UNDERSTANDING 'RISK ASSETS' AND 'SAFE HEAVEN ASSETS’

"It is obvious for one to think that these 2 asset classes are inversely correlated. However, there are interesting times like these, when there is no textbook direct or inverse correlation between these asset classes."

Here are a few examples that will confuse you further

• The dollar index (DXY) has risen by 5%+ in the last 6 months and Emerging Country equity markets including India have not been bearish. They have handsomely discounted Russian War, Inflation, and Fed Rate Hikes

• Inspite of FII selling, emerging market indices are bullish or sideways. Additionally, Emerging country markets are showing relative strength compared to the USA, Japan, and European markets

• Bond ETFs – 20 yr, 7-10 yr & 3-7 yr all 3 categories have given up all gains since 2018. bond yields are at 2-year Highs. Inspite of this, Developed country equity markets are making lower lows

• Gold (USD rates) hit all-time highs in March during the break of the Russian war and is still within the 5% range of the ATH. However, Silver, Palladium, and Platinum are still 15-20% away from the ATH range and are still trading in consolidation

• Natural Gas has risen from $4.4 to $6.8 – a 51% rise since the breaking of the Russian war. At the same time, Brent Crude has gone up from $90 to $138 but given up all gains and currently trading at 103 – a net rise of 15%

Plan of action during such times

• Invest slow and steady in a story one is very confident

• Have some loose ends to the number-based rules in one’s trading system. One should use the gut feel at times and decide to buy or sell inspite of some rules not being satisfied in your system – here, I am assuming the reader has a trading & investing system in place

• Gradually, increase weightage as the portfolio risk reduces. Resist anticipatory trades

I hope this article adds value to your investment decisions. Do share your feedback with me at devang@vkabras.com, call me at +91 99229 32214 to engage further. Visit www.devangkabra.com to know more…