"Synchronized Decline" exposes blind spots; multi-asset allocation strategies need to evolve

Securities Times reporter Tan Chudan

In the Middle East, the situation has remained tense in recent times, triggering violent fluctuations across global financial markets. Under the traditional risk-hedging logic, investors had originally expected the “seesaw” effect among various asset classes to buffer risk; however, crude oil prices have surged sharply, and global stock markets, bond markets, and most commodities have all come under pressure at the same time, showing a short-term “synchronized movement” pattern.

For fund wealth managers’ business that has been actively promoting “broad asset allocation” in wealth management in recent years, as well as brokerages’ asset management services that have continued to use multi-asset strategies, this round of extreme market conditions is undoubtedly a severe test. To that end, Securities Times reporter interviews with fund wealth management business heads and asset management investment managers from multiple brokerages, aiming to identify blind spots in current strategies and the directions for future optimization and evolution.

Broad asset classes moving in the same direction

Over the past week (March 23 to 27), global capital markets saw major volatility. Key U.S. stock indexes repeatedly hit new lows within the year, and gold prices briefly fell below $4,100. This rare “stocks-bonds-gold triple kill” episode dealt a blow to investors who adhere to the broad asset allocation philosophy.

When discussing the reasons, Yuan Chao, an investment manager at First Venture Securities Asset Management, believes that this perceived failure of some “multi-asset allocation portfolios” has two aspects:

First, it only achieves “asset diversification,” but not “risk diversification.” “In the past two years, the core backdrop for stock and commodity market performance has been ‘looser global liquidity, fiscal expansion, and an AI-led manufacturing recovery,’ and the logic behind the rallies in most assets has been highly consistent. But the core of this market volatility is ‘stagflation trading,’ and assets sensitive to economic growth and market liquidity—such as bonds, gold, and stocks—may fall in sync.” By comparison, anti-inflation commodities such as cash and crude oil have become a “safe haven” under stagflation scenarios. If a portfolio lacks such assets, it is more difficult to achieve risk hedging.

Second, convergence in funding trades and intensified volatility on the liability side worsen the swings. Yuan Chao explains that, under prior market narratives such as AI and dollar substitution, the concentration of various types of capital trading has risen significantly; at the same time, low-risk preference capital from wealth management products enters the market, causing a serious mismatch between the stability of the liability side and the crowded asset side. When risk appetite declines quickly, clustered redemptions on the liability side can trigger liquidity shocks, leading to broad declines across asset classes.

A relevant business head at China Citic Securities’ wealth committee believes that, after several consecutive years of gains, gold has seen a sharp rise in volatility and now exhibits characteristics similar to those of equity risk assets.

Blind spots in traditional strategies laid bare

Since broad-asset diversification has not fully avoided risk, does the “multi-asset allocation strategy” therefore fail? Multiple interviewees believe that what the current extreme market has exposed is the blind spots of traditional strategies, not a failure of the strategies themselves.

Relevant personnel from China Jin Wealth’s fund wealth management business said, “‘Multi-asset allocation strategies’ have mostly just undergone a stress test; they cannot be simply judged as ‘failing.’ When all assets resonate and fall together, it is often caused by a liquidity shock.”

The source believes that this round of broad-based declines in multi-asset portfolios exposes a blind spot of traditional multi-asset allocation: investors often limit themselves to asset diversification, and that is only one dimension of risk diversification. Stocks, bonds, and commodities appear to belong to different asset categories, but they may jointly be exposed to the same macro risk factor, leading to synchronized declines.

The asset allocation team at Guojin Asset Management also does not believe that the “multi-asset allocation strategy” has already “failed.” The team stated: “We find that, in terms of coverage across the commodity spectrum, when geopolitical developments ferment beyond expectations, it has significant positive meaning for dampening the turbulence of other assets.”

The team further explained that if a multi-asset portfolio includes too few asset types or has a high degree of homogenization, its macro risk estimation may not be comprehensive enough; this problem is usually due to chasing a few strong assets rather than conducting a systematic multi-asset layout. On the other hand, trying to cover risk comprehensively does not mean there is no risk. Multi-asset strategies optimize risk exposures through portfolio investing, but the volatility ultimately presented by the portfolio remains directly related to the underlying volatility of each asset.

Liu Bing from the Asset Management Division of Pioneer Securities said, “‘Multi-asset allocation strategies’ focus on reducing unsystematic risk, not eliminating all risk.” Traditional allocation models are built on the assumption of “long-term stable low correlation” among assets. However, in “black swan” events like geopolitical conflicts, a single risk factor dominates pricing, causing correlations among various assets to spike sharply in the short term—this is a normal manifestation of extreme systemic risk.

The diversification dimension needs optimization

What lessons the current extreme market offers investors, and how institutions should adjust their investment strategies, have become a focal point of market attention.

Liu Bing believes that investors need to be wary of highly crowded assets and optimize the diversification dimension. He said that this round of market action shows that asset crowding is an important leading signal for tail risk. When a single asset or strategy is excessively chased by the market, the correlation with other assets also rises sharply during crises, ultimately leading to “diversification failure.” The traditional surface logic of “asset diversification” is no longer sufficient to withstand this kind of resonance-driven selloff; instead, it needs to extend toward “factor diversification.” By allocating assets with different risk factors—such as inflation, interest rates, and geopolitics—we can reduce the impact of shocks from any single factor on the portfolio.

This view is also shared by relevant personnel at China Jin Wealth’s fund wealth management business. The source said that it is necessary to further strengthen the importance placed on portfolio risk management. Drawdowns relate not only to clients’ short-term capacity to withstand risk, but also constitute a “volatility tax”—the larger the drawdown, the higher the rate of return required to repair it, and the loss to long-term compounding can be accelerated as well.

The source also believes that, in the future, “multi-asset allocation strategies” have two directions for evolution: first, expanding from single-asset risk parity to macro factor risk parity; second, imposing stricter target volatility constraints in model implementation, or placing greater emphasis on the characterization of tail risk in risk models.

A relevant business head at China Citic Securities’ wealth committee also said that one cannot view the risk-return characteristics of various assets with a static, mechanical lens. The risk-return characteristics of major asset classes such as gold, bonds, and equities are all dynamically changing and require dynamic assessment. At the same time, from the perspective of asset allocation, it is not only necessary to analyze each asset’s own characteristics, but also to carefully analyze the correlation relationships between assets and their hedging relationships, so as to build a more resilient portfolio.

Yuan Chao also believes that the core of broad asset class strategies lies in ensuring that asset diversification allocation does not stop at a simple level of diversification by categories. It is necessary to clarify the main risk points in the market across different time dimensions and to predefine different macro event evolution paths. He also emphasized that investors should pay attention to the allocation value of cash, strengthen position control of risk assets, and reserve sufficient liquidity to deal with market volatility.

The asset allocation team at Guojin Asset Management stated that, when selecting assets, asset allocation must fully consider the underlying sources of risk. The included assets must be broad enough—not in the sense of simply having a large number, but in the sense that the driving factors behind asset prices are sufficiently rich and diversified. Under the core strategy of “reallocating heavily, timing lightly,” relying on the portfolio’s low correlation can help it better navigate volatile market environments.

Massive information and precise interpretation—available in the Sina Finance app