Global markets are in turmoil, with US President Donald Trump’s trade tariffs rattling investors. The S&P 500 has dropped 5 per cent so far this year, as fears of job losses and recession grow.
As ever, investors will respond to market volatility in different ways. Some embrace it, while others run for cover.
If you’re looking to invest $10,000 (Dh36,700) over the second quarter, here are three potential strategies.
The first involves sitting out the turbulence in low-risk asset classes, the second explores a recovering rival to the US, while the third is for risk takers.
As with any investment, always consider both the risks and rewards and aim to hold for the long term.
1. Safe ports in the storm
Many investors will be tempted to seek safety in lower-risk assets like cash, bonds and gold, says Vijay Valecha, chief investment officer at Century Financial. “Given the uncertainty, these are now a reasonable strategy.”
Even safe assets have risks though. Inflation could erode cash savings, while bond markets are vulnerable to interest rate moves.
Inflation remains a wild card, Mr Valecha says. “If it stays high, the Federal Reserve may delay interest rate cuts, keeping bond yields high.”
Paul Jackson, global head of asset allocation research at Invesco, calls cash “the ultimate diversifier”. “It has little volatility and limited correlation to other assets.”
The European Central Bank, Bank of England and other central bankers have started cutting interest rates, but cash should continue to offer a solid return, Mr Jackson adds. “I think the rate of easing will now slow, with rates staying higher for longer.”
Tony Hallside, chief executive of Dubai-based brokers STP Partners, says both cash and short-duration government bonds offer solid yields. “That’s something we haven’t seen in over a decade. For capital preservation with upside optionality, the combination is hard to ignore.”
Jacob Falkencrone, global head of investment strategy at Saxo Bank, also favours cash and short-term government bonds. “They offer stability and liquidity, crucial in volatile periods, while today’s attractive yields can sustain purchasing power.”
Gold is the oldest safe haven of them all, and today’s insecurity has driven the price to a record high of $3,133 an ounce, up almost 19 per cent this year alone.
However, Mr Jackson warns it’s now more expensive in real terms than at any point in the past 150 years. “While further volatility in US policy or recession could push gold higher, an outbreak of peace could undermine it.”
Verdict: There are strong arguments in favour of playing safe today, but beware of gold. Despite its reputation, the price has been highly volatile in the past and could be again. As ever in investing, diversification is the ultimate protection.
2. Is Europe the smart bet right now?
While Wall Street falls, Europe is climbing. Investors should not overlook the quiet momentum building in European equities, says Mr Hallside at STP Partners.
“Germany’s pivot towards industrial rearmament and broader EU fiscal initiatives suggest we are at the early stages of a multiyear recovery story,” he adds.
Saxo Bank's Mr Falkencrone says Europe is at an inflection point. “Mr Trump’s withdrawal from traditional alliances has pushed the continent towards unprecedented self-reliance, particularly in defence and infrastructure.”
Defence and aerospace stocks will directly benefit from surging European military expenditure, while the infrastructure and industrial sectors should capitalise on the region’s extensive rebuilding and reshoring efforts, he says.
“Green energy and technology leaders will be winners from Europe’s accelerating drive towards energy independence and digital sovereignty.”
European stock valuations remain attractive relative to the US, but risks include “fiscal implementation and potential political fragmentation within the EU”, Mr Falkencrone says.
He suggests defensive sectors such as health care and utilities may add stability for those targeting Europe.
Mathieu Racheter, head of equity strategy research at Julius Baer, says Germany’s decision to lift its debt brake could boost gross domestic product but it will only see the full impact next year. Instead, he favours Switzerland.
“Swiss large caps provide defensive stability, while mid-caps present an even more compelling opportunity given their pro-cyclical nature and the improving European growth outlook,” he adds.
Swiss mid-caps have outperformed global equities historically, thanks to strong balance sheets and steady earnings growth. “With 60 per cent of their revenue coming from continental Europe, they’re well-placed to ride the wave of fiscal stimulus.”
Verdict: Europe could rise while the US falls, but there are no guarantees. If Mr Trump changes track, Wall Street could come storming back.
3. Are you ready for a wild ride?
Not every investor fears the current volatility. Some brave souls may race to embrace it.
And what better way to ride the tiger today than by investing in Elon Musk's electric car maker, Tesla?
Tesla’s stock is down around 30 per cent this year, hit by trade war risks, Mr Musk’s political controversies, and rising electric vehicle competition.
Mr Falkencrone at Saxo Bank says the dip may tempt bargain seekers but warns: “A lower stock price doesn’t automatically mean value.”
He says Tesla’s future relies on uncertain bets like autonomous driving and robotaxis. “Tesla depends heavily on China, and worsening US-China relations could damage sales and profitability.”
Traditional car makers and new Chinese competitors like BYD are rapidly gaining ground, rolling out fresh EV models at a faster pace, Mr Falkencrone adds.
“Any investment should be part of a carefully sized, long-term speculative position rather than a bet based solely on recent price declines.”
Mr Valecha at Century Financial says Tesla has a huge opportunity, but not in electric cars. “According to Elon Musk's vision, Tesla is more than just an automotive firm. It's an AI and robotics company, with visionary products such as autonomous vehicles and robotaxis.”
This vision is shared by star fund manager Cathie Wood of ARK Invest, who predicts Tesla shares could rise 10-fold, driven by its robotaxi plans.
Tesla aims to combine autonomous vehicles with a ride-sharing model, allowing owners to rent out their Teslas like an Airbnb for cars. “If it works, it could be a major revenue driver,” says Mr Valecha.
Tesla remains one of the most volatile stocks on the market. For investors willing to take the risk, the potential rewards could be enormous.
Verdict: Tempted? Then buckle up. Tesla has always been a bumpy ride, but never more so than now.
