For several years now, we have been arguing that the inflation regime has changed, that we are in the midst of a structural capex upturn, that we are facing increasing geopolitical shocks, and that these changes have important implications for investors and asset allocation. This regime change signifies that investors should move away from the traditional 60-40 portfolios and adopt a more diversified and active portfolio management policy. Portfolios should still include exposure to bonds but also recognize that in this new inflation regime equities become an increasingly important diversifier and risk reducer. This is proving particularly salient in today’s stagflation-type environment.
In this Economics Weekly, Richard de Chazal argues that the stock-to-bond correlation has moved from negative to positive and explains what that means for investors.