We were aware of the underlying imbalances in financial markets and the global economy pointed towards the need for this correction well before the coronavirus ensued.
Volatility and risk repricing after years of complacencyValue in South African real interest ratesWe have warned about volatility and low investment returns for a long time.
The 2009-2020 cycle was 11 years compared with the post-World War II average of five years, and real GDP expanded 2.6% annualised during this cycle compared with the post-war average of 3.9%. Debt suggests a preference for consuming today, rather than in the future. This makes today feel better than it should, for example, a weekend shopping binge on credit.
Regular intervention to postpone short-term difficulty leads to a build-up in deadwood and greater pain when it finally ignites. Regular forest fires cause risk to be priced correctly and a healthy dose of scepticism keeps risks in check, whereas the longer the cycle extends, the greater the degree of complacency.
The late stage in the economic and financial market cycles advocated a defensive position over recent quarters. Nevertheless, absolute return performance for most investors is likely to be poor and tough to digest. It is by uncovering our problems and admitting that they exist that we can solve them and invest in a better future.
We will remain circumspect on the broader market outlook until these US dollar funding challenges alleviate. The weak growth and low interest rate outlook have resulted in a dramatic fall in developed market bond yields.
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