Overweight or underweight in equities?

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Celebrity economist Nouriel Roubini recently began humming a happy tune for investors: “A global recovery is going to occur, so you might want to be marginally overweight in equities,” he said. Marginally? From him such a suggestion sounds bullish. Back in March 2009, the Great Roubini was widely quoted saying “6 reasons I’m calling a bottom and a new bull.” Since then, the markets did not stop rising.

Similar market predictions may sound easy to conclude for professional investors and fund managers who have nothing else on their agendas, but to monitor the markets and watch the financial news. However, for retail traders who sneak into the trading platforms during their working hours to gamble a portion of their salary or even a loan with the hope to make some extra cash for weekend expenses, market predictions may come at a high price. The lack of time affects their market research activities, which may lead to fatal mistakes, while valuable information comes at a price which is not usually low. In addition, it takes time to learn how markets and different trading platforms work and for most of the people the learning period lasts over three years or more. If you are not a native English speaker, it may take you even longer to learn to trade with confidence and most importantly to make profits.

Here as a helpful tip: since the last summer CNBC Arabiya’s presenter Joe Hawa offers an insightful commentary on the market currents in Arabic at Alpari.ae newsroom. The page is updated several times a day and the analyses are presented in the easiest possible way – just listen to a short video. The site is also equipped with index trackers, and it offers economic calendar and a daily newsletter if you subscribe. In general, Alpari specializes in Forex trading and precious metals. It offers its users Meta Trader 4 and Meta Trader 5 trading platforms. There are also educational video tutorials and even webinars, but to get advantage of them you have to register which is still free of charge.

However, back to the dilemma where to trade for profits and are private equities on a winning streak or on the verge of collapse, there a few facts that can’t remain unnoticed.

In recent months, gold trading is loosing luster as the global economic recovery advances, although slightly slower than some may wish for. Gold prices lost about 30% since the beginning of the year and in recent months remain range constrained awaiting signals for directions. In general, gold is perceived as a safe haven for investments and therefore investors tend to balance their portfolios by buying into gold mostly in times of uncertainties.

On the other hand, private equities might be slightly overdone in the short term. In Dubai, the market advanced more than 70% since the beginning of the year, which is an unprecedented development. However, every cycle has a beginning and an end. The end may come sometimes faster than expected and very painful. If you have been trading in 2008, you most probably know what this means. Catching a falling knife usually is not associated with profit makings, but with a fortunate avoidance of injury.  No matter how optimistic the perspectives of Dubai’s economy are and the global economic recovery, in general, there is no way the market will keep rising forever.

Some traders know when and how to preserve their capital and profits by lightening positions in the right time. Withdrawing the capital with a portion of the profits might be a smart move. Usually, the majority of equity traders opt to block profits in real estate, but the prices of ready-to-move-in properties nearly doubled in Dubai during the past two years. Placing assets in off-plan properties is risky, because the mortgage interest rates now are low, but this may not be the case in the coming years. With diluted rental yields  due to the high cost and possible delivery delays, investments in off-plan property do not look very lucrative for investors. For traders, such scenarios look even less promising, as they look for faster profits. No one wants to be stuck in a 10-year long investment plan with a potentially low return on investment rate.

Currency trading, however, now is becoming very interesting as the US dollar is losing investors trust. However, one should be really quick to catch up. Online trading is a virtual activity and in the virtual world many developments occur at extremely fast pace, especially when it comes to big chunks of money. Before all, online trading is not like making friends for a tea party, but rather like dog eats dog. If you don’t act fast, you may lose your money in a flash.

Having into consideration the above, at present silver seems to be one of the best options for traders. In comparison to gold, the white metal is extremely undervalued. On the other hand, with the economic recovery gathering pace, the demand is increasing. Silver is known for its dual use, although is not a subject of central banks buying as gold. Industrial demand from Asia will continue increasing thanks to the still rapidly expanding economies of China and India. The demand for silver jewelry from the same countries will also grow with the rise of the middle class and its improved spending capabilities. Therefore, in our opinion, trading in silver at present seems as a safe and profitable option. In addition, the white metal is infamous for its volatility and it can jump by 10% to 25% in a short term. But volatility offers profit opportunities ant this is the main goal of traders, and speculators as well.

The answer of the question ” Should we be overweight or underweight in equities?” is not simple at all and it depends on ones location, capital, experience and knowledge. In our views, blue chips in all markets have a good potential on the long run, while trading in currencies and silver seems more profitable in the short term.

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