Parting ways

The correlation between different asset classes, sectors and geographic regions, which was declining, plunged after the US presidential election


In the US itself, stocks have gained in anticipation of higher growth, while bonds have suffered because of expected tightening by the Fed. Photo: Reuters
In the US itself, stocks have gained in anticipation of higher growth, while bonds have suffered because of expected tightening by the Fed. Photo: Reuters

One of the underlying features of the global financial markets after the crisis of 2008 was the co-movement of different assets, depending on the stance of the systemically important central banks—particularly that of the US Federal Reserve. But the correlation—as highlighted by the new quarterly review of the Bank for International Settlements—between different asset classes, sectors and geographic regions, which was declining, plunged after the US presidential election.

In the US itself, stocks have gained in anticipation of higher growth, while bonds have suffered because of expected tightening by the Fed. The policy path of central banks in the developed world will further diverge this year.

This indicates that the importance of monetary policy in the financial markets is declining compared to the period after the financial crisis. This would mean that asset managers will now be able to focus on financial assets in different categories depending on their merit rather than just follow the crowd.

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