Well let my meager knowledge answer the question. I might get it wrong,
1. Well you should know by now interest rate decrease will result in basically all major assets to rise. The effect is also the same when you increase money supply. Some of this money needs to go somewhere and it goes into whatever assets such as stocks, bonds, real estate, gold etc etc. Hence the positive correlation. Vice versa as well
2. Holding on to bonds is basically a currency play. Hence if USD depreciates, likely SGD also depreciates as its a basket of currency with lots of USD. Naturally the govt can control its strength using bands. So if SGD is expected to depreciate you should instantly find bond prices to drop, as money moves to buy up equities or run away to another currency as the holder is scared.
However, if currency depreciation is due to deflationary, hence it is akin to interest rate dropping, hence bond value will recover until inflation is expected hence expected yield will rise causing bonds to fall in value.
3.higher valuations lead to poor long term returns, this where cape is good at predicting. It is just not good at telling u when to enter or exit.
4. However, do remember we still need to invest during high valuations because you still need to beat the returns of cash. With a longer time frame and DCA, you substantially reduce the probability of screwing up vs cash, hence netting you a higher ending portfolio value.
5. Remember its only TECH stocks that are crazily high !! there are a ton of non tech stocks that are still cheap. IWDA isnt too bad with tech, but i can argue it to be quite high in tech as tech crash can really magnify its downward spiral. The old economy stocks are still reasonable and there might be a rotation from tech to cyclical or value assuming tech does not crash. I personally wouldnt want to expose myself too much to tech hence looking into other regions.
6. Emerging markets ?....I'm always wary over it as their risk return reward is just terrible. However, having some isn't too bad as it provides diversification. Why emerging markets sucks ?, one of the reasons I hate is that when it screws up, it hits both the stock and its country of origin currency as well as I believe every stock still have inherent FX risk embodied. Thus you can a double whammy if currency depreciation does not support the stock price but lead to a lose of confidence and all hell breaks lose. However I do agree that emerging markets tend to do well in an environment where USD is expected to depreciate and the USA market is no more good to buy. Thus you get the benefit of risk on price rise as well as the currency boost of these emerging markets.
7. Lastly, in a high cape environment, portfolios that thrive on high cape such as "permanent portfolio" or All weather portfolio. Of cuz they suck when the inverse happens. So instead of trying to buy europe or emerging markets , you can perhaps do an all weather ?
Read GIC report 2019/2020, and thought there were some interesting points to share. In fact, a few points that made me worried, so I felt compelled to ask the wisdom of the forum, (or well... BBCwatcher and ShinyThings really).
gic.com.sg/news-and-resources/a-changing-global-investment-environment