No risk translates into negative real returns over time

Stock MarketsBuyback volumes ease this year to $870 bln

Yves Bonzon (Julius Baer) | The G20 trade truce did not last for long as US President Trump decided to increase tariffs again. Paradoxically, trade tensions extend the bull market cycle but only up to a certain point. Investors have priced in significant easing and stimulus expectations by both the Federal Reserve (Fed) and the European Central Bank (ECB).

Meanwhile, the divergence between resilient domestic demand and deterioration in the global manufacturing cycle is worsening. As long as asset price volatility remains low, economic growth should be resilient. In over three decades, we have not witnessed so much bearishness in the investor’s community, as the S&P500 index is a few percentage points away from an all-time high. In a context of ‘zero or negative’ interest rates, no risk translates into negative real returns over time. Investors should include three strategic risk dimensions in their asset allocation: Business risk, monetary debasement risk and confiscation risk (financial repression).

A robust portfolio should harvest business risk premiums, while protecting against monetary debasement, and confiscation risks. In times of high uncertainty, particularly due to a paradigm shift in global politics, diversification remains the only reasonable option.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.