With markets remaining on edge following Monday’s equity selloff, Saxo Head of Equity Strategy Peter Garnry is reminding investors that panic rarely pays off.
In times of global market turmoil and economic uncertainty, it’s crucial for investors to have a clear strategy, which focuses on diversification, long-term goals, and an informed approach, Garnry says.
“Stocks that covariate little, such as a utility stock and a semiconductor stock, are said to be low or even negatively correlated (if they move opposite to each other). This is where the biggest diversification benefit is achieved,” he adds.
“This is why general diversification among 10 to 15 stocks is ‘bad diversification’ if they are all banking stocks or technology stocks, because they are highly correlated.”
Japanese equities were down 12% on 5 August 2024 as financial markets were hit by a perfect storm; the Bank of Japan announced a surprise rate hike last week, combined with a weak US jobs report that kickstarted risk reduction across many markets.
Saxo reports financial markets were already shaky last Friday, with the weak US jobs data triggering debate about whether the Fed made a mistake by keeping interest rates too high for too long.
Last Friday then exploded into significant risk reduction, and a historic move in Japanese equities were down 12%. Saxo reports this was the biggest single day decline in Japanese equities going back as far as 1959.
The S&P/ASX200 was also in turmoil and is again today lower, dropping 20.90 points or 0.27% to 7,678.90 as of 1pm AEST. The index has lost 5.37% for the past five days but has gained 1.16% over the last year-to-date.
Saxo Options Strategist Koen Hoorelbeke says experienced investors remain calm during turbulent times such as these and take advantage of opportunities that arise.
Despite the turmoil, they remain active in the market and continue buying stocks because they believe that markets will recover in the long run, and that declines present good buying opportunities, Hoorelbeke adds.
Saxo is a wholly owned licensed subsidiary of the Copenhagen-based Saxo Bank, which holds more than US$100 billion in client assets, has over 1 million clients worldwide, and 30 years-plus of financial market experience.
Write to Adam Orlando at Mining.com.au
Images: Saxo
