The Insight Asset Model is updated quarterly, and the results of this update published. These updates reflect the changes in the starting point of the projection for the state of the economy and the yields that are available.
EValue recently completed the updates for January 2018. A commentary and accompany overview video, can be found below.
Jack Evans, EValue's Asset Consulting Director, comments on the highlights:
No news is good news for the economy. Steady growth happens steadily and exciting news tends to feature someone slipping up.
To be sure, the Federal Reserve and, for the first time in a decade, the Bank of England raised rates but that was so expected that longer term interest rates actually fell in response.
This is not to say that there isn’t anything interesting happening or that there isn’t any cause for concern. UK growth is now significantly lagging other major economies and growth and the general rate of growth is forecast to slow over the next couple of years despite current levels being where central banks used to think about stimulus.
Perhaps the most curious development has been the flattening of yield curves – rises in short term interest rates are not being matched by longer term interest rates and, in the UK, even moving in the opposite direction. Inversion – short term interest rates higher than long term rates – is still a way off but with hindsight may have been the best herald of the financial crisis. It certainly suggests that if normalisation is happening it won’t take things back to where they were before the crisis.
Markets have enjoyed the economic calm and equities continued their steady progress without any significant upset in the bond markets. Asset prices have been much more steady than a knife-edge balance between greed and fear would suggest. Probably the biggest story in the markets has been the weakness of the dollar. The reasons for this are unclear, possibly a sign of external interest in US assets having peaked (which may be another step in the rise of China), and hard to interpret.
Steady and consistent economies and markets mean only modest changes in asset outlooks and smaller relative movements.
Lower long term interest rates mean generally lower returns and strong equity performance has more than kept up with fundamentals so equities in general don’t buck the trend. The two asset classes that have struck out on their own are Emerging Markets and Property. The outlook for emerging markets is keeping up with market prices so expectations have risen. The reverse is true of property and the outlook at current prices is lower.
Jack leads our global asset modelling team based in London's financial centre. He is constantly refining and improving our unique stochastic model, Insight, and is particularly pleased with the incorporation of Fisher Black’s low inflation rate model which is working incredibly well given the state of the global economy.
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