GMO has published a new 7-Year Asset Class Forecast

Our emerging market debt valuation metrics across all but the U.S. interest rate dimension remain unambiguously attractive. In our Quarterly Valuation Update, we provide our Q3 assessment.

Japanese profits have benefited from the prolonged deleveraging of Japan Inc. The reduction in debt coupled with exceptionally low interest rates has allowed cash flow to impact the bottom line.

GMO has published a new 7-Year Asset Class Forecast

Investors have been underweight Japan for decades, but conditions on the ground have changed meaningfully. Amid improving fundamentals and governance reforms, we believe it’s time to close the gap and take advantage of the attractive opportunity among small-to-mid cap Japanese companies.

For various reasons, both have since struggled to recoup the necessary confidence to once again borrow in international commercial debt markets.

In our latest Quarterly Letter, Ben Inker and John Pease discuss the new economic regime, how investors can prepare for a recession, and the merits of combining high quality and cheap assets in today’s environment.

GMO has published a new 7-Year Asset Class Forecast.

Despite substantial growth and huge advancements in public policy support, clean energy has had an abysmal stretch in the stock market the last two and a half years.

We have observed increasing volatility within our Systematic Global Macro (SGM) portfolio, partly driven by an increase in volatility in our equity positions.

Russia’s 2022 invasion of Ukraine and the ensuing war have prompted new and difficult questions for sovereign debt investors.

GMO 7-Year Asset Class Forecast: July 2023

Our emerging market debt valuation metrics across all but the U.S. interest rate dimension remain unambiguously attractive. In our Quarterly Valuation Update, we provide our Q2 assessment.

Transitioning to a green net-zero economy requires climate solutions that enable the economy to decarbonise, such as renewable energy, electric vehicles, and recycling technologies.

Climate change presents a significant source of transition risk for investors as companies face increasing pressures from regulators, consumers, and shareholders to lower their carbon footprints.

In his latest paper, James Montier lays out a framework for spotting what he terms “slow burn Minsky moments,” or the economic vulnerabilities associated with the build-up of private sector debt.

Political risks have always been present in emerging debt markets and we’ve long taken them into consideration within our overall country risk process.

GMO has published a new seven-year asset class forecast.

Value equities have faced years of tough sledding, outside a run of outperformance following “vaccine day” and the lift-off from zero rates. Broadly, this has left value stocks extraordinarily cheap relative to growth. However, looking closer, the cheapest 20% of stocks – what we call “deep value” – trades unusually cheap today despite offering surprisingly attractive fundamentals.

A core concern for investors contemplating taking advantage of the incredible cheapness of deep value stocks today is the potential for a near-term recession. 

War, inflation, rising rates, banking chaos, and recession are among the challenges facing markets. Investors must balance these shorter-term risks with the long-term return prospects of equities.

Here are GMO’s updated forecasts for performance of various asset classes over the next seven years.

Profit margins have remained elevated in the U.S. for a decade, and in a new white paper, GMO’s James Montier examines why that has been the case, ultimately finding the culprit in fiscal deficits.

As of April 25, the Bloomberg U.S. Mortgage-Backed Security (MBS) Index was trading at an option-adjusted spread of 65 bps, which ranked in the 91st percentile since 2010. We believe moves in the asset class have been overdone and that current valuations present an opportunity.

GMO has published a new 7-Year Asset Class Forecast.

Our emerging market debt valuation metrics across all but the U.S. interest rate dimension remain unambiguously attractive. In this new, compact version of our Quarterly Valuation Update, we provide our Q1 assessment and introduce summary valuation graphics to assist in quantifying expected returns.

Born of the Global Financial Crisis, additional tier-1 securities were designed to absorb bank losses in times of turbulence and maintain financial safety at no cost to taxpayers. Despite good intentions, we’ve found AT1s to be flawed instruments that are contingently junior to common equity in practice.

Fixed income spreads have widened across sectors over the past few months.

The GMO Focused Equity team has evaluated banks in the context of our Quality Strategy for 20 years, using both quantitative and fundamental analysis to invest in high-quality banks with healthy financials and in our opinion responsible management practices.

GMO 7-year Asset Class Forecast: February 2023

In recent years we have witnessed a surge in sovereign bond defaults in emerging markets.

GMO 7-year Asset Class Forecast: January 2023.

After a bruising 2022 for equities globally, Value stocks in the U.S. have become attractive in an absolute sense and worthy of inclusion in one’s portfolio.

Valuation metrics across all but the U.S. interest rate dimension remain unambiguously attractive.

2022 was a painful year in financial markets with almost all traditional assets delivering significant losses.

The first and easiest leg of the bursting of the bubble we called for a year ago is complete.

GMO 7-year asset class forecast: 4Q 2022.

Deep value offers a compelling opportunity within U.S. equities.

GMO 7-year asset class forecast: November 2022,

The U.S. Superbubble, as Jeremy Grantham has termed it, featured the most dangerous mix of factors in modern times at the end of last year: all three major asset classes – housing, stocks, and bonds – were critically historically overvalued.

As the super-growth cycle is ending in dramatic fashion, we are already seeing some of the most attractive valuation opportunities in years.

An alpha-oriented approach.

Value equities are still priced for significant outperformance, globally.

GMO has published a new 7-Year Asset Class Forecast.

Quality investing is an approach well suited to small cap equity.

In this piece, we update our valuation charts and commentary, with additional details on our methodology available upon request.

GMO 7-year asset class forecast: 3Q 2022.

In August 2020, as the global pandemic was straining emerging countries’ ability to make debt payments, we published a white paper – “Sovereign Contingent Bonds: How Emerging Countries Might Prepay for Debt Relief” – introducing the concept of “sovereign coco bonds,” a way for countries to structure bond agreements to allow for more flexible policy options in the face of a crisis.

The world seems an increasingly uncomfortable place for traditional stock and bond investments.