Oliver's Insights - Back to the 1970's - return of volatile investment cycles
This note looks at the changing macroeconomic backdrop in the aftermath of the global financial crisis and, specifically, the implications for the economic and investment cycles.
The key takeouts are:
- The combination of high private and public sector debt levels in developed countries, extreme swings in monetary policy and greater goverment involvement in the economy likely mean we have entered a more volatile macroeconomic environment. This is likely to result in more volatile cycles in investment markets and more constrained returns from traditional investment markets.
- Investment processes will have to pay more attention to macroeconomic conditions and, as such, will likely become more short-term focused.
- The search for a hedge against constrained returns and greater volatility will likely reinforce increasing allocations to Asia and the emerging world, quality high yield investments and potentially gold. Australia is reasonably well placed in this regard (assuming we can successfully resolve the impasse over the proposed Resource Super Profits Tax).
