At Black Swan Capital Europe, we see an important part of our job in supporting our clients to be the rational and objective consideration of market conditions. Though our focus will always be on target-based investment, we must also consider how short-term actions and environmental conditions may present risks to the longer term.
The combined effects of the Covid-19 pandemic and 2020 oil crisis caused the fastest 20% drop ever recorded in global stock markets. This has been followed by the one of the fastest market recoveries in history, driven by a combination of government or central bank intervention and retail investor speculation in distressed assets.
We believe that as the markets have now recovered as strongly as they have and in the context of prevailing economic indicators, that this may present an unusually high but concealed potential risk to short or medium-term investors.
Risk 1: The unprecedented government injections of liquidity that are flowing into the economy and the stock market must come from somewhere, which may severely harm the market for sovereign bonds and government liquidity, or may lead to higher inflation as central banks respond further.
Risk 2: The speculative overvaluation of distressed corporations may be unsustainable if these companies fail to recover and generate profits. This can result in another stock market fall.
These factors create converging, but often conflicting risks. For this reason, we are continuing to advise caution for our clients, even as stock markets rise.
We acknowledge and consider at all times that we may be wrong. For this reason, we consistently encourage diversification and a highly flexible investment position for all investors. However, we feel that many people might choose to err on the side of caution right now.
For most of our clients we advocate consistency with their strategic asset allocation in line with their long-term objectives. In line with the consistent strategic asset allocation, for some clients, tactical asset adjustments are required to manage the more immediate term volatility. The use of tactical asset adjustments within the framework of strategic asset allocation, tailored for each client’s specific situation and needs, we believe, is the most appropriate course of action.
We will continue to reach out to each and every one of our clients to discuss how to balance protecting against short-term threats like these while benefitting from positive market trends, and maintaining a clear focus on progress towards longer-term financial goals.
If you have questions about how recent economic, political, social and environmental events may affect your investments or how they may develop in the near future, please do not hesitate to contact us for advice at [email protected], directly to your Black Swan Capital adviser, or through our website.
This market commentary does not constitute personalised financial or investment advice. Please seek advice on your personal circumstances before taking action to ensure it is appropriate for your specific circumstances.
Black Swan Capital B.V. is registered in the Netherlands, KvK number 72368039.
Registered address: Herengracht 282, 1016 BX Amsterdam, Netherlands