A lot has happened in financial markets over the last few weeks. Altaf Kassam provides an update on where this leaves markets and shares his perspective on what it means for investors’ portfolios.
Speaker : Altaf Kassam
Well, it feels like a lot has happened over the last few weeks. So, I thought it would make sense to take stock of events and think about what it means for our portfolios.
Let us think about what has changed. But first, maybe let us think about what hasn't changed. And I am afraid one thing that isn’t going away is volatility. We talked about this before. Central banks haven't got our backs anymore. We saw that with the latest banking crisis that they are willing to protect depositors, but they won't go the extra mile to protect equity and bondholders. We have to protect ourselves.
So, what does that mean? Well, for fixed-income investors, cash is still giving you a great yield. Or you can look at short-dated, high-quality government bonds. For equities, I think you still need to think about defensive equities and managed volatility strategies. If you need more return, then focus on quality companies. Companies with solid business models, low leverage and a high return on equity. And you can combine that with growth, which should do well as the cycle starts to turn. So, you get something like growth at a reasonable price.
Another thing that has not changed is China reopening. That is still happening. And we have always said that to invest in Chinese equities, you need to be in an active portfolio, so that you can navigate the political uncertainties and take advantage of opportunities which are not in the benchmark.
But, when we think about emerging markets more broadly, one thing that might have changed is the medium-term weakness of the dollar. We always said that it was depending on risk appetite. And if risk appetite retrenches, if people become more fearful, then they fly to safe havens like the US dollar, which might support it in the near term.
We still think that medium-term downtrend is coming. So, we like China, but we may have to wait for the dollar to come down before we get fully back into emerging markets. So, there is certainly a lot going on. We would really love to help you get through the next few weeks and months and build better portfolios.
With that, thank you very much.
Altaf Kassam, EMEA Head of Investment Strategy & Research
Listen to our panel assess the ongoing market implications of this most recent financial crisis, offering their insights on where investors should be looking as they navigate the months ahead.1
Stop Dreaming of the Quiet Life
Volatility isn’t going anywhere in a hurry and Central Banks don’t have the market’s back anymore. This is true across all asset classes. We need to stay defensive.
Implied Volatility Across Asset Classes
Source: State Street Global Advisors, Bloomberg, as of March 28, 2023. VSTOXX = Euro Stoxx Volatility Index. MOVE = BofA Option Volatility Estimate Index.
1 Source: State Street Global Advisors, recorded on 29 March, 2023.
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Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
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