Investing after the crisis: responding to new trends and changing financial market expectations

The current economic and financial crisis is the worst in decades. It has led to unprecedented turmoil in financial markets and has triggered an economic downturn not seen in 60 years. At the same time, the policy response is massive. Mainly as a lesson from the policy mistakes of the 1930’s, monetary and fiscal policy adopted an ultra-loose stance. This field of tension has left investors wondering what the ultimate outcome of the crisis will be both in terms of economic growth and financial market impact. Dr Klaus Wiener, Chief Economist of Generali Investments, Cologne believes that investors must take their clues more from fundamental developments in the global economy. To exploit these, he argues, a more active asset management approach is needed. In particular, he stresses the importance of tactical asset allocation in the investment process and the constant monitoring of success rates. According to Dr Wiener, simple buy-and-hold strategies which may have worked during the days of “excess liquidity” or in the presence of strong secular trends like the 30-year decline in inflation will not work as well any more

The economic consequences of the crisis seem relatively clear cut. Potential growth of the world economy has taken a hit. Capital scarcity, credit retention, de-leveraging, and re-regulation are just some key words describing why long-term growth will be lower going forward. From 2002 until 2007, the world economy advanced at an average rate of 5%, a level never seen before. A return to anything close to this rate looks very implausible for the coming years.