Why investors may need to lower their expectations?

The forces that have driven exceptional investment returns over the past 30 years are weakening, and even reversing. It may be time for investors to lower their expectations. Given the waves of turbulence that have swept through financial markets in recent years, including the 2000 dot-com meltdown and the 2008 financial crisis, it may sound odd to describe the past three decades as a golden age for investors. But the reality is that total returns on equities and bonds in the United States and Western Europe from 1985 to 2014 were significantly higher than the long-term average.

 

These returns were driven by an extraordinary confluence of favorable economic and business fundamentals. Inflation and interest rates declined sharply from peaks in the late 1970s and 1980s. Global economic growth was strong, fueled by positive demographics, productivity gains, and rapid growth in China. And corporate-profit growth was even stronger, reflecting revenue gains in new markets, declining corporate taxes, and advances in automation and global supply chains that helped rein in costs. Publicly listed North American companies alone increased their posttax margins by 65 percent in this three-decade period. Read more »

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BlackRock Sovereign Risk Index: A More Comprehensive View of Credit Quality

Investors are waking up to the significance of sovereign credit risk in global debt markets, but quantifying the appropriate premium remains difficult. In response, BlackRock introduced a transparent and disciplined approach to assessing credit risk for sovereign debt issuers. The BlackRock Sovereign Risk Index numerically ranks issuing countries using a comprehensive list of relevant fiscal, financial and institutional metrics.The results contain several interesting insights for debt investors, and some very distinct groupings of countries emerge. The top countries are fiscally responsible and institutionally robust Northern European states, and the bottom ones include the European periphery as well as some emerging markets.

Drawing on a pool of more than 30 quantitative measures spanning financial data, surveys and political insights, the BlackRock Sovereign Risk Index (BSRI) provides investors with a framework for tracking sovereign credit risk in 50 countries.

The BSRI breaks down the data into four main categories that each count toward a country’s final BSRI score and ranking: Fiscal Space (40%), Willingness to Pay (30%), External Finance Position (20%) and Financial Sector Health (10%).

To use the tool go to:

https://www.blackrockblog.com/blackrock-sovereign-risk-indicator/# Read more »

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