Patience in the first place

On the one hand, there are the negative factors that are currently largely influencing events on the global stage; on the other hand, there is the fact that sell-offs in equity markets can also present a potential buying opportunity at lower prices. This is essentially the same principle as the seasonal sales in the shops. Everybody wants to buy bargains. In this case, however, 'brave investors' must be extremely patient, as a turnaround to a bull market may not be in sight and the road to it is still very long, not to mention the high level of risk that may not suit every investor.

Focus on the countercyclical sector

As a result of uncertain economic and political developments, investors are becoming increasingly cautious and seeking safety at the expense of profits.  The key to success in the current environment is not only a long-term time horizon, but also portfolio diversification. Instead of cyclical stocks, which tend to rise in times of expansion and fall in times of recession, it is a good idea to focus on defensive, i.e. countercyclical, sectors. These are companies that should provide steady growth and dividends no matter what stage the stock markets are in. Moreover, they are not subject to excessive volatility, which can be verified through the Beta indicator. Although they do not offer significant growth potential, they help protect the portfolio from deep declines in value during bear trends and tend to outperform the overall market during such periods. At the same time, they can be an excellent addition to a portfolio even on a stable basis.

What to look for?

Anti-cyclical companies are inherently more stable and represent areas where people spend almost equal amounts of money in both periods of growth and downturns. Given that almost no one goes without food, companies such as Unilever or Coca-Cola may be of interest in this regard. The same applies to medicines and toiletries. Interesting sectors are, for example, healthcare or insurance. The more indispensable products and services are to society, the more resilient a company's shares are to economic cycles.

Precious metals

Any experienced investor knows that precious metals, led by gold, are a safe haven that is also an effective tool for diversifying an investment portfolio. Although 2022 has not been a good year for the development of the gold price, the tide seems to have turned in the last three months. Let's see if the established trend is maintained in the new year.

It is likely that equity markets will maintain a bearish trend in the coming weeks to months due to high inflation and associated high interest rates. However, if inflation starts to gradually decline, it could bring a wave of positive sentiment to the equity markets as well. In any case, investors must expect continued higher volatility across asset classes and should adjust their investment strategy accordingly.

Olivia Lacenova, analyst at Wonderinterest Trading Ltd.