The OECD leading indicators (CLI) for the USA, the Eurozone and Japan all point towards a synchronised global recovery.
In other words, we are still in an expansion scenario where risk-heavy asset classes typically deliver the best returns, inflation is rising and growth is high. Emerging Markets stocks and commodities also perform best in this scenario. Additional leading indicators from the Conference Board, DZ Bank and others also point upwards for China, Australia and the BRIC countries as a whole. According to the Conference Board, only the United Kingdom looks challenged. In all probability, this is due to the uncertainty connected with the Brexit negotiations.
Chief Strategist at SParinvest, David Bakkegaard Karsbøl, writes in his latest monthly comment, that although in the short term, stocks look like they will continue to give attractive returns, they are in many cases – and particularly in the USA – priced so highly that the wrinkles on the foreheads of long-term investors must run particularly deep.
Long-term investors cannot expect much more than a 4% annualised return over the coming 10 years from US stocks. Investors in European stocks can expect around 6%, while EM investors can expect about 8%. The difference in pricing between developed markets in particular and EM stocks is historically large in favour of EM stocks, and as discussed above, these are favoured by the macroeconomic situation.
Long-term investors should therefore have an overweight to EM stocks, while bearing in mind that over time these have a tendency to show higher fluctuations in returns.
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