As trade tensions escalate and continue to create near-term uncertainty , I believe that long-term investors should remain focused on the fundamentals and stay the course.
Focus on earnings
Earnings remain the core reason why stocks and equities remain appealing – with higher earnings, companies can pay out dividends, return value to shareholders through stock buybacks and increase investment; all are positive influence for long-term investment value.
In the US, corporate earnings have remained strong over the past couple of years, and are expected to remain solid while inflation and unemployment remains low at 2% and 4% respectively.
Be aware of the risks
While you should not be overly concerned about the risks in the global environment at present, you should at least be aware of some of the risks as they may lead to some short term tactical tilts which you can pursue. For example, the Fed has risen interest rates to the range of 2-2.25% – which has been largely priced in by the market. Should inflation or wage growth be extreme, then an accelerated increase in interest rates could mean that financial markets could turn into turmoil.
Protectionist trade policies by the US could further escalate into further trade tensions and risk alienating the US from global supply chains and increase the cost of business. Countries which are export dependent like Singapore could also see headwinds when it comes to earnings growth.
I have personally tilted towards a diversified portfolio of international ETFs to keep my asset allocation strategy right. While diversification doesn’t give you exciting returns, it keeps your investing strategy grounded and reduces idiosyncratic risks, and helps keep your investing strategy simple and low cost.
I like to remain invested in risky assets like equities. There is a popular saying that bull markets don’t die of old age, but in excess. I would like to believe that the current market has room to grow further, supported by healthy earnings, technology improvements, productivity growth and low inflation.