Investors should brace for a fundamentally different market environment characterised by structurally higher volatility and increased government intervention, according to Schroders. The firm suggests that a more selective approach to asset allocation will be necessary in the coming years. Schroders is a global asset manager offering a range of investment solutions to institutions and individuals. They manage investments across various asset classes, aiming to deliver sustainable returns for their clients.
Sebastian Mullins, Head of Multi-Asset and Fixed Income at Schroders, argues that the era of low inflation, minimal volatility, and easy returns driven by passive investing that defined the period after the Global Financial Crisis is now over. Mullins believes markets are now operating under conditions more akin to historical norms than the unusually stable conditions of the previous decade.
Mullins emphasises that markets have transitioned into a new regime characterised by sustained inflation, increased government involvement, and heightened volatility. He points out that this is not a temporary situation but a fundamental shift in the market’s structure. Fiscal policy is now a primary driver of liquidity and market outcomes, surpassing the traditional influence of monetary policy.
Mullins notes that government spending on defence, energy security, supply chain resilience, and AI infrastructure is contributing to persistent government intervention and increasing global debt levels. He stated that the influence of free markets has diminished, replaced by increased government intervention. This shift has major implications for asset allocation, and inflation is likely to persist as governments prioritize economic growth over fiscal austerity in managing rising debt burdens.
