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Inside investment: Gloom with a grin of salt

The bull market that began in March 2009 is flagging, but the overwhelmingly negative narrative from many strategists and commentators is overdone.

The passing of Yogi Berra, catcher, manager and coach for the New York Yankees and latter-day Mrs Malaprop, has robbed the world of a baseball legend and a reliable source of homespun, if off-key, wisdom. The future ain’t what it used to be, is one of the best-known Yogisms and captures well the current zeitgeist in markets. This year is shaping up to be the worst for risk assets since 2008, with both equities and bonds on course to underperform cash.

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    The negativism has three main sources: concern about the limits of monetary policy; the threat of deflation; and the prospects for emerging markets in general and China in particular. These three horses of market apocalypse have certainly spooked investors. According to Bank of America Merrill Lynch, emerging market equity outflows have hit $60 billion year-to-date, $22 billion from China.

After a first half that saw global equities up 6% and cash offering no return at all, the summer sulk has been surprising. Perhaps the biggest underlying concern is the nagging feeling that policy is ineffective. The three arrows of Abenomics have not been sufficient to jolt the Japanese economy back to life in spite of a monetary stimulus greater than we have seen in the US and Europe in a smaller economy.

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