Author: Christian Süttinger Senior Fund Manager Multi Asset Management
In Part two of this series on alternative investment strategies, we described the most important strategies “trend following”, “global macro”, and “long/short equity”. In this Part three, we will be looking at approaches that are less well-known but equally tried and tested.
The economic indicators are falling but do not suggest a recession. The central banks are implementing expansive measures in order to fight deflation risks and to stabilise the financial markets. Hence, the data is slightly better than capital markets were expecting. This gives room for a little breather.
Growth is weak, and the downside risks are elevated. However, in a pre-emptive move, the market has already priced in the materialisation of some of the risks. The current development would not immediately suggest it. A short-term phase of recovery on the equity markets would fit this picture.
The past days and weeks have not been easy. The market participants feel unsettled, and pessimism has been on the rise. While the former is justified, we regard the degree of pessimism as overshooting, at least in the short run. The market now has a drastic and imminent economic weakening, i.e. a partial materialisation of the existing risks, priced in.
Equities, bonds affected by default risk, commodities, and emerging markets currencies are currently subject to corrections, which, noticeably, have now gone beyond the purview of emerging markets: while the emerging markets equity index declined by almost 6% (Performance-Data Source: Bloomberg, MSCI) last week, the index for developed markets lost 5.3% (Performance-Data Source: Bloomberg, MSCI). The fear that the economic weakening in the emerging markets might come with significant spill-over effects for the industrialised countries has increased. This prompts the question whether a phase of profound corrections is upon us in the risky asset classes. The question alone has caused the risk aversion of investors to rise. The liquidity is temporarily parked in safe havens such as US Treasury bonds, the euro, and the Japanese yen.