The picture in emerging markets is vastly different today than in the mid- to late-1990s, when nearly all EM countries issued debt in U.S. dollars.
Given our relatively pessimistic outlook for commodities, we have favored a modest underweight stance for this asset class. Commodities generally behave with more momentum than reversion, and entered the current quarter coming off a very weak second quarter. Beyond the negative momentum, the weakness in emerging markets represents a very problematic signal for commodities. While
We are watching for a possible shift, although it is not yet evident, in the correlation between stocks and bonds, which measures how similarly or differently these asset classes perform. For the past 10 years, this correlation has been consistently negative — when stocks have struggled, bonds have done well, and vice versa (a correlation
As 2013 begins, we find that important changes are occurring in the correlation structure of markets that should shape investment strategy. The first important shift is a decline in the elevated correlations across all kinds of equities, which has been a hallmark of recent years. We measured elevated correlations across sectors, across country markets, and