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Emerging Market Stocks Underperform When the US Dollar Strengthens…Here’s Why
The relationship between the performance of emerging market stocks and the US dollar is one of the tightest macro relationships that exists in investing. As we can see in the first chart, the relative performance of EM stocks vs the S&P 500 is highly negatively correlated with the level of the dollar. That is, when the dollar goes up, EMs
Leave the Renminbi Out of US-China Trade Talks
CAMBRIDGE – Will a possibly imminent US-China trade agreement exacerbate global business cycles or even plant the seeds of the next Asian financial crisis? If the eventual agreement – assuming there is one – forces China to hew indefinitely to its outmoded, overly rigid exchange-rate regime, then the answer may be yes. Keeping the renminbi’s exchange rate stable against the
What ‘Back to the Future’ Can Teach Us About Portfolio Rebalancing
The standard 60/40 portfolio featuring a basic mix of US and international equities plus aggregate bonds has returned a cumulative 754% since 1990. Or has it returned 781%? Or maybe 730%? All three numbers are correct for this standard strategic asset allocation mix. The differences, however, like the devil, are in the details: it depends on when the portfolio was
The Case of the Missing Inflation…and What the Fed’s Doing About It
US inflation has been running low for some time, and key members of the Federal Reserve Open Market Committee (FOMC) are pointing a finger at the traditional policy framework. So rate hikes are on hold for the time being—and monetary policy is under the microscope. Since the beginning of this year, bond markets have dramatically adjusted their expectations for US
Negotiation and Ratification: Hurdles Remain for China Talks and the USMCA
Summary Dealing With China Is The USMCA On Its Way? To obtain an economics degree at the University of Chicago, students were required to take a year-long course in the history of a non-Western civilization. Economics is a social science, after all, and business cultures can vary widely from place to place. I elected to study Far Eastern civilization, primarily
Weekly Headings
While the MSCI China Index has been the best performing country index year-to-date (YTD) (+23%), concerns that the rally in emerging market (EM) equities may be over is premature. First, YTD, broader EM (+14.0%) and Asia EM (+15.3%) have underperformed the S&P 500 (+16.4%)*. Second, over the last year, China, EM Asia, and EM broadly have underperformed the S&P 500
Land of the Unicorns
There is a herd of unicorns prancing through Wall Street and the bulk of money is chasing them. A “unicorn” refers to a startup, usually venture-backed, that achieves a private valuation in excess of $1 billion whether they are profitable or not when they become public. What once seemed impossible is commonplace today. The two king unicorns are Uber, the
Misreading the Signs: Is Yield-Curve Inversion a False Alarm?
The US yield curve dipped into inverted territory recently. But that’s not necessarily a bad omen for equities. There are several important warning signals—and lately the yield curve’s slope is the only one flashing red. The curve plots the gap between long- and short-term US Treasury yields, and there’s a reason investors pay attention to it: the curve has inverted
Thinking Outside the Box
KEY POINTS ■ We believe the secular growth tailwinds in the climate change sector will provide investors with strong investment opportunities for decades to come. ■ In our opinion, a well-designed climate change strategy can provide investors with a variety of benefits, including diversification, protection from climate risk, inflation protection, and the ability to invest in growthoriented companies at a
Asia Credit Spreads Look Rewarding
Asia credit spreads are wide, while U.S. credit spreads are narrow. What accounts for this difference? In response to the global financial crisis of 2008, the U.S. Federal Reserve and European Central Bank launched massive quantitative easing (QE) that has lasted for the better part of a decade. This artificially inflated money supply continues to distort credit spreads for U.S.