Risk Management 02 (Aug 15 - Dec 25)

[winston]

Preventing trade shocks from igniting the next financial crisis

Preparedness, not prediction, is the watchword

by Udaibir Das

Over 55% of cross-border bank lending to emerging markets and developing economies is still in US dollars, leaving trade finance exceptionally vulnerable to exchange rate volatility and sudden dollar liquidity crunches.

The trade finance gap in sub-Saharan Africa alone now exceeds US$100 billion – a 30 per cent increase since 2019.

Source: Business Times

https://www.businesstimes.com.sg/opinio ... ial-crisis

[winston]

Ray Dalio warns Americans the current chaos is much bigger than tariffs - 2 simple ways to protect yourself

by Jing Pan

We are seeing a classic breakdown of the major monetary, political, and geopolitical orders:-
1. The global monetary order
2. The political order
3. The global power structure
4. Nature and
5. Technology

Source: Moneywise

https://finance.yahoo.com/news/ray-dali ... 00587.html

[winston]

Keep exposure to risk assets modest as structural shift in US policy plays out

In view of the macroeconomic environment, analysts have begun to lower corporate earnings forecasts for major stock markets

by Mark Richards

What is the US’ real goal?

Look for opportunities to enter the market when the market is extremely pessimistic.

Preferred areas at present are US financial stocks and some Chinese stocks which are in sectors supported by government policies.

Since physical assets such as gold are not easily confiscated or interfered with by other governments, many central banks are also increasing their holdings.

In addition to gold, we are also optimistic about the outlook for copper prices. Under the trend of deglobalisation, countries are committed to reducing their dependence on external supply chains. Infrastructure demand is expected to increase significantly, which helps the outlook for copper prices.

The outlook for commodity currencies such as the Australian dollar, New Zealand dollar and Brazilian real is also relatively attractive; and these countries are relatively less affected by the trade war.

Source: Business Times

https://www.businesstimes.com.sg/wealth ... -plays-out

[winston]

How to invest defensively amid volatility

Bonds have become more volatile and positively correlated with equities, reducing their effectiveness at cushioning multi-asset portfolios at times when equities come under pressure.

by Becky Qin

Adequate Diversification and avoiding Overcrowded Trades.

For example, we currently hold a sizeable portion of our investments in assets that should perform well in typical “risk-on” markets. However, we also hold put options that may offer protection if we enter a risk-off environment.

In addition, we have some long-maturity bonds that should provide ballast in the event that falling growth becomes a more pressing concern than inflation. But we also hold positions in gold and other commodities and inflation-linked bonds, that have the potential to help performance if growth slows but inflation rises.

We currently have allocations to market neutral equity strategies, tradable carbon emissions and catastrophe bonds;

There are several sectors and regions that do not enjoy the spotlight but have achieved double-digit performance this year – Eastern Europe, Latin America, Nuclear, European Defence, European banks, some emerging bond markets and so on.

By leaning into active risk, allocating with intent and staying agile, investors can build portfolios that are not only prepared for the surprises of 2025 and beyond, but able to thrive in them too.

Source: Business Times

https://www.businesstimes.com.sg/wealth ... volatility

[winston]

Time to focus on downside risks in markets: MFS chief

Markets have over-returned and there is likely to be a correction, says Ted Maloney

by Genevieve Cua

Sought to mitigate the overconcentration risk that has prevailed with the dominance of the Magnificent Seven stocks.

We manage risk and pick stocks and bonds on a long-term basis.

We tend to be a bit more conservative in a market like this.

Source: Business Times

https://www.businesstimes.com.sg/wealth ... -mfs-chief

[winston]

Real assets get their day in the sun

Dollar debasement is negative for holders of US cash and fixed-income assets, as the market has little control over the policies that underpin or undermine trust in the US dollar.

by Alexandre Tavazzi

The confluence of policy and macroeconomic forces in today’s global markets is increasing the attractiveness of real assets – those with intrinsic value derived from their physical properties, such as precious metals, real estate, infrastructure, and public or private equities, rather than relying on trust in a fiat currency that derives value from faith in its issuer.

The rise of fiscal dominance and the associated debasement of money serve to highlight the case for real assets.

For some investors that means gold, for others equities and for some, cryptocurrencies as an alternative store of value. In other words, keep it real.

Source: Business Times

https://www.businesstimes.com.sg/wealth ... ir-day-sun