Investors cautioned about global risks in a domestic portfolio: PrimaryMarkets

Investors cautioned about global risks in a domestic portfolio: PrimaryMarkets

Australian domestic investors would be foolish to ignore global risks and crises, which can have significant implications on local investments, Executive Chairman of trading platform for unlisted companies PrimaryMarkets, Jamie Green cautions.

“Global risks such as economic downturns, geopolitical tensions and conflicts, and exchange rate fluctuations, all have the very real potential to adversely impact various aspects of individual businesses, the local economy, financial markets and, in fact, the entire economy more broadly,” Green said.

For example, geopolitical tensions and political instability in trading partners can disrupt global supply chains, negatively affecting local businesses that rely on international trade or sourcing for inputs.

And as the Covid pandemic highlighted, a global health crisis has the capacity to impact something as seemingly unrelated as the supply of new vehicles, due to a shortage in semi-conductors.

It is vital that investors consider global risks, alongside other risks, when putting together their investment portfolios, Green said.

“Diversification is key if investors want to insulate themselves from global risks as much as possible. This includes diversification across asset classes, geographies, industries and even company sizes.”

“Investing in companies of varying sizes, including large-cap, mid-cap, and small-cap stocks is prudent as different-sized companies can respond differently to economic and market conditions,” Green added.

Regardless of whether or not investors seek advice – either from a financial adviser or stockbroker – they should still conduct their own research on the companies they are looking to invest in and be aware of global economic developments, as well as trends in various industries.

Investors can also employ risk management strategies such as currency hedging, which reduces exposure to currency fluctuations, and dollar cost averaging, which is the practice of investing a fixed amount of money at regular intervals regardless of market conditions.

“Remember that risk management is not about eliminating all risks but rather about managing them in a way that aligns with your investment objectives and risk tolerance. It’s essential to have a well-thought-out investment plan and to periodically review and adjust your plan and portfolio as your financial circumstances and market conditions change,” Green ended.