Investment Weekly Report

The economy is undergoing a transformation that may continue to alter long-term economic trends. We believe that the potential consequences are emerging in an endless stream, necessitating the prediction of possible economic scenarios which can serve as a guide for constructing investment portfolios.

To track the various possible outcomes, we have simulated five potential economic scenarios reflecting different market and economic prospects over the next 6 to 12 months.

Among the two scenarios where stock prices decline, we anticipate that government bonds will only serve as a hedge in one of them. This is because the long-term negative correlation between stock and bond returns varies depending on the macroeconomic environment.

As illustrated in the diagram below, with current high inflation, the relationship between the returns of these two asset classes has turned positive, weakening bonds’ traditional role as a “shield” that protects portfolios from stock sell-offs. Given the inefficacy of traditional investment tools, we are turning our attention to other diversified assets, such as gold and Bitcoin. Although these two asset classes have experienced occasional significant price increases, their correlation with global stocks is limited, and consequently, they have provided better risk diversification than bonds over the past two years. This does not imply that bonds will be replaced; currently, gold and Bitcoin, unlike bonds in the past, do not exhibit a negative correlation with stocks but offer ifferent sources of returns.

As illustrated in the diagram below, with current high inflation, the relationship between the returns of these two asset classes has turned positive, weakening bonds’ traditional role as a “shield” that protects portfolios from stock sell-offs. Given the inefficacy of traditional investment tools, we are turning our attention to other diversified assets, such as gold and Bitcoin. Although these two asset classes have experienced occasional significant price increases, their correlation with global stocks is limited, and consequently, they have provided better risk diversification than bonds over the past two years. This does not imply that bonds will be replaced; currently, gold and Bitcoin, unlike bonds in the past, do not exhibit a negative correlation with stocks but offer ifferent sources of returns.