* Global bond yields vs dividends: reut.rs/2cevW0x
* TINA at work as bond yields stuck near lows
* Equity investors scouring for sweet spot of growth, yield
* EM assets draw billions, seen vulnerable to higher rates
By Vikram Subhedar and Jamie McGeever
LONDON, Sept 9 A stagnant world economy littered
with political risks has done little to stop stock markets
hitting new highs. For that, you can thank Tina.
"There Is No Alternative" has become a common refrain around
financial markets as yield-starved investors continue to push
stock prices to new highs as they scrape off historically
superior returns compared with near zero or even negative bond
yields across much of Europe and Japan.
To the most persistently bearish investment advisers, such
as Societe Generale's Albert Edwards, Tina is deluded,
represents some of the worst aspects of herd behaviour and will
inevitably end in tears. Equities may seem relatively cheap but
he argues, and has argued for years, that they can get a lot
On the other hand, global investment trends are ossifying
around a long-term multi-year horizon of slow growth and low
inflation but not outright recession. In other words, supereasy
central bank money policy will persist for many years, even
decades, and while it may succeed in preventing a shocking
economic contraction, it will fail in spurring growth to
pre-credit crisis norms that reflate consumer price growth and
wages, lift living standards and reduce debts.
The uber bears may be right eventually, but many money
managers believe in Tina for now because this sort of world can
endure for a very long time.
Equity investors faced with historically expensive
valuations, especially on the high-yielding sectors of the
market, are getting a helping hand from Gary. "Growth at a
reasonable yield" is a strategy that aims to capture some
potential for earnings improvement in a slow growth world but
essentially providing some investment income.
One example of Gary that investors have latched onto is Big
Oil. Shares of major oil producers such as Royal Dutch Shell
and BP are back in favour as recovering oil
prices boost earnings while slashed capital spending budgets
freed up cash to pay dividends.
It has also manifested itself in funds reaching out into
less-than-obvious stocks as well as emerging markets and
underscores the conundrum facing investors.
To many, the relentless climb of both stocks and bonds in
recent years thanks to super-charged central bank stimulus and
historically low interest rates around the world has distorted
world markets and conventional investment theory.
Investors aren't buying government bonds for yield, because
there is none in most cases. Stocks now offer higher yields than
bonds, and investors continue to hoover up fixed income assets
for their capital appreciation.
"Equity valuations are stretched and you don't want to be in
an overstretched asset class even though realized and implied
volatility has been very low lately," said Geraldine Sundstrom,
managing director and asset allocation portfolio manager at
"We are cautious on bonds, and are mildly underweight. And
on the equity side, we're at an inflection point. The earnings
recession is coming to an end, but a big rally is unlikely given
where multiples are," said Sundstrom.
The quandary over what to buy is highlighted by the
relationship between bond yields and dividend yields which has
turned on its head and the gap is now at its widest in at least
three decades, according to Thomson Reuters data.
In the United Kingdom, that gap is the widest since the
1940's, according to investment firm M&G, with more aggressive
easing from the Bank of England to stave off a recession
following the Brexit vote pushed yields even lower.
Major stock indexes around the world have snapped back from
the lows hit after the EU referendum in Britain, and in the
United States touched an all-time high.
While trading volumes have eased over the generally quiet
northern hemisphere summer, stocks have largely held those
gains, but small moves on the indexes mask significant shifts
underway beneath the surface.
"Serene progress by global equities hides some frenetic
rotation within indices," wrote Citi strategists in a note to
clients, referring to the shift in buying away from so-called
defensive sectors such as healthcare to those more geared
towards economic growth such as banks, technology and materials.
Citi likened the current shift to three similar moves seen
since 2011, all of which failed and warned investors against
chasing the rally as corporate earnings and the outlook for
growth remain sluggish, and recommend investors pick up
healthcare and telecoms stocks following recent
"Less sustainable rebounds fizzle out when earnings momentum
doesn't follow through," said Citi.
This would be a risk particularly for European banking
stocks which have rallied more than 30 percent from
their recent lows even though the outlook for profits in a
low-growth, low rate world remains murky.
In another sign of rapidly shifting investor preferences,
emerging markets, shunned last year, have roared back as
investors have piled in and both bonds and equity markets are
outperforming global peers.
But inflows to emerging markets have proven short-lived for
the past three years and a U.S. interest rate hike could leave
those markets vulnerable to a swift pullback as higher U.S.
rates and bond yields tend to reduce the relative attractiveness
of emerging market assets.
The latest Reuters asset allocation poll of investors saw
some warn of complacency in financial markets.
"Beyond confusion, this could just be further signs of
tension in the market with some investors hanging on to the low
growth, low rate paradigm we have been in while others believe
change is coming," said Nick Savone, a managing director in
Morgan Stanley's equity sales division in New York.
(Reporting by Vikram Subhedar and Jamie McGeever, Editing by
Mike Dolan and Toby Chopra)