Dr Shane Oliver, AMP - The concept of risk-on/risk-off refers to the way markets behaviour during heightened macroeconomic threats. Whenever there is such a threat, investors become nervous and sell-off growth assets such as shares, the Australian dollar, commodities and corporate debt, whereas defensives like bonds tend to rally. High correlations exist between these assets which, under normal conditions, would not correlate. However, over the last 6 months, the concept of risk-on/risk-off has broken down as individual assets begin reflecting their underlying fundamentals - this is welcomed as it brings important diversification benefits when setting up a portfolio. (VIEW LINK)
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