24 Jan 2022, saw the markets go down 4% and then go back up again and carry on to positive territory. This adds to what has been an already turbulent start to 2022. This quick article is going to cover what you can do when volatility is in the markets.
I am not one to make bold claims but would have an educated guess that value investing will come to light in the next few years. This is my opinion and not investment or financial advice.
Having seen tech stocks grow to new highs nearly every week in 2021. It has been stated in a number of articles that this isn’t proportional to many of the companies earnings and the share price is expecting high-level growth for the foreseeable future.
That is an inflationary environment and might be hard to obtain as profits get eroded and money that has to be paid back becomes more expensive.
No doubt, tech companies have invested in the future, Facebook changing its name is one major sign. This is so it can look into the metaverse and look at building digital assets. Uber has already started to look at flying cars to name the endless ways that large tech companies are spending their billions.
But, what this has left overlooked is the more defensive stocks that are more mature and might not be in an industry that is as fashionable for a number of reasons, such as ESG and look as positive investments.
Now, most investors will not want to bet on short term predictions as it is very unlikely to come out correctly and leads to a guessing game. Looking at a company’s balance sheet and going down to the fundamentals of investing and looking at profits has been overlooked during the time of short term trading with low-cost trading sites. A reason for this is due to accessibility which is a good thing, more people can trade and buy shares, but some might not know why they are buying the share.
Many of the large-cap companies, such as P&G still have good earnings and profits but in my opinion, are currently overlooked because it’s not the tech startup that is changing the world.
Many have gone mostly without notice from the retail investors and as an investor that is looking long term and not to bother about short market movements. Personally, would look to sell some of the profits in tech stocks that your portfolio has seen or take a view on holding with the expectation of not getting much growth in 2022 and maybe for a few years after.
Therefor you may want to rebalance your portfolio towards more value funds. One that does this for me is in the passive sector is:
Vanguard FTSE All-World Dividend
https://www.justetf.com/en/etf-profile.html?isin=IE00B8GKDB10#exposure
Large-cap companies that are mostly defensive will come into relevance in a high-interest rate environment with the ability to pass on costs to consumers.
I will be surprised if tech stocks keep rising this year but there have been many times when nothing makes any rational sense. So, I stand to be corrected if they do continue to rise this year.
However, those that have seen gains, I personally, would now look at diversification or preparation to hold on for the long term and be prepared to see short term losses or at best stagnation in the share price.
Looking at a macro basis, I don’t see much danger except for inflation. Possible factors that can cause volatility is the China trade war, the South China Sea, Taiwan and Russia are all threats but don’t think it will have a significant effect on GDP long term (unless something drastic happens).
While countries have either taken 2 stances to COVID one being that a weaker mutation has led to less hospitalisation and deaths or those that have maintained a strict stance. My guess is out of humiliation and that they have taken such a harsh stance on COVID to then say we have to then live with it.
Out of these countries I see Australia, New Zealand, Hong Kong and Vietnam are most at risk. Meanwhile, China, with its 1.4 billion population has seemed to manage okay from its internal population and its exports.
The richer countries will have the ability to deal with an inflationary environment better to impose fiscal policies or reform budgets. While, the long term emerging countries will have seen the worst effect with those missing out on education due to lack of technology, ability to afford education, or need to work rather than go to school as a more pressing issue for a lot of the EM countries.
Summary
In short, I personally would look for some rebalancing for the long term investors that have seen significant gains within the tech sector or taking an approach where you can tolerate volatility and see it out for the long term.
This is not financial advice and if you want financial advice, please see an advisor. If you do want to talk about finances or anything finance-related, please email me at info@investmentsforexpats.com or contact me using the form at the bottom of the page.
