Lately, opposition groups have brought down the Syrian regime. President Bashar al-Assad had to flee to Moscow.
This change at the head of Syria comes on top of a period full of political twists and turns and marked by geopolitical uncertainty. The South Korean president briefly imposed martial law before backing down under pressure from parliamentarians.
In France, the government fell after the vote on a motion of censure and the president, Emmanuel Macron, had to look for a new prime minister whose mission will be to adopt the 2025 budget.
The American economy “in great shape”
However, international financial markets remained relatively calm. They remain mainly influenced by fundamentals, namely the strength of the American economy, the global cycle of lowering key rates and the rise of artificial intelligence, all elements which should maintain the progression of stocks.
Although there is still optimism for risky assets next year, investors should make their portfolio more resilient.
Recently, the Chairman of the US Federal Reserve, Jerome Powell, estimated that the US economy was in “great shape”. He stressed that the risk of a sharper-than-expected slowdown in the job market is easing and that growth is turning out to be stronger than expected.
Correction risk
However, after a long period of equity market gains, there remains a risk of a correction, particularly if geopolitical conflicts begin to threaten the main oil supply routes, if US economic indicators disappoint or if the chain of events policies and priorities of the future President of the United States, Donald Trump, are proving more harmful than expected for growth and inflation.
Although there is still optimism for risky assets next year, investors should make their portfolio more resilient. Explanation in three points.
1. Maintain exposure to gold as a hedge
The price of an ounce of gold has consolidated in a range of 2600 to 2700 dollars in recent weeks but it should still be trending upwards. Gold purchases by international central banks reached their highest level of the year in October, according to the latest data from the International Monetary Fund, as China returned to the market in November after a six-month break.
Central banks will certainly continue to accumulate gold. The yellow metal should also benefit from the fall in US rates and the recovery in demand for gold-backed ETFs in a context of increased geopolitical uncertainty.
2. Use structured strategies to deal with possible bouts of volatility
Structured product strategies are a defensive way to stay invested. Indeed, they allow investors to remain exposed to continued progress in the stock markets while mitigating their vulnerability to a correction.
For example, an investor seeking to hedge his portfolio against short-term fluctuations may adopt a capital preservation strategy that allows for immediate gains or limits the magnitude of potential losses.
3. Consider allocating capital to hedge funds to achieve uncorrelated performance
Hedge funds are undoubtedly well placed to withstand possible bouts of volatility. Indeed, equity market neutral or global macro strategies and multi-strategy funds can take advantage of market inefficiency and macroeconomic fluctuations to generate an excess return compared to the market (alpha).
Thanks to their strict risk budgets, hedge funds have low historical correlation with stocks and bonds, which can also provide stability when markets are under pressure.
Investors should, however, be aware of the risks inherent in structured and alternative investments, including illiquidity, leverage and complexity.
