Watch out for volatility in 2015

Channels: SAA/ALM, Risk

Companies: BlackRock

People: Ewen Cameron Watt

Volatility is likely to return to financial markets next year, according to the BlackRock Investment Institute (BII) outlook for 2015

Government support for economies, in the form of quantitative easing, has suppressed volatility and the financial cycle has leapfrogged the business cycle in most countries, the asset management firm argues.

"Asset valuations and investor complacency are high, likely triggering bursts of market volatility," BII says.

"Our primary guidance is to prepare for these bursts and have a plan for dealing with them," said Ewen Cameron Watt, the BII's global chief investment strategist.  

"Stocks and bonds could fall in lock step, challenging traditional diversification. Relative value strategies and alternative investments can help," he said.

The markets had two wake-up calls in 2014 - the sell-off in US internet and biotech stocks in the spring, and the dip in October over fears about global growth. "These were painful shifts. Yet the spikes merely mean markets are returning to their volatile normal," the BII says.

The chart below shows how steady some major markets have been during 2014.