* Global bond yields vs dividends: http://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 (Reuters) - A stagnant world economy litteredwith political risks has done little to stop stock marketshitting new highs. For that, you can thank Tina.
"There Is No Alternative" has become a common refrain aroundfinancial markets as yield-starved investors continue to pushstock prices to new highs as they scrape off historicallysuperior returns compared with near zero or even negative bondyields across much of Europe and Japan.
To the most persistently bearish investment advisers, suchas Societe Generale's Albert Edwards, Tina is deluded,represents some of the worst aspects of herd behaviour and willinevitably end in tears. Equities may seem relatively cheap buthe argues, and has argued for years, that they can get a lotcheaper.
On the other hand, global investment trends are ossifyingaround a long-term multi-year horizon of slow growth and lowinflation but not outright recession. In other words, supereasycentral bank money policy will persist for many years, evendecades, and while it may succeed in preventing a shockingeconomic contraction, it will fail in spurring growth topre-credit crisis norms that reflate consumer price growth andwages, lift living standards and reduce debts.
The uber bears may be right eventually, but many moneymanagers believe in Tina for now because this sort of world canendure for a very long time.
Equity investors faced with historically expensivevaluations, especially on the high-yielding sectors of themarket, are getting a helping hand from Gary. "Growth at areasonable yield" is a strategy that aims to capture somepotential for earnings improvement in a slow growth world butessentially providing some investment income.
One example of Gary that investors have latched onto is BigOil. Shares of major oil producers such as Royal Dutch Shell and BP are back in favour as recovering oilprices boost earnings while slashed capital spending budgetsfreed up cash to pay dividends.
It has also manifested itself in funds reaching out intoless-than-obvious stocks as well as emerging markets andunderscores the conundrum facing investors.
To many, the relentless climb of both stocks and bonds inrecent years thanks to super-charged central bank stimulus andhistorically low interest rates around the world has distortedworld markets and conventional investment theory.
Investors aren't buying government bonds for yield, becausethere is none in most cases. Stocks now offer higher yields thanbonds, and investors continue to hoover up fixed income assetsfor their capital appreciation.
"Equity valuations are stretched and you don't want to be inan overstretched asset class even though realized and impliedvolatility has been very low lately," said Geraldine Sundstrom,managing director and asset allocation portfolio manager atPimco.
"We are cautious on bonds, and are mildly underweight. Andon the equity side, we're at an inflection point. The earningsrecession is coming to an end, but a big rally is unlikely givenwhere multiples are," said Sundstrom.
The quandary over what to buy is highlighted by therelationship between bond yields and dividend yields which hasturned on its head and the gap is now at its widest in at leastthree decades, according to Thomson Reuters data.
In the United Kingdom, that gap is the widest since the1940's, according to investment firm M&G, with more aggressiveeasing from the Bank of England to stave off a recessionfollowing the Brexit vote pushed yields even lower.
FRENETIC ROTATION
Major stock indexes around the world have snapped back fromthe lows hit after the EU referendum in Britain, and in theUnited States touched an all-time high.
While trading volumes have eased over the generally quietnorthern hemisphere summer, stocks have largely held thosegains, but small moves on the indexes mask significant shiftsunderway beneath the surface.
"Serene progress by global equities hides some freneticrotation within indices," wrote Citi strategists in a note toclients, referring to the shift in buying away from so-calleddefensive sectors such as healthcare to those more gearedtowards economic growth such as banks, technology and materials.
Citi likened the current shift to three similar moves seensince 2011, all of which failed and warned investors againstchasing the rally as corporate earnings and the outlook forgrowth remain sluggish, and recommend investors pick uphealthcare and telecoms stocks following recentunderperformance.
"Less sustainable rebounds fizzle out when earnings momentumdoesn't follow through," said Citi.
This would be a risk particularly for European bankingstocks which have rallied more than 30 percent fromtheir recent lows even though the outlook for profits in alow-growth, low rate world remains murky.
In another sign of rapidly shifting investor preferences,emerging markets, shunned last year, have roared back asinvestors have piled in and both bonds and equity markets areoutperforming global peers.
But inflows to emerging markets have proven short-lived forthe past three years and a U.S. interest rate hike could leavethose markets vulnerable to a swift pullback as higher U.S.rates and bond yields tend to reduce the relative attractivenessof emerging market assets.
The latest Reuters asset allocation poll of investors sawsome warn of complacency in financial markets.
"Beyond confusion, this could just be further signs oftension in the market with some investors hanging on to the lowgrowth, low rate paradigm we have been in while others believechange is coming," said Nick Savone, a managing director inMorgan Stanley's equity sales division in New York.
(Reporting by Vikram Subhedar and Jamie McGeever, Editing byMike Dolan and Toby Chopra)
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