Financial markets flew into 2022 on the back of global economic tailwinds, but that environment soon shifted after the start of the year. It has been a tough six months for expat investors who are trying to create, grow and protect their wealth for themselves and loved ones. Almost all risk assets fell considerably in value during the first half of 2022. Equity markets corrected, and the doubling of U.S. Treasury rates put pressure on the bond market. It was the worst of worlds for investors as the double whammy made maintaining a diversified portfolio more challenging.
Inflation was the root cause of the problem, hitting 40-year highs in some countries, including the UK and the U.S. It was a similar story around the world. And so central banks face a dilemma. Their current aim is to make money more expensive in order to weaken demand and bring down wage growth – but without causing mass unemployment and triggering a recession. When it comes to inflation protection, expats investors wanting both capital appreciation and capital preservation in this current landscape, should also consider diversifying into less traditional asset classes. These could include venture capital, structured products, high dividend stocks, hedge funds and managed futures, and real estate, amongst others. Why? Because, as we’ve seen throughout 2022 so far, rising interest rates, amid weakening business and household demand, is bad news for both bond and stock markets. Meanwhile inflation will eat into company profit margins for many companies, particularly those selling discretionary products that businesses and consumers can delay purchasing. In this turbulent environment, investors should consider less familiar, return-enhancing asset classes which could include venture capital, structured products, high dividend stocks, hedge funds and managed futures, and real estate, amongst others. They are also likely to increase diversification and reduce volatility, due to their low correlations to the more traditional investments; and they can hedge some portfolio exposures.
Reasons to be cheerful
Despite the rocky first half of the year, some experts say there are reasons for expat investors to be cheerful for the six months ahead. deVere Group CEO Nigel Green says: “Our latest thinking is that inflation could be peaking soon, and we expect it to decelerate through the rest of this year. This will be bullish for stocks.” He goes on to say that as markets continue to be unsteady in the near-term, investors will be using the downturn to their financial advantage by topping-up their portfolios with quality stocks at lower prices. The serial investor and entrepreneur also flags that China is beginning to loosen its strict Covid restrictions which will help ease global supply chain disruption which is positive for companies and consumers. In addition, he notes that financial markets have already priced-in much of the bad news from geopolitical issues, “meaning there should be less wild swings in the months ahead.” After a difficult start to the year, the rest of 2022 will likely be volatile too – but, as ever, there’s much to be done to grow your wealth and a good independent financial adviser will help you seize the opportunities.