The global economic environment is very favorable for
investors. Economies are generally strong, but not too strong. Employment
levels are among the strongest for many decades. Interest rates are paused at
very low levels, and the risk of significant increases in the medium term seems
low. Financing for transactions is freely available to good borrowers, but not
in major excess. Covenants are lighter than they were five years ago, but the
extreme excesses seen in the past do not seem prevalent yet today.
Despite this apparent ‘goldilocks’ market environment, we
continue to worry about a world where politics are polarized almost everywhere,
interest rates are low globally, and equity valuations are at their peak. With
respect to equities, technology-related stocks seem to have particularly high
valuations, although to date this has proven to be justified for some, as they
have become among the greatest companies ever created. Passive investing is the
latest trend to dramatically affect both equities and some classes of debt
securities, and the full effects are yet to be seen. In this environment, we
continue to cautiously invest capital but ensure that we remain liquid, with
substantial cash and dry powder.
The North American economies are strong and South American
countries are still recovering from their tough recessions. Europe is slower,
but the U.K.
is amazingly resilient. Australia
is okay, China is slowing
but is still robust when compared to global alternatives, and India is
struggling with over-leverage. Overall, we think the global markets remain very
constructive for our businesses.
Bruce Flatt,
Excerpt from Brookfield Asset Management’s
Quarterly Letter,
May 9, 2019
No comments:
Post a Comment