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Major turning points?

The succession of two major crises (the Covid-19 pandemic and then Russia's war against Ukraine) could lead to major and lasting changes to the world order. In today’s Focus, we review 10 potential macroeconomic and financial trends which could shape the next decade.

Charles-Henry Monchau, Chief Investment officer
Banque Syz SA, Focus, Major turning point? 29 March 2022


TREND 4 — From bond markets to risky assets

With the return of inflation, are we finally going to see a big rotation between asset classes? It would seem so. A study of the inflows and outflows of investment funds shows that the ultra-expansive monetary policies have essentially benefited the bond markets. By eliminating the remuneration of cash, central banks have generated gigantic buying flows into corporate bonds, emerging market debt, junk bonds, etc. But with the sudden rise in inflation, these bond investments are generating negative real returns, leading to a rapid shift from bond funds to equity funds. For the first time in more than a decade, flows into bond funds are now negative (more redemptions than inflows) while equity fund subscriptions continue to grow. Investors seem to be betting that equity markets will provide a much better hedge against inflation than bonds.

It is also possible to envisage flows into other asset classes, notably commodities and real assets (see point 6), instruments that are currently poorly represented in most portfolios, at best.


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