‘End of the golden era’ for quick gains in equities

Yasmine Raso

Senior Journalist, Financial Newswire

16 July 2025

New analysis from global equities specialist, Talaria Capital, has marked a shift in market conditions for the first time in 30 years that is no longer conducive to “easy gains” in equity prices.

Talaria Co-CIO, Hugh Selby-Smith, said the “forces” that had driven strong cash flows had overturned, including “deep global integration, free trade, free movement of capital and access to low-cost production”.

“Supply chains are reshoring, trade barriers are rising and labour costs are climbing up, all which slow the rate of cashflow growth.” 

“For investors, we believe this marks the end of the golden era, in which nominal cash flow growth and the cost of funding diverged to drive up asset prices. In an environment where this dynamic is, at best, no longer a tailwind, rising valuations over time can no longer be relied upon – bringing a renewed focus on what investors are paying for assets,” Mr Selby-Smith said, pointing to the chart below that highlights this divergence.

“Funding rates have risen sharply and may remain high. The headlines have been about trade wars, but at heart this is a fight for capital. We feel that the ear of the near free movement of capital is coming to an end with implications for the US currency, stock and bond markets.”

Selby-Smith said asset allocation would become a vital practice for investors looking to strengthen their portfolios to weather such conditions.

“In a world where the cost of funding matters again, the timing and certainty of cash flows will enjoy renewed focus. Duration captures how exposed an investment is to changes in interest rates, and shorter duration assets are less vulnerable when interest rates are rising,” he said. 

“We also advocate investing in companies with strong balance sheets. Companies with low leverage and strong cash flows are better positioned to manage higher refinancing costs and economic volatility. They also have more flexibility where other companies could be more constrained to protect their revenues. 

“In addition, exposure to physical or inflation-linked assets like commodities and infrastructure can help preserve purchasing power if inflation is persistent.  

“Diversification too remains important. In a regime defined by fragmentation, higher volatility and less predictability, a portfolio that draws from uncorrelated sources of return and has exposure to ‘under-owned’ assets is more resilient.” 

The investment specialist said the last three decades of ‘free flowing capital’ have been taken for granted by investors, with this trend now catching up to portfolios.

“Geopolitics has played its part as, for example, economic nationalism has asserted itself. The pandemic also had a huge impact as did the shock of resurgent inflation. In combination these and other elements have exposed fragilities and forced a re-evaluation of capital, risk and global interdependence,” he said.

“This era of globalisation which we identify as starting in the early 1990’s brought many significant benefits but also gave rise to vast levels of non-financial debt to GDP, enormous US twin deficits reliant on foreign funding, a distorted global manufacturing map and much higher returns to capital than to labour. Now, as these imbalances unwind, we believe the free flow of capital can no longer be taken for granted.

“We believe investors should prioritise short duration, strong balance sheets, real assets, and diversification. Underlying this view is our premise that while valuation has always mattered, it hasn’t always mattered to everyone. This ought to change.”