Current markets, opportunities and threats
Often it is said that traders go away in May and return in September and the summer lull has become a well-used phrase around the financial markets for many years. However, this year has been a little different with plenty of activity during the summer period. There have been huge losses in the Chinese markets, the Greek bailout position hogging the business news for weeks on end, talk of an interest rate rise in the US and a depreciation in the gold price. We have seen bond yields increase and the key driver behind rising bond yields appears to be the fact that the responsive monetary policy easing from global central banks, together with a stabilisation in the oil price has reduced concerns of further downside risks to inflation. These same factors are also encouraging investors to become more optimistic on the prospects for economic growth in the second half of the year.
As I write, Yanis Varoufakis, former Greek finance minister already sees the Greek bailout as a failure and Angela Merkel is remaining tight lipped until she sees the results of the first round of the new bailout package.
So as a long term investor how do you do decipher all of these global events and decide the right course of action for you and your Investment Portfolio.
Firstly stay calm do not try and become a fund manager or day trader. A little insight can be dangerous and as confidence grows stakes usually increase and failures can hurt much more. Do not start selling because you fear the world is going to end. If you are invested in well balanced portfolio of assets then you will not be over exposed to any single event in the markets and therefore some of your assets will negatively be correlated with others that are perhaps having a hard time momentarily.
Secondly, keep buying. People often freeze up and stop buying when the opportunity is at its best. If you keep buying in exactly the same way you were previously, you will take advantage of average market pricing and this is where you make gains.
Lastly seek professional advice. Your finances are important to you, proper management of your finances will ensure your children are educated properly, your retirement is comfortable and you are in a position of freedom in life which is much better than having monetary stress. Even professionals use professionals, as a business Credence International use many discretionary managers to outsource Investment Management. In some areas we can work with our clients directly but in others we use managers that again use other managers in order to spread risk and use expertise in every individual segment. A good expert will not cost you any money, they will add value and save you time.
In summary, we expect global economic activity will improve over the next few months, but inflation will stay low and central banks will retain their reflationary policies. Although the background environment remains supportive for risk assets, returns are likely to be lower and more difficult to achieve moving forward, since valuations have become more expensive on a relative basis. Hence, we will need to ensure that risks are adequately balanced within portfolios and look to make the most of opportunities that present themselves, either to add value from a relative perspective or to benefit from the major trends and themes that will drive future returns.