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Press, Journal Article

economic reforms. The new government has an opportunity to achieve significant steps toward

structural reforms.

China remains the largest influence on EMs. Two key concerns have been the currency drop and

the amount of debt in the financial system. A further unexpected and sharp decline in the

renminbi could hasten capital outflows and put more pressure on the economy.

EM headwinds are also influencing U.S. interest rate policy. Because global capital flows often

have more influence on financial conditions in emerging markets than do local policymakers, the

U.S. Federal Reserve has to tread lightly in order to avoid stressing EM financial markets and


Fixed income markets appear to offer limited upside potential and greater downside risk, but

astute investors can use bouts of risk aversion and subsequent rallies to their advantage. China’s

economic deceleration, the Fed’s need to balance the risks of further tightening, divergent central

bank policies, and suppressed yields globally are signs of caution. Investors are advised to

consider a highly selective and risk-aware approach to best exploit potential opportunities.

Overall, the path appears clear for the global equity rally to continue, especially as year-over-year

earnings comparisons grow less difficult in the second half and into 2017. However, the election

cycle in the United States could produce short-term volatility.


Ted Wiese, Head of Fixed Income:

“In coming months, fixed income markets seem likely to generate

coupon returns but have less potential for additional price gains. Skittish investor sentiment, divergent

central bank policies, and conflicting macroeconomic signals leave markets susceptible to bouts of risk

aversion and subsequent relief rallies. These episodes will provide nimble investors with opportunities to

profit from volatility, but strong macro and credit research skills will be critical.”

Alan Levenson, Chief U.S. Economist:

“While the U.S. economy has not been sheltered from the global

headwinds, they are taking a much smaller toll on it. The weakness in commodities has led U.S. energy

and mining firms to cut back investment in plant and equipment spending, which we calculate has

reduced the annual rate of real GDP growth by 0.5% since the end of 2014. That drag appears to be

fading at midyear, however. Following a weak first quarter, we expect a return to 2% to 2¼% annual

growth over the balance of the year.”

David Eiswert, Portfolio Manager, Global Stock Fund, on U.S. economic stability and U.S. equities:

U.S. economic expansion appears intact, although still subdued. The Federal Reserve’s reluctance to

force the pace of interest rate hikes means monetary policy should remain supportive, and U.S.

consumers are in strong shape. Despite industrial weakness, continued economic growth driven by

consumer spending should be supportive for equities in the U.S, A continued ‘Goldilocks’ economy (not

too hot, not too cold) would also be a strong positive for financial markets and the global economy.

However, the U.S. presidential election outlook reflects the general rise of populism globally and presents

some complicated risks to sentiment.”

Nikolaj Schmidt, Chief International Economist, on China:

“The world cheered in early 2016 as

Beijing finally intervened strongly enough to stop the downward growth spiral that has plagued the

economy over the past few years. Whether the bounce that Chinese growth has experienced in recent

months is more than temporary is highly questionable, however, as the improvement is largely the result

of a more expansionary fiscal stance and an unsustainable acceleration in the pace of credit expansion.”

Nikolaj Schmidt, Chief International Economist, on Europe:

“EM headwinds are being felt more

strongly in Europe than in the U.S., but these are being overcome by the domestic policy tailwinds. The