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THE big themes in asset markets have run their course. The crises trades - bargain hunting on the global financial crisis and the euro area debt crisis - are history. The reflation trade has already been priced into asset markets. And the Trump trade has been truncated.
Wealth managers have to focus more tightly than ever on basics. So instead of depending on a rising tide to lift all boats, wealth managers will have to return to the fundamentals of stock selection and discerning asset allocation. In short, the focus will have to be on alpha-generation.
Developed market equities - particularly US stocks - range from fairly valued to over-valued. And indeed, the risk of a correction, which we had expected last quarter, remains high. Yet, the global economy continues to grow reasonably strongly; interest rates remain historically very low; and political risks appear containable. All of which means a bear market is also unlikely. Neither feast nor famine.
So that's the dilemma facing investors today. Staying in cash at these low rates remains unattractive. Waiting for a "big crash" to bring out your cash hoard is likely to be a long and wasteful exercise. So investing is a more delicate and discerning business today.
US equities' cyclically adjusted price to earnings ratio is now approximating 2-standard deviations above a 134-year average. That's dangerous overvaluation territory - a market priced for perfection.
Against that, expectations of what Donald Trump can do for US stocks now appear unrealistic, considering that he has been politically damaged and is distracted by investigations into whether he attempted obstruction of justice and whether key members of his team had improper dealings with the Russians.
European equities are not cheap either. But at least, it would be more appropriate to describe them as fairly valued rather than overvalued. And European economic data has been surprising on the upside, while it has been disappointing in the US.
Meanwhile, the cost of money will remain cheaper for longer in Europe vis-a-vis the US; ECB quantitative easing will continue at least until the end of this year while the Fed could start reducing its balance sheet next year; and political risk has eased significantly with Emmanuel Macron's victory in France.
Asian equities offer better value. Their forward price-to-earnings ratios trade in the early to mid-teens and in the middle of their cyclical ranges.
Economic growth in Japan is picking up from the borderline recessionary conditions of 2016. Meanwhile, continuation of a negative policy rate combined with quantitative easing should see the yen weaken anew against the dollar, helping boost corporate earnings in local currency terms.
Asia ex-Japan equities could be coming into a "sweet spot", with economic growth stabilising after years of decline; inflation tame; and economists' forecasts rising since the start of the year. And corporate earnings are still at an early stage of recovery from the protracted recession that ended late last year.
So it's a mixed picture for equities globally, demanding a very discriminating approach.
And securities selection will become even more important than in previous years. Do the companies under consideration have unique product or service propositions? Are their business models sustainable? Is the management capable and honest? How good are their defences against competition?
The final point is what investment management company Morningstar Inc describes as "moats" - water-filled barriers protecting companies from competition. So that's the return to fundamentals for equities - buying quality and letting time work.
Mind you, it doesn't mean there won't be periods of price declines. But quality stocks tend to mean-revert on rising trend lines.
For fixed income, there is a clearer, more unified theme - the end of monetary accommodation. It has started in the US, where the Fed will continue raising rates and soon start reducing the size of its balance sheet. Sometime this year, speculation over ECB tapering its asset purchase programme and exiting its zero policy rate could start putting upward pressure on bond yields.
Globally, inflation will continue to gradually pick up. And corporate bonds - with spreads as tight as they are at the moment - have likely seen their best.
So again, even in fixed income, wealth managers should return to fundamentals - that is bonds for income, not capital appreciation. And again, selection is critical. Know what you're putting your money in. Credit risk - that is, the likelihood of the return of your capital - is at least as important as the return on your capital.
Commodities are cheap. But global oversupply has yet to fully unwind. And sentiment remains bearish. Yet, from a longer-term perspective, this is probably a good time to take a small position in commodities. Again, it's about basics.
There are cycles. And the commodity downward cycle is very advanced - it's given back almost all the gains from the 2008-2011 bull run. And cycles in commodities are about the lagged impact of price signals on supply. Meanwhile, global economic growth is strengthening, albeit modestly. And supply is being worked down, albeit slowly. Nobody really knows whether this is the bottom of the down-cycle. But as an Asian tycoon once explained to me about investing: "Look at where you are. Is the risk 'a little more up and a long way down' or 'a little more down and a long way up'?"
In currencies, the unwinding of Trump-related expectations - particularly fiscal divergence between the US and others - may have run its course. And the next six months is likely to see a resurgence in the US dollar on monetary policy divergence. Leaving aside the now ambivalent prospects for substantial fiscal stimulus in the US, economic and inflation differentials still call for higher US rates and yields against most major economies. We see a stronger US dollar against most currencies.
Again, it is about fundamentals. The Fed is raising rates. Which other developed economy central bank is raising rates? The Fed will soon start shrinking its balance sheet. Which other central bank is doing that?
Remember, a Fed study found that quantitative easing suppressed the term premium on the 10-year US Treasury yield by 100 basis points.
Guess what happens to the term premium and Treasury yields when the Fed starts unwinding quantitative easing?