The year 2021 has not been a good year so far. As of 15 April, there have been more than 2 million known cases of COVID-19 around the world claiming the lives of more than 126,000. Unfortunately, these cases still increase each day, and nobody knows when this global pandemic will end, or how many more lives it will take.
The world once we once knew is no longer the same, at least not in the short-term. International travel has come to an abrupt halt. Millions, or maybe even billions, of people, are generally working from home now or out of a job. In the U.S., it's estimated the unemployment rate could climb up to 20% in April.
The financial markets, both locally and globally, have taken on a beating not seen since the 2008 Global Financial Crisis. The Straits Times Index (STI) is down by about 20% since the start of the year, while the S&P 500 is down about 12% over the same period. Many investors have seen their hard-earned investment gains over the past few years wiped out in a matter of weeks.
The question for Singapore investors today is: where do we go from here? Do we continue investing, or don't let take a break for now?
With Danger Comes Opportunity
Investing inside a crisis is never easy, but it is also worth remembering that with danger comes opportunity. During a bull market, investors' sentiments are positive, and everybody is investing, so it may be difficult to find good investment opportunities since prices of stocks are often high.
However, during a bear market where investors are exiting the marketplace, or choosing to hold on to cash, investors prepared to take on short-term price volatility will find good, robust companies that are actually trading at a discount compared to the price these were previously trading at during a bull market.
Taking a little risk during this period to capitalise on the bear market may be dangerous but if you are able to take the risk, you may enjoy a higher return over time.
If you want to invest during this period, you should know of the risks and take the necessary precautions to mitigate the risks.
Don't Put All Your Eggs In a single Basket
The COVID-19 pandemic is a timely reminder that it's essential for investors today to hold a well-diversified global portfolio.
If we simply invest in stocks from one country (e.g. only purchase SGX stock counters), our investment portfolio may be affected when a black swan event impacts the country.
By diversifying your investments in a group of global MNCs, investors can mitigate their exposure and maximise the returns over time.
Trade With Caution
Investors aiming for short-term gains is going to be tempted to capitalise on the price fluctuations in the markets to make a quick buck. Certain industrial sectors such as pharmaceuticals or tele-communications are trending higher amidst the current situation. Savvy traders can attempt to buy at a lower price and make some quick profits once the opportunities arise.
Whilst this strategy may be applicable in the Singapore stock market, according to trading volume, SGX is dwarfed by its U.S. counterparts. Higher volatilities within the U.S. markets magnify the potential risks and rewards to the traders when they trade in this period of uncertainty.
The increase in risks and rewards should not be taken lightly. As prices move rapidly in a volatile market, traders are exposed to the risk of losing large capital inside a short period of time. For investors planning to make quick profits, they have to first identify the risks inside it and be prepared to trade in periods of high volatilities.
Not All Businesses May Survive
As countries continue their battle to contain the COVID-19 outbreak, both large and small businesses are affected. Some companies, specially those in the aviation, tourism and hospitality sector, will still be adversely impacted. Other businesses without strong cash flow or a recession-proof business model will suffer.
The reality is not all businesses are going to survive. Being an investor, you want to protect your capital and avoid punting during this period of uncertainty. Whilst fortune (sometimes) favours the bold, you shouldn't take unnecessary risks.
If you're new to investing, try to gain global exposure by investing in ETFs that track on broad indices or select strong firms that have a global footprint.
Investing Overseas Through Tiger Brokers
Whether you are investing for the long-term or searching for investment opportunities in the current volatile markets, Tiger Brokers is your one-stop trading partner to help you attain your financial targets.
Licensed by the Monetary Authority of Singapore, Tiger Brokers offers one of the lowest fees for trading overseas stocks that will help you capitalise on international equities along with other financial products. It's real-time, comprehensive trading tools ensure that you stay on top of your portfolios anywhere, at any time. You can also gain access to real-time, in-depth financial information on stocks listed at your fingertips via its all-in-one mobile trading platform.
As markets become uncertain and volatile, overseas investment opportunities come with a fair share of challenges. However, with a decent understanding of the risks involved and managing your investment portfolio through diversification can help traders navigate and overcome these speedbumps.
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