HOW TO INVEST WHEN MARKETS PEAK?
By The Forex Review - 04 / April / 23 390
Dominick Bell
1. Are high-yield bonds worth buying or are the cash-saturated throwaway bond markets worth buying?
Currently, the difference between sovereign debt and high-yield debt yields is becoming more and more limited at around 4%.
Nevertheless, the default rate on high-yield debt remains low, hence the possibility of choosing to diversify investments in this niche.
2. Does the rise in Swiss and U.S. stock prices explain the increase in listed companies' profits? And is this increase proportional or is there no correlation between the two?
Stock prices correlate with changes in earnings of listed companies in the long run. In the short term, on the other hand, interest rates have more of an impact on prices.
When the latter fall sharply, you can see valuation multiples increase, causing prices to rise more than earnings. Current levels do not suggest further multiple expansions.
3. The stock market is doing well, but which securities present attractive investment opportunities and profit opportunities? What to choose: SMI or small capitalizations?
The Swiss stock market is influenced by trends typical of international financial markets. The European economy has gained momentum with the profits of stocks in the small- and mid-cap segment.
These are gems of the stock market, except that current prices are stretched and it is better to wait until a consolidation or correction presents itself to be interested in them.
Larger structures would be more interested in waiting for changes in business models specializing in new technologies.
4. To what extent is the Swiss franc still a safe haven?
The Swiss franc is still a safe haven, although it has fallen slightly against the euro.
The Swiss currency is strengthened by the country's healthy economy, which continues to generate a current account surplus, reinforcing the franc's status as a safe haven.
5. How will the closing of asset purchase programs offered by the ECB and the Fed affect investors?
Central banks play a key role in regulating the economy and liquidity exchanged in markets.
Investors should take seriously the fact that the ECB and the Fed are seeking a gradual normalization of their monetary policy.
A fact that will have some impact on interest rates and the economic cycle, closely related to the evolution of assets in the future.
Until then, the cycle is still on the upswing and the inflationary effect is well controlled, but after that we should expect some changes.
6. Is real estate investing in Switzerland still attractive given the booming markets?
Real estate is a good investment for asset diversification and returns. Real estate funds listed in Switzerland are crossing particularly high thresholds even after the corrective actions taken in July.
These funds will always be interesting in the medium term, providing a return of 3%.
7. If the tax reform proposed by the U.S. president fails, how might such a scenario affect U.S. markets?
The U.S. president has planned reform of the country's tax system, and a major component of that reform is tax cuts.
However, one must consider the influence of the two chambers, which do not support deep reform with unfunded tax cuts.
If there is no progress in this direction, we can expect a negative reaction from the U.S. stock market, leading to a penalty on U.S. stocks.
8. Is it possible that Forex investments will replace investments in stocks or bonds? And if so, which currencies should you focus on?
When an investor invests in stocks or bonds outside of their base currency, they are exposed to currency risk. It would be difficult to invest only in currency pairs.
In addition, there are few professionals who can achieve systematic profitability with such investments. Therefore, it is not advisable to substitute traditional investments for Forex.
9. Owning a portfolio of 800,000 Swiss francs and thinking that it makes sense to sell it and keep the result of the sales in a savings account to preserve its value at the current price? In this regard, the value of the mandate equals or exceeds the return, which is the best option?
Savings accounts are not as profitable these days, and they are sometimes punished by negative rates. Hence the interest in choosing to diversify your investments.
Swiss pension funds, most of whose investments are made in Switzerland and in the local currency, have provided an average annual return of 5% over the past 5 years. Thus, we can conclude that a diversified portfolio with more risk than cash guarantees guarantees a return that exceeds management costs.
10. What to do with cash?
Before making any investment, the investor must assess whether it is possible for him to invest his funds in the medium and long term. He must also decide what level of loss he can tolerate.
This approach will allow him to choose the most appropriate investment for his risk profile. Only then can he decide on the type of investment. And why not invest moderate amounts in a variety of investment funds.
11. In terms of equity capital, which geographic areas are long and short position investors? And why?
Although international investors have not paid much attention to the Japanese market, it has proven to be a very interesting market because of its excellent earnings forecast and valuation multiples.
On the other hand, the European market is still buoyed by favorable valuations. Better to juggle overweight or underweight.
12. How do you evaluate the impact of political decisions in your analysis?
Cyclical analysis, which tracks growth and inflation rates, has the strongest impact on changes in financial asset prices.
When political decisions affect these two variables, they should be considered in your analysis. Geopolitical risks, often discussed in the media, have only a minimal impact on financial asset prices.
13. The Catalan crisis led to a significant drop in the Spanish stock market. Would it be interesting to buy Spanish stocks in such a context? What is the most favorable sector?
The Catalan problem is a source of uncertainty for investors worried about local economic dynamics. This explains the exits from the financial markets.
But this crisis is temporary and there will be no separation of the region from the rest of the country, so this uncertainty will disappear. Falling prices may provide an opportunity to open a position in some sanctioned securities, such as those of major banks.
14. Is the protection offered by a mixed stock/bond fund better than a mixed ETF portfolio, especially in a sudden 10% drop in a few days?
The diversification of the portfolio is based on having three families of complementary assets, namely stocks, bonds and real estate.
It can be composed of securities, investment funds or index investment funds, or even all three at the same time. Therefore, the performance will be the same whether it increases or decreases.
15. Stocks are characterized by their volatility with consecutive bullish or bearish peaks. Which strategy should we adopt? Should we buy or hold securities, betting on the valuation of companies and their growth potential?
Thanks to the fact that the economic cycle has held up well internationally and its positive impact on earnings structures, stocks are following an uptrend in major markets.
After a long period of poor performance, the latter have returned to the high levels reached in 2017. This explains why valuations are very expensive, but without exaggeration.
It is possible to maintain your portfolio by generating profits on positions with strong progression. It becomes necessary to rely on deep analysis of business models, especially with the breakthrough trends that have turned old models upside down. Yesterday's champions are not necessarily in the future.
16. Do weak central bank policies make fundamental analysis and chart analysis ineffective?
Since 2009, central banks have actively intervened in financial markets through massive bond purchases, hampering investor analysis.
The liquidity that has overwhelmed the markets has greatly reduced the difference in returns across asset classes. This is why flow analysis is becoming as necessary as fundamentals analysis.
17. Should we fear a bubble because of significant stock market growth?
To cause a bubble, most investors must have investments in the same leveraged asset class.
But investors are much more cautious these days, which explains why they have a lot of cash in their portfolios. The current growth in the stock market poses no potential bubble risk.
This article was wrote by support of the site forexsniper.info
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