The Russia-Ukraine War and the escalated geopolitical tensions in Europe have led to the rising market volatility. Although some global corporations expect positive growth in profits amid post-pandemic recovery, there are still many uncertainties. High net worth individuals should focus on a flexible investment strategy and pay more attention to some safe-haven assets to minimize the downside risk.
Know Your Risk Attributes and Stay Flexible
Undoubtedly, 2022 will be a year of significant volatility. Before making decisions on reallocating your portfolio, you should first examine your expectations and risk attributes.
In general, conservative investors should take measures to prevent and reduce volatility by buying diversified bonds with low volatility and flexibly allocating different types of bonds as their core assets. Moderate investors can adopt a strategy of advancing both progressive and defensive stock and bond and deploy a flexible global multi-asset strategy. Progressive investors are recommended to adopt a long-sighted and multi-theme approach, focusing on the long term winners in the new and innovative industry. The key is to discover assets with high growth potential at bargain prices.
Whether you are risk-averse or risk-seeking, buying stocks or bonds, investors should never forget to diversify their portfolios and stick with a high flexibility approach.
Gold and Bonds as Safe-Haven Assets
Gold has been a safe-haven asset for a long time due to its historically low correlation with other financial assets. If you want to invest in gold, you can also consider buying a gold ETF in the stock markets instead of physical gold to avoid all the fuss of storing the gold coins or bars.
The current conflict between Russia and Ukraine has attracted many HNWIs to invest in the gold market. Since the beginning of 2022, the gold price climbed steadily and once hit US$2,000 per ounce, a new high for more than a year.
Gold price surpassed US$2,000 per ounce, which is the second time in the yellow metal’s history. Source: goldprice.org
However, the U.S. Fed has just started the rate hikes, and the performance of gold and the U.S. dollar are usually inversely proportional – when the U.S. dollar rises, gold falls; when the U.S. dollar falls, gold rises.
Since the U.S. dollar has a significant influence on the exchange rate and the circulation of most currencies, the increase of interest rates will uplift the yield of U.S. bonds. As a result, investors tend to sell their assets for U.S. dollars to buy U.S. bonds, which naturally does not rule out selling gold, potentially driving the gold price under pressure. HNWIs should add some bonds into their defensive portfolio.
Russia and Ukraine play essential roles in the global commodity and agricultural products market. The current crisis and the supply chain disturbance could favour energy and food exporting countries in the Asia Pacific, such as New Zealand, Malaysia, Vietnam, Australia, and Indonesia. Higher food and energy prices give additional fiscal benefits to these countries, and thus buying fixed income assets from these emerging market fixed income assets in the current environment can help realize the advantages of diversification.
Rethink Before Speculating the Market
The outbreak of War and geopolitical crisis usually lead to the surge of price of crude oil and defence stocks. However, buying these assets was full of uncertainty and speculation that HNWIs should be very cautious in making decisions.
The current oil price has soared and exceeded the highest point in the past ten years. As of 22 March 2022, Brent futures was sitting at US$118 per barrel. And in fact, the oil demand has already increased due to the post-Covid-19 economic recovery in Western Europe.
The oil price exceeded the highest point in recent years. Source: investing.com
Meanwhile, when the War was expected to break out, the stock prices of military and defence companies showed a positive trend earlier this year.
Facing pressure from the Russian army, Ukraine purchased armaments from military enterprises such as Raytheon, Lockheed Martin and Thales. Some speculative investors are paying attention to the stocks in the aerospace and military industries.
Nonetheless, speculating the market during wartime is very risky. As the West is still meditating for peace and negotiation between Ukraine and Russia goes on, the market is flooded with rumours and chaotic news. Investors should not ignore the speculative risks.
