The year 2019 turned out to be one of the best yet for investors in the decade-long bull market. However, something does not quite feel right for it was neither stronger growth nor receding policy risks that drove the stellar performance of finance markets. Rather, central banks had to save the day once again by opening the monetary spigots and adding to the flood of liquidity that lifts the many boats in financial markets, from bonds to equities to gold.
Looking forward, this deluge could create some troubled waters. Lofty valuations in many traditional assets and ever-higher policy dependency could well translate into an unpleasant swim. Investments in the highest-grade bonds, for instance, practically guarantee losses in good times, while their diversification benefit in hard times is increasingly doubtful.
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Note: The next edition of the LGT Beacon is scheduled for February 2020.