THE transition from liquidity-powered markets for risk assets to those influenced a lot more by fundamentals was never likely to be smooth, as it involved changes to drivers of investor behaviour and market flows. Yet, despite this year’s unsettling spikes in high-frequency, two-way market moves, the right investment strategy is to “look through” the volatility.
Given the events in markets over the last few years, this approach has two main implications for long-term investors: On portfolio allocation, it calls for them to make either implicit or explicit calls on macroeconomic policies in the US, Europe and China; and, on specific exposures, it requires them to take a view on key emerging trends.