Bet On "Reflation" Plays
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Bank of America Merrill Lynch global equity strategist Michael Penn said that the firm's investment clock favors "reflation" plays.
The investment clock from BofA Merrill Lynch establishes the relationship between the business cycle and the performance of asset classes, markets and sectors.
Penn said that the relative winners during reflation phases since 1990 have been equities, BRIC markets, Hong Kong, Korea, the Eurozone and the technology sector. The losers according to the firm are to by cash, the U.K. and Japanese equities, healthcare and utilities.
“In recent months the clock has moved counterclockwise from the inflation to reflation phase of the cycle. Since spring global inflation has fallen from 3.2 percent to 2.7 percent, a trend highlighted by the Fed in its latest FOMC statement. Meanwhile our long-term growth measure has remained stable as weaker US activity data has been offset by growth in emerging market economies."
The firm said that the shorter-term indices show signs of greater slowdown ahead. In order for these signs to dissipate improvement in both initial jobless claims and new orders component of the ISM report need to occur.
Highlights of the reflations phase include equities are by far the best performing asset class, with returning 17 percent on a CAGR basis. Cash has returned on average of 1.1 percent per year, having historically underperformed during these cycles.
The cyclical markets of Russia, China, India and Brazil are the outperforming markets during reflation, while Japan, the U.K. and Canada historically underperform. According to annualized returns during a reflation phase, the U.S. rates just ahead of Canada.
The investment clock from BofA Merrill Lynch establishes the relationship between the business cycle and the performance of asset classes, markets and sectors.
Penn said that the relative winners during reflation phases since 1990 have been equities, BRIC markets, Hong Kong, Korea, the Eurozone and the technology sector. The losers according to the firm are to by cash, the U.K. and Japanese equities, healthcare and utilities.
“In recent months the clock has moved counterclockwise from the inflation to reflation phase of the cycle. Since spring global inflation has fallen from 3.2 percent to 2.7 percent, a trend highlighted by the Fed in its latest FOMC statement. Meanwhile our long-term growth measure has remained stable as weaker US activity data has been offset by growth in emerging market economies."
The firm said that the shorter-term indices show signs of greater slowdown ahead. In order for these signs to dissipate improvement in both initial jobless claims and new orders component of the ISM report need to occur.
Highlights of the reflations phase include equities are by far the best performing asset class, with returning 17 percent on a CAGR basis. Cash has returned on average of 1.1 percent per year, having historically underperformed during these cycles.
The cyclical markets of Russia, China, India and Brazil are the outperforming markets during reflation, while Japan, the U.K. and Canada historically underperform. According to annualized returns during a reflation phase, the U.S. rates just ahead of Canada.
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