The five major investment axioms are beginning to lose their significance

Investors will have to face sooner or later the expected paradigm shift and change in major market and economic trends. Especially when they have to restructure their portfolios next year. Five prominent and significant factors, which are increasingly losing their influence on investor decisions, will determine their position in 2020.

Market sentiment has improved in recent weeks, with the market still believing that Phase 1 will exist and that tensions will de-escalate. At the same time, the US job market exceeds expectations in its performance. There are also some short-term indicators for Europe that signal a bottom in the economic cycle. With that, US indexes hit new highs. In their contrast, however, the FX and bond markets remain relatively calm.

In order to maintain the current market sentiment beyond the short-term horizon, the five indicators in question will need to be "revived", forcing investors to seek longer-term investment prospects.

First, the effect of globalization, which allows for significant appreciation of markets and creates prerequisites for more efficient profits. Second, EM economies continue to catch up with their competitors from developed countries, led by those who are introducing the fastest reforms. Third, to solidify liquidity that nourishes well-functioning markets. Fourth, the effectiveness of reforms and policies in developed countries will limit the possibility of headwinds in the global economy. Fifth, policies and governance that will support markets around the world.

Each of these factors currently stands in the shadow of enormous uncertainty. This raises the need to revise medium-term investments to accelerate technological innovation, climate change and demographic trends.

The inability to counteract trade tensions will call into question the effectiveness of globalization. The likelihood of years of deglobalization - when barriers raised will limit trade and cash flows - remains very high. At an increasingly rapid pace, nations are adopting policies to lock and limit their exposures to the world. Disappointing economic growth and inequality fuel such actions by governments.

With the essential conditions for a well-functioning market, investors would target different niches. One option is to move away from public stocks and bonds to unique credit structures and other instruments that give more direct access to real economic activity. In this case, free cash will play a huge role in risk management.

More investment approaches have not been made for the world in the process of deglobalization, the lack of correlation between EM economies, rising liquidity, ineffective monetary policies and the increasing diminution of world rules and laws.

However, an approach to completely reject long-standing, fundamental investment approaches will not be a sensible move. But it would be equally unreasonable to underestimate system changes and not actively discuss them. Especially since many of the hitherto unthinkable economic and financial theories have become a fact.

Source: Financial Times

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