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Efficient markets?

More inefficiencies keep appearing in the market: on the equity side, non U.S. stocks are trading at a 30% discount to the S&P500, which is the biggest discount in valuation for the last 20 years. On the fixed income side, however, and as you can see below, the risk premium between local currency emerging market debt and U.S. Treasuries has disappeared. As an example, chinese 10 year yield is 2.74% which trades 60% below the U.S. counterpart (4.87%). Despite the fact there is a huge liquidity difference, political risks, currency risks etc, the U.S. bonds are being perceived as more risky. What will be the dynamic to close these inefficiencies? Will money flow from U.S. stocks into U.S. bonds? Will it flow outside the U.S. into international stocks to close the valuation gap? Or will money flow from EM bonds into US bonds looking for yield?

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