Please note, this week's investment letter was written before Bernanke's testimony. Contact me to subscribe.
The bullish developed world equity market trend continued over the past
week, with the S&P 500 rising another 2.1% and European stocks gaining
1.2% on the week. Economic data released were mixed, implying that
some of the rally may have come from expectations of continued central
bank liquidity. The emerging markets saw prices decline, indicating that
the flow of money toward the developed world economies continues.
The global emerging market story is far from ending, and will ultimately benefit further from improvements in the developed world, but reports of Japanese GDP growing at 3.5% in the first quarter support the historical norm of allocation rebalancing at this phase of the global cycle.
It is hard to say that equity prices are excessively high, and we remain confident that the growth cycle will continue. However, the market’s trajectory is beginning to look over-extended once more, whilst economies continue to only slowly digest long-term economic issues.
Short-term capital allocations should be managed very selectively. Entering cheaper stocks is still possible, as valuations remain dispersed. Resource stocks have in many cases under performed, but infrastructure demands remain high globally. There is a strong case for consumer stocks too, as Asian demand is likely to improve and European demand is possibly nearing its low. For diversification purposes this week we suggest to look at gold again.
The global emerging market story is far from ending, and will ultimately benefit further from improvements in the developed world, but reports of Japanese GDP growing at 3.5% in the first quarter support the historical norm of allocation rebalancing at this phase of the global cycle.
It is hard to say that equity prices are excessively high, and we remain confident that the growth cycle will continue. However, the market’s trajectory is beginning to look over-extended once more, whilst economies continue to only slowly digest long-term economic issues.
Short-term capital allocations should be managed very selectively. Entering cheaper stocks is still possible, as valuations remain dispersed. Resource stocks have in many cases under performed, but infrastructure demands remain high globally. There is a strong case for consumer stocks too, as Asian demand is likely to improve and European demand is possibly nearing its low. For diversification purposes this week we suggest to look at gold again.
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