Investors,

World markets are mostly in moderate correction territory, and I think it’s mostly a “correction” in the common usage of the term – we’ve eliminated most of the froth and excessive optimism in valuations in the US and Europe. The sell-off in the US was partially driven by falling earnings forecasts and growth estimates by US companies. I think US equities are now roughly fair (maybe a bit rich still). Looking globally, emerging markets are scared of the Chinese slow down. I think EM equity now represents excellent value generally, although I wouldn’t be surprised if China related panic brings us another 25% sell-off some time this year. In Europe and Japan, investors are concerned that quantitative easing is proving insufficient to create growth. Sweden, Japan, and the ECB have all discussed negative interest rates recently, but rather than having a stimulative effect on equity prices, this discussion has investors focusing on the weakness of central bank attempts to stimulate growth.

Below is a chart that starts with all indices set to 100 at the start of 2015. The S&P 500 is about 13% off its highs. Developed markets excluding the US are 24% off their highs. Emerging markets are off 35%, and China is almost 50% off its highs. A lot of these losses look less severe in the context of recent gains though. For example, the Chinese market is only 10% below where it started 2015.