FXTM Chief Market Strategist and CNBC Arabia host Hussein Sayed reveals how diversification has changed since 2010 and the alternate approaches for the new decade.
Hussein Sayed, FXTM
As 2020 draws nearer and market volatility shows few signs of subsiding, the current decade has seen diminishing returns from the traditional approaches to diversification investments. At the recent Financial Times investor seminar ‘Ports in a storm’, FXTM Chief Market Strategist Hussein Sayed shared valuable insights for 2017 and the last few years until the new decade.
Hussein Sayed comments:
The classic 60/40 diversification formula isn’t working as well as it used to before the global economic slowdown. Going forward, investors need to draw from different strategies to balance out risks.
There are looming threats to the global economy, such as the heavy corporate debt in China, which may pressure GDP growth in the short-medium term. The IMF best-case forecast is for a 3.4 percent growth in the world economy, and worst-case GDP is seen at 2.8 percent. Monetary easing has almost reached its limits in the mature markets, with growth recovering relatively slowly. The Brexit vote left a trail of negative sentiment in the UK and EU that appears set to be contagious into 2017. The uncertainty around the controversial US elections has triggered waves of safe-haven investments as once again investors batten down the hatches for the short term.
This means that diversification and spreading risks remains a critical strategy and new approaches include considering Gold as part of the investment portfolio, either through ETFs or in the form of bullion. Mr. Sayed underlines that Gold has a low correlation with the world’s stock exchanges, making it a useful hedge during volatile periods like the US election or market shocks like the Brexit vote.
Another strategy to examine is event-driven investments most commonly found in over-the-counter derivatives like Forex CFDs and similar instruments. Designed as short-term or long-term, these currency or equity investments are built around economic fundamentals, such as the Federal Reserve’s regular policy announcements or mature market GDP results.
“While bonds and equities remain the staple of any diversification strategy, adapting to market volatility needs 2020 vision,” says Mr. Sayed.
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