As global recession risks surge, investors need to be prepared
Investors need to review their portfolios sooner rather than later to sidestep risks, as a global recession looks increasingly on the cards this year.
Major economies across the world are reporting a growth slowdown and weak forecasts for the remainder of 2022. Indeed, the International Monetary Fund head said earlier this week that it is downgrading its global economic growth forecast due to the impact of Russia’s invasion of Ukraine.
Before Russia invaded Ukraine and subsequent sanctions were imposed as a result, costs of raw materials, energy, manufacturing parts and consumer goods were all soaring at the fastest pace since the 80s due to supply chain problems stemming from the pandemic.
However, as I was quoted by Investor Ideas, Value Walk and Middle East & North Africa Financial Network, amongst other media, this has intensified since the war broke out. Global supplies are now at breaking point, which then affects global production and, in turn, output, investment and jobs. So, as businesses pass down these costs to consumers, households will undoubtedly reduce other spending.
As such, against this backdrop, developed economies are accepting the fact they’re facing the increasing prospect of a recession this year due to these ongoing supply chain disruptions and red-hot inflation not seen since the 1970s.
Moreover, developing countries will likely be severely impacted by the outcome of higher energy and food prices, coupled with tougher financial conditions sparked by increasing interest rates in advanced economies in an attempt to curb inflation.
The recession threat is at its highest in Europe due to the region’s economic ties with Russia and Ukraine and its dependence on Russian energy, which will exacerbate the challenges.
So, we can see how geopolitics can make a considerable impact on investment returns as it generates uncertainty. How may investors react?
Geopolitical risks usually tend to drive investors away from riskier assets and more towards perceived safe assets. Yet this also needs careful thought.
As an example, cash is often perceived as a ‘safe haven’ during bouts of volatility, but it will be negatively affected by skyrocketing inflation. Rampant inflation means excess cash in bank accounts will result in real value losses. Not really a safe haven then to build long-term wealth.
Therefore, as global recession risks increase, the one clear way for investors to maximise returns relative to risk is sufficient portfolio diversification. A balanced mix of asset classes, sectors, regions and currencies offers protection from market shocks.
Of course, a good fund manager will help investors make the most of the opportunities brought about by volatility and avoid possible risks when they arise.
A mixture of supply side problems, surging prices, growing business and consumer uncertainty, and a growth and employment slowdown mean global recession risks are on the up. As such, investors should review their portfolios now to make sure they are best-positioned. Click here for my YouTube, LinkedIn profile and Twitter accounts.