasize greater selectivity.
Read the complete white paper at the link beneath Related Files