Looking back on everything that has happened economically and politically, it is easy to see the glass as half full:
the eurozone has emerged from the longest recession in its history, despite the Cypriot crisis and Slovenia's liquidity problems;
despite political instability (three Governments in three years) and heavy austerity measures, for the first time after eight quarters the Italian GDP is not negative and everything gives us hope that it will grow again (fingers crossed);
with the US economy recovering, the fiscal cliff averted, the Fed has decided to reduce Quantitative Easing (through tapering) and this is, all in all, a good sign;
the Chinese economy has decelerated, but so far without compromising global growth.
However, let's not be naive: there are still many latent risk factors. We are perfectly aware that unemployment is rampant in developed countries, several economies remain fragile (emerging countries and the euro area) and the effects of monetary and fiscal policy in progress in the USA and Japan still need to be carefully assessed. The fact remains that, despite everything, financial risk has significantly improved and the spread between Bunds and BTPs is at its lowest for two years.
It is therefore not surprising that it was a year of excellent performance for many asset classes.
The risk has been rewarded. At the head of the best asset class classic is the stock market (especially Japan and the USA). The big exception are the emerging countries (-3,5%). But it's not just about actions. In fact, high-yield corporate and government bonds from peripheral eurozone countries (Greece, Italy, Spain, Ireland and Portugal, i.e. the countries with the highest credit risk) ranked close behind the best-performing markets equity.
“No risk, no reward”. We will never stop repeating it: risk is a necessary (but not sufficient) condition for good performance. In fact, among the asset classes with the highest Max DrawDown are Greek equities and government bonds.
Pretty lean year for “Safe Heaven”. Government bonds of countries considered safer had an almost zero return (Japan, France), or a negative one (Germany, Sweden).
They lost commodities and precious metals. We at Advise Only have been saying for years that gold is expensive, and in fact we no longer have it in our wallets for some time, albeit with some small exceptions. Precious metals have probably suffered from the improvement in systemic risk, while most other commodities have suffered from the drop in demand due to the slowdown of the global economy in recent years.
And you, a year ago would you have ever imagined these numbers?
Unfortunately the time for recriminations is over, we must already think about next year. Are you lacking ideas? Not sure what your risk profile and time horizon is?
