The three motions put by our independent economists for Markets Summit 2016 were 1. Capitalism and globalisation will not survive the next GFC; 2. The markets are overreacting in particular to the outlook for China’s economy and currency, and the prospects for financials; 3. You should protect your positions this year by buying risk overlays.
It's true that the past few years have been challenging for emerging markets as a whole. But not all emerging economies are equal, and uneven prospects are driving compelling return differences. Investors should have them back on their radars.
Today, there are no clearly diversifying mainstream assets. All assets are expensive and what seems safe may hold the greatest risk. We need to set realistic expectations and invest only of the basis of genuine insight.
In a cyclical sector like commodity, deja-vu abounds for those with a long memory. As the outlook improves, equities usually rally before commodity prices, responding to improved demand forecasts.
The market continues to misprice the risk of large scale defaults and debt restructures. Now is the time to sell high yield and EM bonds exposure, while you still can.
We are at an inflection point where the global dependency ratio is becoming adverse. This will lead to profound changes to the composition of the population around the world, polarising investment opportunities.
The extreme thirst for yield has pushed the US high yield cycle into unchartered territory. In a clear case of déjà vu (replace "subprime" for "high yield"), the cycle has reached the shakeout phase.
It's possible to have your cake and eat it too. Global investment grade credit has not been this attractive in spread terms for the past six years.
Often in markets, you do get the feeling that somehow we've been here before. But things are never quite the same. Looking at some examples from the past, particularly Japan, we can see what can we learn and apply to our investment decisions going forward.
China's Black Monday renewed investor concerns about a hard landing. It is critical to assess the macroeconomic and market scenarios of a China hard landing and the impact on investors' portfolios.
Debt levels are too high (deja-vu!). Until now, QE has softened the impact. With consensus perceiving the Fed to return to normal (?), markets are entering unchartered waters - 2016 is set to be a volatile year.
For all its ups and down, 2015 ended up being a year to forget for Australian investors, with little variation in the performance of major asset classes. The coming year will be a rerun of this theme. Dynamic allocation within portfolios and additional levels of diversification will be critical for 2016 to avoid the feeling of deja-vu.
The Fed has begun its interest rate tightening, and deja-vu - there continues to be a great disagreement about the quantum of the rises. Rates will go higher than most expect and QT will impact on financial asset volatility.
A 50-year era of inflation is ending and we are left no inflation, little growth and too much debt. China's slowdown and the current oil glut are early signs that this debt bubble may end badly.
Does it feel like we've been here before? The more things change, the more they seem to stay the same! Does that mean that, going forward, markets and asset classes will behave as in the past? Is it deja-vu (all over again)?
Core assets - Australian equities, global equities, and fixed income - are going to generate pretty lacklustre returns this year. Having as efficient a portfolio as possible is going to be really key to your return success.