Individual investors are urged to remain calm, assess their portfolios for risk exposure and take a systematic approach to assessing overall holdings
The destroyed SVB (Silicon Valley Bank) logo and the American flag can be seen in this image. — Reuters
Global stock markets have been hammered following the collapse of SVB, Signature Bank and the takeover of Credit Suisse, with investors becoming increasingly wary of risky instruments.
To make matters worse, Germany’s Deutsche Bank and Switzerland’s UBS also struggled as their stocks came under pressure and saw heavy sell-offs last week.
During turbulent times, investors tend to be short-sighted, lose sight of the big picture and are more susceptible to a loss aversion bias that can lead to poor financial decisions.
Therefore, individual investors in the UAE and retail investors in the Gulf are urged to remain calm, evaluate their portfolios to understand their exposures, and take a systematic approach to evaluating their overall holdings and weighing the long-term outlook.
As volatility does not appear to dissipate anytime soon, gold, low-volatility dividend-paying stocks and bonds — treasury bonds, high-yield bonds and highly rated corporate bonds — are the best bets UAE and Gulf investors should be analysts Consider guarding against risks and helping mitigate portfolio losses, he said.
Is gold the best option?
“Gold is indeed an asset to consider as a hedge against market volatility for reasons that go beyond its intrinsic value and relate to the ‘safe haven’ notion of an asset rather than a stock that can suffer from excessive volatility, often a case of a down economy and financial instability ,” said Axiory Global CEO Roberto d’Ambrosio.
He said the “sentiment” of the market, its mood, is now negative and gold is an asset to consider for portfolio protection. “Is it the best? It’s one of the best and it should still be well balanced in the portfolio.”
Growing fears of a recession were supporting gold, said Vijay Valecha, chief information officer at Century Financial.
“However, investors should note that current prices are quite high. Gold prices have soared this year, outperforming all other asset classes. Therefore, a 3% to 5% correction would provide a good opportunity to invest in gold,” he added, adding that the Fed A pause in monetary policy tightening is another key factor working in favor of the precious metal.
Tawhid Abdullah, chairman of Dubai Jewelery Group, said institutional investors turned to gold fairly quickly during the turmoil, while household investors reacted slightly differently to the geopolitical scenario.
“Both types of investors assess the value and risk factors associated with their investments. Retail sales of jewelry or gold can be highly price elastic. We have observed that some household investors may be shunned by price This is an opportunity to dilute its gold holdings. However, the fact is that higher prices increase consumer confidence in gold,” he said.
“It’s notable that gold has withstood nearly every turmoil and continues to outperform other asset classes,” said the head of the Dubai Jewelery Group.
Axiory Global chief executive says high-quality sovereign bonds are now popular given rising interest rates.
“Those who judiciously rebalanced their portfolios during the secular bull market in risk assets should now have a significant portion of their portfolios liquid. In this case, a balanced portfolio would consist of high-quality sovereign bonds, highly rated Corporate bonds (after careful and well-researching) investors can start rebuilding their stock portfolio with large holdings of high-quality, high-dividend stocks. For the more speculative part of the portfolio, picks that have taken a big hit over the past few months Tech and banking stocks will do well,” d’Ambrosio said.
Vijay Valecha suggests that to weather these difficult times, investors can choose treasury bonds.
“Treasuries are an excellent way to use spare cash. U.S. one-year Treasuries yield 4.65%, so investors can profit with almost zero risk. Another option is to invest in value and dividend stocks, as well as low-volatility stocks. Moderate allocations to help mitigate portfolio losses,” said Century Financial’s chief investment officer.
Avoid small, mid-cap stocks, cryptocurrencies
Analysts recommend staying away from small and midcaps, cryptocurrencies, emerging market bonds and illiquid stocks, which are more sensitive to these headwinds.
“SMEs are more acutely feeling the pressure of rising interest rates and inflation, with rising input costs and high borrowing costs hampering their growth. Furthermore, the debt risk of European private tech startups has almost doubled by 2022 , to $32.7 billion. The collapse of SVB, a major provider of venture debt financing, means funding and liquidity sources have dried up, threatening their prospects. Investors therefore need to be wary of small and mid-cap securities that are less prone to volatility,” Valecha said.
Roberto d’Ambrosio advises caution with high-yield bonds, emerging market bonds and illiquid stocks, knowing they may have high upside potential but are equally risky.
“Other alternative assets, such as cryptocurrencies, should also be considered as a small portion of a portfolio, unless the investor has a very high risk appetite. They still show a very strong correlation with the stock market, which reveals the fact that Unlike the narrative put forward by cryptocurrency enthusiasts, they are less useful as a hedge against volatility and inflation, and their value remains almost entirely speculative,” D’Ambrosio said.