What asset classes to invest in amid market volatility

Consider diversifying your portfolio into safe havens like gold and bonds, and sectors like health care, clean energy, AI, FinTech and cyber security

A trader works at the New York Stock Exchange. Diversifying a portfolio helps mitigate the impact of volatility. Reuters

Recent geopolitical events have dramatically impacted global investment trends. The market is witnessing an uptick in panic buying, where investors make impulsive decisions driven by fear, rather than sound strategy.

Many central banks are taking steps to manage inflation through interest rate cuts and monetary policies, influencing investor sentiment. These actions affect everything from borrowing costs to bond yields, making it crucial for investors to remain vigilant.

Panic selling has become an increasingly common mistake, alongside other pitfalls such as chasing short-lived trends, failing to diversify, and missing out on significant opportunities.

However, in times of market volatility, one of the most critical principles remains the same: diversification. In unprecedented times, markets are notoriously unpredictable. While certain investments may lose value, others can surge, and spreading risk across various asset classes becomes essential.

Diversifying a portfolio – across stocks, bonds, real estate, commodities and different sectors and regions – helps mitigate the impact of volatility.

Investors should also keep an eye on sustainable investing trends. With the growing demand for renewable energy and clean technology, sectors focusing on environmental, social and governance (ESG) principles are becoming an essential part of a well-rounded portfolio.

This broad approach not only cushions against market swings but also positions investors to capitalise on opportunities in multiple areas.

Portfolio managers are encouraging clients to adopt a long-term view, focusing on balancing risk and reward amid global uncertainty. A well-defined strategy allows investors to buy undervalued assets, especially during downturns.

In addition to traditional diversification, private equity trends are also evolving. Companies are increasingly focusing on emerging markets, particularly in sectors such as health care, logistics and FinTech, where long-term growth prospects appear strong.

The key lies in strategic risk management and patience. One area often recommended for conservative investors during economic downturns is so-called “safe havens” such as government bonds, healthcare stocks, gold and cash equivalents, which tend to hold value or even appreciate in uncertain times.

Central banks’ ongoing efforts to stabilise inflation through interest rate adjustments play a crucial role in the performance of these safe-haven assets, particularly bonds, which tend to rise as interest rates fall.

On a macro level, ongoing geopolitical tensions, particularly in regions like the Middle East, are influencing market volatility. These tensions drive up commodity prices, disrupt global trade and steer many investors toward safe-haven assets.

As a result, financial markets can experience instability. To navigate these choppy waters, diversifying into commodities and equities in sectors that perform well during inflationary periods, such as energy, oil and fast-moving consumer goods (FMCG), becomes crucial.

Artificial intelligence and automation are rapidly shaping sectors such as technology and finance, presenting unique investment opportunities in industries geared towards automation and digitisation.

As inflation is easing in some regions, it is contributing to the expectation of future interest rate cuts, which could signal a shift in market dynamics.

For investors, this is an opportunity to reassess their reliance on energy-related assets and consider the broader range of growth opportunities, particularly in regions like the UAE.

While strong oil revenues have historically been a safe bet, sectors like technology, real estate, health care and tourism are gaining prominence as part of the UAE’s economic diversification strategy.

Governments in the Middle East are increasingly focused on creating growth in non-oil sectors. By promoting real estate, technology, travel and tourism, they are fostering a business-friendly environment for both residents and expatriates.

Additionally, the region’s drive for digital transformation has unlocked significant potential in areas like FinTech, AI and cyber security.

Diversifying a portfolio – across stocks, bonds, real estate, commodities and different sectors and regions – helps to mitigate the impact of volatility

Jose Thomas,
director, wealth management, Elixir Wealth

Health care, logistics and smart city developments are thriving due to government-backed innovation and infrastructure projects, offering lucrative opportunities for forward-thinking investors.

Sustainability is also becoming a key theme in the UAE’s investment landscape. With a strong focus on renewable energy and green building practices, the region is positioning itself as a leader in sustainable development.

Investors looking for long-term, responsible investments are finding attractive opportunities in clean energy and green tech sectors, which align with global ESG goals.

For local investors, staying informed about economic reforms – such as new tax regulations and foreign investment laws – is critical. These reforms are designed to create a more sustainable and competitive economic environment over the long term. This will, ultimately, benefit investors who position themselves accordingly.

In times of uncertainty, cultivating sound financial habits is paramount. Maintaining a diversified portfolio, regularly rebalancing, focusing on long-term goals, and employing disciplined strategies like dollar-cost averaging are proven methods to sustain growth through short-term volatility.

Jose Thomas is director of wealth management at Elixir Wealth Private