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May Investment Outlook

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An escalating trade battle between The United States and China has caused a decline in global stock markets – the cult-like “buy and hold” investment strategy may result into significant losses for passive investors.

Exporters of the natural resources are affected by the trade war the most – if economic deceleration was to happen in China, businesses that are operating in the oil & gas and steel production sectors would take the biggest hit as China is one of the major raw material consumers worldwide. Taking the impact of the news on the market prices, the period of political instability and global economic slowdown is an appropriate time for the reconsideration of the investment strategy. In order to protect the investments from the major market downturn, diversifying by increasing the share of the defensive assets in the portfolios appears to be a reasonable decision.

While the equity markets were on the rise, the majority of the investors remained skeptical of gold as an asset class. However, as both developed and emerging economies started cooling down, allocating part of the portfolio to gold could help to offset disastrous returns elsewhere. Moreover, a number of factors such as increased demand for gold in nanotechnology sector as well as the reducing rate of global gold extraction make gold a smart investment.

Investors with a higher risk appetite may want to consider cryptocurrencies during the times of political and economic uncertainty – the looming trade war between China and the U.S. has caused the weakening of Chinese Yuan. As U.S. tariffs went into effect, Chinese wealth flooded from the national currency into Bitcoin as a safe haven. As a result, over the next two days, the price of Bitcoin has gone up by almost 20%. For investors with the conservative investment approach, having 0.5-1% of the total portfolio value invested in cryptocurrencies is feasible – due to their asymmetric risk or, in other words, being uncorrelated to any other asset class, digital assets provide an excellent tool for portfolio management.

Following one of the investing golden rules, namely “Sell in May and go away”, which states that the period from November to April inclusive has a stronger stock market growth compared to other months, while during the May to October period stock markets are usually underperforming, the investors should avoid holding the stock during the summer period by either liquidating the stocks and holding the proceeds in cash or switching to low risk investments such as national debt, protective currencies, gold and then consequently re-acquiring the stocks in autumn.

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