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Inflation fears remain the main theme in global markets, though
major equity markets have extended their gains for the year.
Investors are increasingly optimistic on an improving economic
outlook, including that captured by a strong upswing in the
J.P.Morgan Global Manufacturing PMI, led by solid expansions in the
eurozone, UK and US. However, the survey continues to point towards
increased inflationary pressures, as confirmed by the steepest rise
in input costs for over a decade and record inflation of selling
prices. While Fed officials maintain the view that inflation is
largely driven by transitory factors, similar questions remain on
the transitory nature of another key theme to markets surrounding
the staying power of the current value cycle (Table 1).
US: Strong performance was posted across value factors,
including Book-to-Market for large caps and TTM Free Cash
Flow-to-Enterprise Value for small caps
Developed Europe: Forward 12-M EPS-to-Enterprise Value was a
top performing Deep Value factor, while Rational Decay Alpha sat at
the opposite extreme of Price Momentum factors
Developed Pacific: In Japan, investors have consistently taken
on higher risk, as confirmed by negative spreads to 60-Month Beta
in 10 of the last 12 months
Emerging markets: Investors demonstrated a renewed interest in
large cap names, as gauged by Natural Logarithm of Market
Capitalization, in addition to firms with high 2-Year Ahead EPS
Growth
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