Out of the woods?
5 min read | Covid-19, Central Banks, Volatility, Alternative Assets
With the Covid-19 coronavirus pandemic seemingly appearing to be much under control compared to when it started, markets have since witnessed a huge rebound in appetite for risky assets in the past few weeks. Analysts are fiercely debating whether the market is starting to recover and if this V-shaped recovery is sustainable. Could this just be a relief rally before we stumble into another fresh low? Fund manager Ashli Koe considers where things are at now and how long-term investors should navigate in this environment.
In the past few months, we have witnessed unprecedented global efforts by governments and central banks worldwide in enacting fiscal and monetary stimulus measures to counteract the disruption caused by the coronavirus. Central banks have cut policy rates to their effective lower bounds and/or increased broad QE (Quantitative Easing) programs, with unlimited commitment in the U.S., and at least €750bn in the Euro area and £350bn in the UK. These comprehensive actions aim to alleviate liquidity pressures in the financial system and support the flow of credit, restoring some positive sentiment to the markets. However, are the measures enough?
“Are we out of the woods yet? My overall view is that the efforts by the central banks and government worldwide have been remarkable thus far and it gives confidence that they are prepared to prop up the economies at all cost. It has definitely helped to lessen the depth of recession and eased the liquidity crunch in the near term. Looking ahead, we foresee a wave of insolvency and default crises as we step into the next phase of recession – which at least, this is expected.
A lot will also depend on the extent to which economies can successfully reopen. As COVID-19 continues to spread globally, considerable uncertainty remains over the trajectory of global growth over the coming quarters. For this reason, investors should remain prudent and expect further volatility.”, Koe adds.
The investment environment and landscape have changed for the long term and many earlier assumptions of how the financial markets used to operate have been compromised. Koe believes that adopting a risk-aware and diversified approach across asset classes and investment strategies paths the way for long-term wealth creation and accumulation.
“Key takeaway from this pandemic is really anything and everything can happen in the market. No one has a crystal ball or can perfectly predict or time the market. Timing of risk exposure is near impossible – Investors need to manage their overall risk exposure and liquidity of their portfolios. Capital preservation is key to weather through such crises.”, she comments.
Not all are bleak
Although the market meltdown was a painful and life-changing one for many investors, there are winners in the market. Koe shares her insights and the potential opportunities available to investors.
“Prior to this market meltdown, we have already been advocating how alternative asset classes like FX, gold, absolute return focused strategies, long/short instruments etc. can help diversify and enhance investor’s portfolios. Traditional asset classes such as equities and bonds are market dependent and cyclical in nature. Investors should consider how much drawdown they can tolerate against the potential returns.”
“As long-term investor, we plan to stay invested and not just exit all in cash. It is a matter of where we put our monies and being aware that not everything goes up all the time and at the same time. There are things that go up when some things go down.
It is about having a diversified, liquid portfolio and having a peace of mind that even when things go down, your downside exposure is limited and protected.”, she concludes.
Photo credits: Unsplash
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