With the ever-changing external environment, investors today generally see a lot of uncertainty when it comes to stock price behavior. Aspects that are generally kept in mind include market timing and selection of stocks for modest investments. However, this is not as simple as going to a candy shop and selecting the one with dazzling appearance or with a cheap price tag. We believe that a coordinated stimulus is needed as an inter-play of three factors that can drive prices while making or breaking for an investor’s returns.
Fiscal boost: Fiscal boost has been understood to keep aggregate demand from deteriorating when the broader monetary aggregates are falling which may be due to credit crunch or a liquidity issue. This is distinct from bringing about a recovery. A fiscal boost is generally known to postpone the fall in spending. Postponing this fall may be helpful in preventing economic crash. Currently, the financial markets are following the election of Donald Trump as President of the United States. Standard and Poor’s affirmed the United States’ credit rating following Trump’s election win as there are not any near-term implications. Currency market recovered with US dollar trading about 106 yen, up from 101 yen per dollar just after the outcome. Wall street saw higher closing of stocks post-election result. Investors have been hoping that his plan for infrastructure spending, tax cuts and lighter regulation will benefit the economy. Banks, drug makers and industrial companies have been highest gainers post the election aftermath. The Australian stock market which slumped just post the outcome, is also now trying to get back to stability with metals and mining sector-, financial sector-, and gold sector-driven stocks posting for gains.
Recovery in emerging markets: During the first eight months of 2016, the MSCI emerging –markets index advanced by 14.8% outpacing developed equities. As a trend, investors are putting in enormous money into emerging markets’ funds in 2016 post the large net outflow witnessed in 2015. Asset allocation funds have started gradually increasing the exposure to emerging markets. This is mainly owing to seeing signs of stability in GDP growth across emerging markets post a sluggish phase, rebound in commodity prices, growth in corporate earnings, contained inflation scenario in most emerging economies, and attractive valuations with deep discounts.
Balanced portfolio: The balancing of portfolio is a very crucial aspect to gain from the investments. The portfolio should be diversified across the industry sectors. By splitting share portfolio across sectors, the up and downs of sectors can very well balanced. The portfolio should not only stand on high yielding shares but the same should include technology, banking, telecommunication stocks, which have the potential to grow at much higher rate as compared to industry-related or defensive stocks. Certain picks of such categories that are doing well at the wake of Trump victory, include Emerchants Ltd, Data#3 Ltd, and National Australia Bank Ltd. One can also, at the helm of various indexes, compare whether their portfolio is underweight or overweight. Blue chip companies with little or no debt and steady revenue streams tend to be considered lower risk-driven and more likely to pay regular dividends. Depending on one’s priorities, the investor may have a higher or lower tolerance for risk in the portfolio. A diversification strategy helps in achieving consistent returns over time while reducing overall investment risk.
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