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Are we on a white knuckle ride towards a Black Swan event?

February 19, 2020

February 19, 2020

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Are we on a white knuckle ride towards a Black Swan event?

While last week we reached all-time highs in the stock market, there continues to be anxiety around taking long positions due to current geopolitical factors, especially as the market rests breathless as it tries to quantify the huge amount of news and its varied implications from an intense summer.

While last week we reached all-time highs in the stock market, there continues to be anxiety around taking long positions due to current geopolitical factors, especially as the market rests breathless as it tries to quantify the huge amount of news and its varied implications from an intense summer.

Paul Samuelsson once remarked that “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” It’s clear a lot of  investors may currently feel like they have had a long night at the tables after this summer.

With a market that runs on news, we have had to both reckon with, process and react to with Britain leaving the EU, a US impeachment trial, unprecedented bushfires in Australia and now, COVID-19, just since the start of 2020.

But is the Coronavirus a fabled Black Swan event? It is quite naturally unexpected and unknowable and looks to be having widespread consequences in our markets at home and in almost every market abroad. The widespread sector by sector impact is almost yet to be completely examined, with the natural focus drawn to the sheer immediacy of the danger. However, companies as large as Apple are releasing a revision on their Quarterly revenue target, and Bloomberg is predicting a ‘nightmare’ for the global technology sector due to the amount of manufacturing which has been impacted by containment procedures.  

Or will it possibly accelerate China’s Minsky Moment, which some economists have already forecast as a possibility? China’s debt-to-gross domestic product ratio is currently more than 300 per cent and continues on a dangerously upward trajectory.

Many businesses around the world that rely on trade flows between the United States and China are vulnerable in the current political climate. Chinese economic growth was already at its slowest rate in nearly three decades, while US manufacturing continues to slump and Germany last year only recently avoided a recession.

Even though the world economy is still currently experiencing low volatility, there continues to be more and more long-term uncertainty in the market. Considering the ongoing geopolitical tensions across the world, it’s possible that the market could tip into higher volatility. But before we break out the tinfoil hats, is there a way an investor can benefit from this? 

While most people’s portfolios are set up for market stability, it’s important to diversify, especially with market uncertainty looming so close to the horizon. 

We have access to an investment that’s set up to benefit investors in an uncertain market. Due to volatility remaining low and macro-economic factors seemingly increasing their impact by the day now is a unique time to get exposure to this kind of investment. 

 

But how does it work?

When there’s volatility and dispersion in the stock market, investors usually see big winners and big losers in their share portfolios. 

This investment does things differently. Instead, you get a carefully-picked basket of international shares that should benefit your portfolio during times of high dispersion and volatility. At the same time, this investment can be used as a hedge against the financial risks that come with geopolitical tensions and economic uncertainty. 

While most portfolios are set up for a predictable, stable market, we are living in unusual economic times. Previous similar investments have been popular with people looking to set themselves up with a unique opportunity to benefit from the uncertainty. 

To receive the IM, register your details here.

 

 

Reach Markets are the advisors assisting with the management of this offer and may receive fees depending on whether an offer is taken up by investors.

 

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