Lazard Insights

What a difference a year makes. After an era of slow growth combined with a somewhat tepid outlook, we believe Europe and European companies may now be entering a sustainable period of recovery. Key European economic leading indicators are clearly improving alongside European GDP growth. John Reinsberg, Deputy Chairman, analyzes the drivers of this recovery, contrasting macroeconomic observations with the view from the bottom up.

For emerging markets investors, MENA is becoming a more significant part of the opportunity set. MENA governments are committing a large amount of capital to drive growth, For emerging markets investors, MENA is becoming a more significant part of the opportunity set. MENA governments are committing a large amount of capital to drive growth, while the emergence of an increasingly educated population should boost long-term economic prospects.

Over the past couple of years, persistently low inflation has concerned policymakers and investors. More recently, however, expectations have reached an inflection point as higher inflation will be a key risk going forward. Ron Temple, Co-Head of Multi-Asset and Head of US Equity, reviews recent inflation trends, where inflation stands today, and how to defend capital against inflation risks.

Over the last 25 years, small-mid cap equities have had significantly higher returns than both small cap and large cap equities and, today, the potential for rising interest rates, lower corporate tax rates, and economic growth could provide an immediate boost for this area of the market.

This past year was filled with surprises for global investors, highlighted by the United Kingdom’s vote to leave the European Union, Donald Trump’s US presidential election victory, and Italian voters’ rejection of constitutional reforms. As we look forward to 2017, it is worth noting that on many levels expectations have not changed meaningfully. However, the logic behind our expectations has changed.

The Italian referendum on constitutional reform may be the next source of geopolitical risk in Europe. However, we believe that, if successful, the reform should simplify the process for laws to be approved in Italy and ensure government stability—this would help implement much-needed structural reforms to address economic issues. Giuseppe Ricotta, Portfolio Analyst on Lazard’s Multi Asset team, reviews the merits of the proposed reform and discusses the implications for investors.

ost emerging nations have established world-class companies and deepened their capital markets, but many still have basic institutional frameworks and principles that lag significantly when compared to the developed world. Reforms that effectively address this can be an important driver of future progress. Thomas Boyle, Portfolio Manager/Analyst, and Celine Woo, Research Analyst, examine the range of reforms in Latin America and Asia.

On 31 August 2016, real estate will be the first new sector to be added to the Global Industry Classification Standard (GICS) since the system was formed by S&P and MSCI in 1999. Based on industry estimates, anywhere from $30 to $100 billion of new capital may flow into REITs as a result of this change.

Uncertainty is at the center of every financial model and volatility is widely accepted as the practical measure of uncertainty. In this setting, one of the most profound findings in financial economics is volatility forecasting. The applications of volatility predictions can improve outcomes for asset allocators through a volatility targeting approach.

The forthcoming June 2016 Brexit referendum vote—where the United Kingdom will choose to remain or leave the European Union (EU)—has centered investors’ attention on the consequences of this decision. Europe and the United Kingdom hold strong economic ties, as bilateral trade is significant, but there are several other crucial issues to understand both sides of the debate. Importantly, an exit from the EU is unprecedented and as a result has generated uncertainty in the relevant markets.