Lower volatility is not the same as lower risk

CONVENTIONAL wisdom has it that we are nearing the end of the party as far as the current cycle goes. Asset returns have been strong since the financial crisis. On the surface, this would suggest that a healthy degree of risk-seeking has been taking place. But the punch bowl at this party is alcohol free.

Apart from some pockets within innovation sectors, notably in the US and China, exuberance has been thin on the ground. So it is the lack, rather than the presence, of euphoria that defines this cycle. In previous rallies, investors watched for the tipping point when justified enthusiasm collapsed into lunacy.

But this time, it really is different - at least for now. The current bull run in public markets appears to be characterised more by fear than greed. Investors have prioritised capital preservation at the expense of capital gains. The revelry that characterised the last gasp of previous rallies has been replaced with caution, too many investors having been burnt in the fire sales of the financial crisis.