In an age of quantitative easing, negative interest rates, low oil prices and limited spending, many investors could be forgiven for finding the global economy increasingly difficult to understand. We look at some of the driving forces and consider how best to respond to a frequently puzzling picture.
Diversification has long been used to decrease investment risk by reducing exposure to a particular asset. It works within a single asset class — a portfolio of stocks is less risky than holding shares in one company — but can be more effective across different asset classes.
When it comes to economic data, financial markets tend to be more sensitive to how close the numbers are to expectations than the figures themselves. We call this difference the ‘economic surprise’. Statistics about the UK’s labour market have delivered plenty of surprises over the past few years.