Where are the asset class investment opportunities?
The chart illustrates the effect of current valuation on expected return over the next five years.
Buying undervalued assets results in positive valuation returns. Buying overvalued assets results in negative valuation returns.
Best opportunities for valuation returns remain in small and large companies in Europe and Japan, with notable bargains in Spain, France and Austria. Emerging markets equities are fairly valued. US small and large companies are most overvalued, with the gap between the two narrowing this year. Cash continues to suffer from Fed zero interest rate policy. All US dollar bonds are overvalued on an absolute basis due to managed Treasury curve. US credit spreads are below normal but not at expansion lows. Non-US developed market bond yields are at recession lows, while being managed by local central banks. Emerging market bond credit spreads versus Treasuries are near historic lows and not compensating for potential risks.
