Why investors should review their portfolios amid recession fears

The world economy is set to face a recession, with inflation on the rise, geopolitical tensions spreading and the global supply chain still struggling to recover.

The probability of a soft landing is unlikely and two to three problematic quarters appear to be looming as central banks continue to increase interest rates to combat inflation.

However, that is not great news for riskier assets such as stocks.

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Watch: what is a recession?

The interest rate hikes have also affected bonds on the secondary market: their returns are now more palatable and their value has suffered a hit, but this has been reflected in the overall value of even the most cautious existing asset allocations

For more than a decade, stocks were on a bull run, fuelled by expansive monetary policies, both conventional and more “creative”, by central banks.

I’ve been critical of these policies as I believe that such a prolonged period of massive stimulus has created a situation in which it has only partly ended up in the real economy, ultimately “doping” the stock market — and all financial markets in general — beyond measure.

The cheap credit also created bubble-like situations in some real estate markets globally, which could, in turn, lead to issues for the banking sector.

In this scenario, wise investors may have continuously rebalanced their investment portfolios to take advantage of the stock market bull run to keep their desired risk exposure, resulting in a rising cash component.

However, it may not have been reallocated to the bond market, as extremely low interest rates typically don't encourage exposure to investment-grade bonds given the risk related to the rise in interest rates.

Inflation or recession: which is worse for investors?

Global stock markets tumble as recession fears continue to grow

This ultimately ends with a manageable exposure to risky assets and reduced volatility of returns in the overall portfolio.

So, what must investors do now that stock markets are in bear territory? I believe central banks may have learnt a lesson and might seize the opportunity to normalise their policies, as they are doing with interest rates.

However, interest rates might be close to their peak, as we can see an uptick in unemployment data in the US and news of big players such as Facebook owner Meta planning massive layoffs making the headlines.

In the absence of further shocks on energy prices, this could also affect Consumer Price Index data, which is one of the most important indicators for central banks in their monetary policy decisions and lead them to slow down the pace of rising rates, or even bring them to a halt.

In this scenario, it makes sense to start buying bonds on primary markets in a buy-and-hold perspective and cherry pick bonds on the secondary market, even on a speculative approach.

Investors should consider building this component of their portfolios now — when interest rate rises start to slow, the market will react immediately.

As for the stock market, there are already some good buying opportunities in the technology sector, which has been among the biggest losers in 2022.

The excess of cash should be gradually reallocated to seize opportunities that financial markets are offering now and in the future.

Has the risky asset market bottomed? Can we move in and fill up the stock-related part of our portfolios?

I still think that there are downside risks to consider, especially if central banks don't indulge in any new “creative” monetary policies.

Therefore, we should resist the temptation of rushing into a buying frenzy to avoid exceeding our comfort zone in terms of risk tolerance.

That is closer to gambling than investing — and, more often than not, leads to disappointment.

Roberto d’Ambrosio is the chief executive of Axiory Global

The burning issue

The internal combustion engine is facing a watershed moment – major manufacturer Volvo is to stop producing petroleum-powered vehicles by 2021 and countries in Europe, including the UK, have vowed to ban their sale before 2040. The National takes a look at the story of one of the most successful technologies of the last 100 years and how it has impacted life in the UAE.

Read part three: the age of the electric vehicle begins

Read part two: how climate change drove the race for an alternative

Read part one: how cars came to the UAE

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5pm: Al Maha Stables – Maiden (PA) Dh80,000 (Turf) 1,600m

5.30pm: Wathba Stallions Cup – Maiden (PA) Dh70,000 (T) 1,600m

6pm: Emirates Fillies Classic – Prestige (PA) Dh100,000 (T) 1,600m

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7.30pm: The President’s Cup – Listed (TB) Dh380,000 (T) 1,400m

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ELIO

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The National Archives, Abu Dhabi

Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.

Much of the material can be viewed on line at the Arabian Gulf Digital Archive - https://www.agda.ae/en

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The British in India: Three Centuries of Ambition and Experience

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Allen Lane

The Facility’s Versatility

Between the start of the 2020 IPL on September 20, and the end of the Pakistan Super League this coming Thursday, the Zayed Cricket Stadium has had an unprecedented amount of traffic.
Never before has a ground in this country – or perhaps anywhere in the world – had such a volume of major-match cricket.
And yet scoring has remained high, and Abu Dhabi has seen some classic encounters in every format of the game.

October 18, IPL, Kolkata Knight Riders tied with Sunrisers Hyderabad
The two playoff-chasing sides put on 163 apiece, before Kolkata went on to win the Super Over

January 8, ODI, UAE beat Ireland by six wickets
A century by CP Rizwan underpinned one of UAE’s greatest ever wins, as they chased 270 to win with an over to spare

February 6, T10, Northern Warriors beat Delhi Bulls by eight wickets
The final of the T10 was chiefly memorable for a ferocious over of fast bowling from Fidel Edwards to Nicholas Pooran

March 14, Test, Afghanistan beat Zimbabwe by six wickets
Eleven wickets for Rashid Khan, 1,305 runs scored in five days, and a last session finish

June 17, PSL, Islamabad United beat Peshawar Zalmi by 15 runs
Usman Khawaja scored a hundred as Islamabad posted the highest score ever by a Pakistan team in T20 cricket

Paris Can Wait
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Starring: Alec Baldwin, Diane Lane, Arnaud Viard
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Benefits of first-time home buyers' scheme

Priority access to new homes from participating developers
Discounts on sales price of off-plan units
Flexible payment plans from developers
Mortgages with better interest rates, faster approval times and reduced fees
DLD registration fee can be paid through banks or credit cards at zero interest rates

Tearful appearance

Chancellor Rachel Reeves set markets on edge as she appeared visibly distraught in parliament on Wednesday.

Legislative setbacks for the government have blown a new hole in the budgetary calculations at a time when the deficit is stubbornly large and the economy is struggling to grow.

She appeared with Keir Starmer on Thursday and the pair embraced, but he had failed to give her his backing as she cried a day earlier.

A spokesman said her upset demeanour was due to a personal matter.