The fast view
Markets face a potentially difficult transition as monetary policy is normalized.
- Consider hedging against the risk that inflation moves higher than policymakers anticipate.
- Duration should be kept short. For defensive diversification, rather than traditional government bonds, consider cash, creditor-nation currencies and US dollars.
- Consider also shifting away from parts of the market that have done well since the Global Financial Crisis, like growth equities.
- The equities of companies with pricing power, and that start with reasonable valuations, are best placed if prices continue rising. Volatility may provide the chance to add exposure to longer-term thematic opportunities