Principal Global Investors has today released two thought leadership pieces addressing the decline in equity markets. The sharp declines seen in global equity markets has created a phenomenon for investors who are able to follow a rebalancing strategy in their portfolios.
While China’s correction is not likely the start of a continued downward trajectory for the currency it does suggest that the way forward for commodities and emerging markets will remain clouded.
- The clear tendency for equity markets to overreact to market news and move in liquidity-driven ways often drives investors to sell equities to free up cash
- This provides an opportunity for investors to buy on setbacks, especially those who can follow a rebalancing strategy in their portfolios
- The absence of inflation and the global excess of demand for financial assets suggest that bond yields may stay lower for longer
- China’s recent currency devaluation triggered investors’ worst fear that the typically rational and careful Chinese leadership had lost control of its massive economy
- Commodities are unlikely to bounce back any time soon, meaning that commodity-exporting countries and currencies will continue to have further painful adjustments
- The large imbalances resulting from state-directed capitalism suggest that emerging market assets and commodities will remain clouded looking into the future
