IT IS like a train coming at you and you are not going to stop it by standing in its way. Bedlam in equity markets, turmoil in financial landscape, geopolitical risk in various geography, political shenanigans in the west, the pandemic getting worse, central banks’ intervention in advanced economies, low interest rates regimes globally, the Chinese yuan in limelight in the currency market, the commencement of hybrid wars in Indian Ocean/Arabian Sea and social unrest in few continents would make headlines in 2021. Fasten your seatbelts as 2021 would be tougher than 2020, 2019 or 2018.
At the time of writing this piece, it’s Dec 3, and the US election result is still waiting for the Dec 14 Electoral College decision. Let’s see who will be calling the shots from 2021 to 2024.
The markets are already in a mood and whistling past the graveyard. Investors are feeling nervous. I can foresee valuations taking the pullback and bedlam in the equity markets in the US and across the globe.
Banks will face the pressure in profit margins due to lower interest rate regime. Central banks would intervene in the market to keep their currency low but the yuan would come out stronger and perform better than many currencies due to macroeconomic stability in China.
Geopolitical risk is getting deeper into the market, and the world is divided into groups – China vs USA. Countries have to decide their power-play group in the coming two to three months as skirmishes over Arabian Sea and South China Sea are getting real. Military and air force exercises are going on among countries, thus signalling the future direction of the warfare.
Investors who fathom history and economics have always taken positions in three asset classes:
> Real estate
> Gold & silver
> Cash
I talk to many smart and proactive investors who have devised strategies to eschew the collapse in the debt-fuelled collapse in stock markets. If history is going to be the best guide, these trends suggest that investors should consider adding some gold, silver, real estate, cash and agriculture assets to a diversified portfolio strategy.
The market right now will remain volatile till 2023 or even beyond as bedlam and uncertainties are going up in the coming months. Distorted markets and inflated valuations are the perfect recipe for market collapse in the short and long run. Markets are in a mood and will keep investors on the edge. The equity market is supported by the unprecedented printing of money by central banks, especially the US Federal Reserve and the European Central Bank. Once the quantitative easing stops, the valuation will take huge correction and putting investors at unease.
Investors would lose US$40 trillion to US$50 trillion in the equity markets alone. The ground reality is that investors should gather market intelligence reports to analyse market potential at the macro level to see the upside gains in a particular asset class.
Finally, investors can find safe-haven protection only in tangible asset classes. Think sharply and act strategically in order to ride the wave of volatility and bloodbath in the market smartly.
This article was contributed by Juwai IQI chief economist Shan Saeed (pix).
