Global reflation makes risky assets the key to mid-term performance

The necessity for reflation in today's market is a given, but the perceived success or failure by global authorities to revive their economies is an altogether different question, and one that is having a profound effect on investors' attitude to asset allocation.

If investors perceive global reflation policies to be akin to a thumb in the dam, we will see slashed consumption, falling corporate and tax revenues, declining profits, higher unemployment and ultimately a deeper recession. In such a scenario, a conservative asset allocation approach would be warranted. If, on the other hand, investors believe authorities have been successful in their reflation attempts, risky asset classes in the form of equities, high-yield bonds and commodities such as copper, nickel and oil will continue to perform well as they have been since early March of this ye...