Whether investors are trading on greater stability in commodity prices or a less “hawkish” Federal Reserve, or they’re simply reallocating en masse to less expensive assets, emerging markets (EM) are soaring. But with virtually all EM assets rallying, which one makes sense for the current environment?
The latest weakness in the U.S. dollar has a number of investors re-examining the case for currency hedging their foreign equity portfolios. The important philosophical portfolio question investors must determine is this: Is there really a long-run benefit to portfolios from betting that currencies such as the euro, yen and pound will always appreciate in value versus the U.S. dollar?
Central bank activity has become one of the most important and influential factors driving markets today. As the U.S. Federal Reserve moves toward a policy rate normalization, both the Bank of Japan and the European Central Bank are pushing the boundaries with policies that many wouldn’t have considered merely a few years ago.
Across the U.S., Europe, Japan and emerging markets, Financials have been the weakest-performing sector so far this year. On March 10, 2016, Mario Draghi and the European Central Bank (ECB) announced a fresh round of measures to help stimulate the European economy.
The Bank of Japan surprised the markets by expanding its monetary stimulus program in January with the introduction of a new tool we’ll call “NIRP”—a negative interest rate policy. The key bottom line we see from this action: Japan remains extraordinarily committed to achieving its 2% inflation goal and will not hesitate to expand into pursuing new policies if it continues to fall behind on its inflation mandate.