{"id":64588,"date":"2017-07-19T00:53:21","date_gmt":"2017-07-18T22:53:21","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/reasons-to-embrace-risk\/"},"modified":"2019-12-31T02:03:25","modified_gmt":"2019-12-31T01:03:25","slug":"reasons-to-embrace-risk","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/reasons-to-embrace-risk\/","title":{"rendered":"Reasons to embrace risk"},"content":{"rendered":"

The global economy is chugging along, with the eurozone perking up even as
\ninflation remains subdued. In a low-yield environment, we believe this bodes well
\nfor risk assets.<\/p>\n[\"u.s._equity_market_valuation_1988-2017.jpg\"
\n->http:\/\/www.next-finance.net\/IMG\/jpg\/u.s._equity_market_valuation_1988-2017.jpg]\n

We look at the earnings yield of U.S. equities \u2014 the implied yield in earnings
\nestimates that makes potential returns comparable to bond yields. U.S. equities
\nlook expensive on this basis, as shown by the blue line in the chart. But compared
\nwith historically low bond yields (green line), U.S. equities still look cheap.<\/p>\n

Rethinking returns<\/strong><\/p>\n

We see the world in a synchronized and sustained economic expansion, as detailed in our [Global investment outlook: Midyear
\n2017->https:\/\/www.blackrock.com\/corporate\/en-us\/literature\/whitepaper\/bii-global-investment-outlook-midyear-2017-us.pdf]<\/strong> <\/em>. Eurozone\u2019s growth has accelerated, and we believe any near-term worries on China are likely overstated. Yet overall we see
\nan environment of structurally lower growth and interest rates. This suggests comparing today\u2019s valuation metrics to past levels
\nmay not be as useful of a guide to future returns as in previous cycles.<\/p>\n

The current U.S. economic cycle has been unusually long, sparking fears that it is ready to die of old age. We compared this cycle
\nwith previous ones, based on estimates of economic slack, and found it has room to run. One consequence: A benign economic
\nenvironment tends to go hand in hand with low market volatility. We see risks of policy missteps as the Federal Reserve plans to
\nwind down its balance sheet and the European Central Bank looks to transition towards smaller asset purchases. A sharp rise in
\nbond yields could undercut risk assets, but we expect both central banks will communicate clearly and proceed with caution.<\/p>\n

Bottom line: We believe investors are being paid to take risk, and prefer equities over fixed income. We like European,
\nJapanese and emerging market shares, as well as the momentum factor. We are negative on major government bonds and
\nprefer inflation-linked debt.<\/quote>
\n