Global economic and political instabilities are pushing fund managers to re-examine traditional asset allocation strategies, according to Advance Asset Management.
Advance Asset Management head of strategy and research Felix Stephen said any one of a number of factors could destabilise markets again, as soon as the final quarter of this year or the first quarter of next year.
The lack of political leadership meant financial markets would push politicians to knee-jerk reactions rather than policy-based actions, Stephen said.
"The digital revolution means that the world has never before been so linked", with the psychology of households and corporations being the most important drivers of actions.
The chasm between rich and poor was deeper than ever before, and "the voter is angry and rightly so."
Countries were going through a "cleansing and then a healing process" where the legitimate anger of voters led them to vote out incumbent governments and "elect feeble new ones", he said.
China was a "slow-moving freight train" as the economy was moved "from export-driven to domestic consumption to ensure less dependency on the rest of the world due to concern over Europe, the US and the Middle East", he said.
"Australia is totally and deeply integrated with Asia and we have been riding the miner's back for too long. We have to shift to education to reverse the brain-drain. We cannot continue to depend on exports," he said.
With all these geopolitical stresses in mind, Advance head Patrick Farrell said fund managers had to consider both returns and risk, and look at other ways of delivering returns and risk management.
"By alternatives, we don't mean traditional alternatives such as commodities. We're talking more absolute returns, we're talking long-short, arbitrage, more hedge funds," Farrell said.
