On Wednesday, I sent out a report, part of which talked about funds flowing into Asia and Emerging Markets. From March 2009, funds started flowing into Asia, Latin America and Emerging Markets, but ironically, instead of flowing into equities, they flowed into bonds. Nevertheless, stock markets rallied by between 70 - 140% that year.
At the beginning of 2010, they started to flow back to the US and EU, which led to a 15 - 20% correction in Asia, Emerging Markets and Latin America. Lately, they flowed back to Asia and Emerging Markets. And, this time, it's into equities. Does this mean that the bull rally will continue?
I will discuss this more in my next posting.
Several people actually asked me whether asset allocation important? My answer is, "yes, unless you can time the market 100% of the time". Let me get this straight, if any adviser tells you that he/she can catch the highest and lowest point of the market, be very wary. Why be an adviser when you can make infinite amounts from investments personally? The truth is, if your timing is less than perfect, say, 60% of the time right, which is better than 90% of the people, then asset allocation is very important. The good ol' Harry Markowitz says that we should invest along the efficient frontier, according to our risk profile. A typical moderate portfolio is 60% equities, 40% bonds. You can adjust according to your risk appetite, and believes in the future performance of each asset class. But you should always diversify. No ifs, no buts. You need bonds, stocks, alternatives, commodities and property in your portfolio. No one is exempted. Diversification reduces your portfolio volatility by a larger proportion than the reduction of your returns
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