India’s economy has momentum powered by internal consumption. This means more predictability and less exposure to headline-grabbing trade disruptions. PHOTO: AFP
GROUCHO Marx once quipped, “While money can’t buy happiness, it certainly lets you choose your own form of misery.”
In today’s global markets, that “misery” can come in the form of uncertainty, volatility, and sleepless nights – unless you’re invested with a clear strategy.
We’re living through one of the most unusual moments in modern economic history. The United States, long the world’s leading economic power, still sits at the centre of global finance. But its strength is under pressure – due to rising government debt, stubborn inflation and fiercely divided socio-political environment.
Even the independence of the US Federal Reserve, meant to keep monetary policy above politics, appears less certain, adding more unpredictability to markets.
US: hard to avoid, hard to depend on
For decades, US assets – Treasury bonds and the US dollar – have been cornerstones of global portfolios, backed by innovation, technology, economic muscle and military power. Yet, doubts are growing about the ability of US to manage its challenges. What happens if the US faces a period of slow growth and high inflation (stagflation) or even recession?
There’s no easy fix for America’s debt addiction, but it’s important to note that the high debt burden isn’t just an American issue. Countries like France, Italy, Spain, Japan, and China all have debt-to-GDP ratios above 100 per cent.
Many developed nations are living beyond their means. Inflation, fiscal strain, or sudden shocks could undermine confidence in these governments’ ability to service debt, driving investors away and pushing their bond prices lower.
At the same time, global investors have few truly credible alternatives. “De-dollarisation” or a shift away from the USD is happening, especially among some central banks, but only to a point. Most investors and institutions can only hold so much Euro, British Pound, or Singapore dollar before running into liquidity and capital flow issues.
That’s why the US dollar remains dominant, still making up about 58 per cent of global foreign exchange reserves. Furthermore, nearly all major global commodities – oil, metals, agricultural products – are priced exclusively in US dollars. Thus, while the USD could weaken, it remains the foremost reserve currency of the world.
Alternative assets
With traditional currencies and government bonds under pressure, investors are looking to precious metals, cryptocurrencies, and real estate investment trusts (Reits) as part of their alternative asset allocation.
Gold has long served as a haven, a store of value when trust in government-issued money wavers. While gold’s popularity has surged, silver, its less shiny cousin is playing catch up and is likely to see increasing interest as a hedge against inflation worries and currency debasement.
Cryptocurrency is newer, far more volatile, and comes with its own risks. But it’s now easier to access through regulated, liquid exchange-traded funds (ETFs) especially for Bitcoin and Ethereum. Given the evolving regulation for coins and blockchain assets, building small, cautious positions could serve the interest of sophisticated investors.
Reits too deserve a firm place in modern portfolios. These funds allow investors to hold income-generating property across the globe, from offices in Singapore to logistics parks in Indonesia, and data centres in Sydney. They offer regular income via rent, potential value growth, and useful diversification outside traditional stocks and bonds. With changing real estate patterns post-pandemic and interest rates stabilising in some regions, Reits offer both resilience and steady yields for investors.
Beyond alternatives, it’s equally important to hold a diversified portfolio of global equities, with a focus on high-quality companies that generate consistent cash flows and maintain manageable debt levels. Such businesses are better positioned to weather economic cycles and preserve long-term value.
For accredited and sophisticated investors, a well-structured portfolio might carry 20 to 25 per cent in alternative assets, a blend of precious metals, large liquid crypto ETFs, and global REITs. This mix cushions volatility in stocks and bonds, and hedges against currency risk, provided you’re aware of liquidity and risk factors.
Countries with real engines of growth
Global investing isn’t just about old powerhouses or volatile alternatives. Certain countries offer something different: strong internal engines of growth driven by domestic demand.
India stands out: A young, dynamic population, a rising middle class, and a vibrant tech sector drive growth more from within than from global trade swings. Indonesia is also reshaping its path, as booming homegrown demand and economic reforms build resilience.
Unlike economies dependent on exports – and prone to trade disputes and tariff wars – India and Indonesia have momentum powered by internal consumption. This means more predictability and less exposure to headline-grabbing trade disruptions. Thanks to a relative lack of correlation with US and European markets, India and Indonesia are particularly appealing to investors seeking a more balanced portfolio across the full business cycle.
Diversification still wins
Investors today face countless uncertainties including fragmented global trade, tariff battles, even armed conflict. Growth is slowing in places with ageing populations like Europe, China, and Japan.
Betting everything on one market, asset, or currency is risky business. The most reliable long-term approach is diversification, spreading investments across countries, asset types, and currencies, including alternatives like Reits.
Once you have a balanced mix that fits your risk tolerance, resist the urge to tweak it every time markets wobble. More often than not, knee-jerk changes cut potential gains and add unnecessary stress.
Here are some practical guidelines
- Balance global exposure. Include US assets, but don’t ignore their vulnerabilities
- Stay realistic about escaping the US dollar. There are few true substitutes with such liquidity and trade usage.
- Add alternatives thoughtfully. Gold, silver, Reits, and select crypto ETFs offset pressures facing conventional currencies, especially the US dollar.
- Back growth engines. Invest in countries like India and Indonesia, where domestic demand fuels a degree of stability.
- Hold high-quality equities. Focus on global businesses with strong cash flows and manageable leverage for added resilience.
- Stick to a clear plan. Adjust your portfolio only if your own needs or market fundamentals require it, not because headlines shout for attention.
You don’t ride out a storm by betting on sunshine. What counts is having a sturdy boat, a reliable compass, and the nerve not to jump ship as the waves build.
Old anchors may shake, but new engines are roaring to life. Diversify and stay disciplined. Let time work for you and make your portfolio your lifejacket in turbulent waters. That’s not just smart investing; that’s survival.
The writer, CFA, is global head and CEO, UTI International.