Ten years can feel like eternity in financial markets. It’s hard to remember the mood back in early 2009 when the Global Financial Crisis (GFC) first struck. There was talk of the end of capitalism and that many of our great financial institutions were potentially worthless. What we got were revolutionary, well-coordinated responses from the world’s central banks: first, the aggressive cutting of interest rates, followed by successive rounds of quantitative easing (QE). And it worked to an extent. The world avoided a second great depression. Economies began to grow again, though that growth has been pretty anaemic in some countries.
We can draw three broad conclusions from the performance data: 1) the winners were those who suffered least from the banking crisis, or formulated strong policies to counter it; (2) the losers were the ones with the weakest banks and/or the poorest policies; 3) most markets saw a negative return in dollar terms.
And three implications for investors: 1) think hard about how, where, when and why monetary policy is likely to change; 2) avoid domestic bias – maintain a geographically diverse portfolio; and 3) think hard about managing currency risk – and dollar exposure in particular.
Shamik Dhar, chief economist, BNY Mellon Investment Management