2016 – the year when markets awaken
Now that central banks have used up most of their options for intervention, and with the banking sector remaining inhibited by an extremely restrictive regulatory environment, investors will be in the front line to deal with heightened market risks.
At the same time, liquidity has dried up for all asset classes under the very influence of the central banks’ repeated intervention, making volatility spikes increasingly erratic. As a result, when the high price of “risk-free” assets deprives said assets of their reliable safe haven status, risk management will require the use of very active, targeted hedging strategies.
These will, in turn, make it possible to be opportunistic when market capitulation presents exceptional entry points for anyone who managed to keep a medium-term view. Precursors of these developments are already visible in the oil sector and for certain emerging market assets, including bonds.
With the advent of these risks and opportunities on the horizon, it will be essential to let go of investment habits that have served investors well for the last six years.
