William Riegel, Chief Investment Officer TIAA Public Investments
July 15, 2016
In Asia, a steady welcome decline in the yen against the dollar fueled Japan’s exporter-heavy Nikkei 225 Index to its best one-week performance (+9.2% in local terms) since December 2009. Investors also harbored hopes of an expansive fiscal-stimulus package from the Japanese government and more monetary easing by the Bank of Japan.
European stocks took their cue from U.S. markets, with the broad STOXX 600 Index up 3.2% (in local terms) for the week. Equities in the region also benefited from greater political certainty, as a new prime minister took office in the U.K., and hopes for more monetary easing by global central banks. The week ended on a somber note, though, following an apparent terrorist attack in Nice, France.
Meanwhile, the broad emerging markets (EM) continued to deliver, in part due to their ability to shrug off the potential effects of the Brexit vote. Year to date through July 14, EM stocks are up 10.7% (in U.S. dollar terms), based on the MSCI Index. With a gain of about 2% for the week, Chinese equities are rebounding from their dismal first-half performance.
William Riegel, Chief Investment Officer, TIAA Investments
Current updates to the week’s market results are available here.
income-seeking domestic and overseas buyers bolstered high-yield bonds, which have now gained 12% year to date.
Returns for non-Treasury “spread” sectors were broadly negative for the week through July 14. High-yield corporate bonds bucked the trend. Despite the pickup in Treasury yields during the week, demand from
Among the week’s reports:
First, while Brexit has increased the risk of an eventual EU dissolution, we view such an outcome as highly unlikely, as referendums are prohibited in a number of European countries, including Germany, the Netherlands, and Italy. Also, with Europe’s economy growing at about a 1.5% annual rate, a slowdown triggered by a U.K. recession might trim up to 0.5% or so from GDP, still leaving the region in expansion mode. The pound’s recent plunge in the wake of the vote should boost U.K. exports substantially, mitigating the downturn in economic growth. Lastly, European equity valuations are more attractive than those in the U.S., and the expected return from European stocks is higher than that of their U.S. counterparts.
European investors are also pessimistic. Brexit-fueled fears of slower growth and a breakup of the EU have accelerated outflows from European stock funds. Nevertheless, we believe the region remains a more attractive investment destination than the U.S.
TIAA Global Asset Management provides investment advice and portfolio management services through Teachers Insurance and Annuity Association and affiliated registered investment advisors, including Teachers Advisors, Inc., TIAA-CREF Alternatives Advisors, LLC and Nuveen Asset management, LLC.
Foreign stock market returns are stated in U.S. dollars unless noted otherwise.
Please note that equity and fixed income investing involve risk.
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