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July Investment outlook

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Fuelled by the hope that the US-China trade war still might be resolved, global equity markets have recovered from the May sell-off. Hence, guided by the optimism due to monetary stimulus from the Federal Reserve and the European Central Bank, risk assets such as credit and equities, rallied simultaneously with the safe haven assets, such as gold and developed market bonds, which may seem counterintuitive, however loosening of monetary is beneficial for both safe haven assets as well as for equities.

During a month in which optimism was predominant, the traditionally defensive and less sensitive to the business cycle stocks (healthcare, real estate, utilities) were lagging, while the markets have been led by the energy, materials and tech stocks: as a consequence of a weakening US dollar and heightened geopolitical tensions, the gold prices have achieved their six-year highs and an incident which involved the oil tankers in the Gulf of Oman along with the US inventories dipping have made the oil prices climb, which, consequently, has fuelled the share prices of energy stocks.

Looking forward and combining the willingness to remain invested while sticking to the conservative strategy, high risk corporate bonds with the maturity date within the next few years can be considered in order to mitigate the interest-rate risk since the longer-term bonds are more sensitive to the changes in interest rates. As a hedge against default risk, bonds of the large reputable companies should be chosen.

As for the risk seeking investors, keeping a share of the portfolio invested in cryptocurrencies remains relevant, taking the most recent Bitcoin rally as well as a low degree of correlation between the cryptocurrency and global equity market dynamics into account.

To sum up, instead of attempting to adjust the portfolio for a certain outcome of the binary political scenarios (e.g. Brexit, US-China trade war), investors should be focusing on minimising the volatility associated with the investments, which is here to stay until the major political and economic conflicts come to a resolution.

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